There is a problem.There is a problem.

What can you expect What can you expect from the legislature from the legislature

this year?this year?

The stability of a republican form of government The stability of a republican form of government dependingdepending

mainly upon the intelligence of the people, it is the duty mainly upon the intelligence of the people, it is the duty of of

the legislature to establish a general and uniform the legislature to establish a general and uniform system of system of

public schools. The legislature shall make such public schools. The legislature shall make such provisionsprovisions

by taxation or otherwise as will secure a thorough andby taxation or otherwise as will secure a thorough and

efficient system of public schools throughout the state. efficient system of public schools throughout the state.

Minnesota ConstitutionMinnesota Constitution

Article XIII, Section 1Article XIII, Section 1

Financing Education in Financing Education in MinnesotaMinnesota

School districts receive funding from School districts receive funding from state aid, local property taxes, and some state aid, local property taxes, and some federal dollars. federal dollars.

State aid comes primarily from sales and State aid comes primarily from sales and income taxes and represents about 85% income taxes and represents about 85% of total revenue received by schools.of total revenue received by schools.

Local aid comes from local property Local aid comes from local property taxes.taxes.

How are schools funded?How are schools funded?

The legislature sets the amount for: The legislature sets the amount for:

the basic general education formula the basic general education formula allowanceallowance

other general education componentsother general education components categorical aid formulascategorical aid formulas Operating levies are decided by local Operating levies are decided by local

voter voter approval. approval.

The Basic Education The Basic Education FormulaFormula

Referred to as the “basic formula”Referred to as the “basic formula”

Calculated on a “per-pupil” basisCalculated on a “per-pupil” basis

The amount is set by the legislature The amount is set by the legislature and establishes the minimum level of and establishes the minimum level of funding for school districts.funding for school districts.

The current basic formula is $4,601The current basic formula is $4,601

A few more things you A few more things you should know about the should know about the basic formula revenue…basic formula revenue…

Actual students are weighted before Actual students are weighted before figuringfiguring

a district’s basic education revenuea district’s basic education revenue

Kindergartners = .557Kindergartners = .557 Grades 1-3 = 1.115Grades 1-3 = 1.115 Grades 4-6 = 1.06Grades 4-6 = 1.06 Grades 7-12 = 1.3Grades 7-12 = 1.3

Property Tax Reform and Property Tax Reform and the Basic Formulathe Basic Formula

Until 2001, the basic formula was a combination Until 2001, the basic formula was a combination of state aid and local property taxes. of state aid and local property taxes.

In 2001, legislation was passed making the state In 2001, legislation was passed making the state

responsible for funding 100% of the formula. responsible for funding 100% of the formula.

Note: we had a budget surplus.Note: we had a budget surplus.

Local property taxes went downLocal property taxes went down significantlysignificantly as state aid replaced the property as state aid replaced the property tax portion of the formula. tax portion of the formula.

But, there was one But, there was one problem…problem…

The legislature only passed the first The legislature only passed the first part of the property tax reform—the part of the property tax reform—the part that makes the state responsible part that makes the state responsible for funding 100% of the basic for funding 100% of the basic formula. formula.

The second half, The second half, which would have which would have created a new revenue stream created a new revenue stream to pay for these reforms,to pay for these reforms, was was never passed. never passed.

““The state crisis wasn’t The state crisis wasn’t inherited, inherited,

it was self inflicted.”it was self inflicted.”

““Although the recession worsened the problem, school Although the recession worsened the problem, school funding takeover and property tax reform created over funding takeover and property tax reform created over one-half of the deficit, because state taxes weren’t one-half of the deficit, because state taxes weren’t restructured. The state doubled their 2004-05 problemrestructured. The state doubled their 2004-05 problemby temporarily patching the 2003 budget with one-timeby temporarily patching the 2003 budget with one-timefixes.”fixes.”

John GunyouJohn Gunyou Finance Commissioner Finance Commissioner under Governor Arne Carlsonunder Governor Arne Carlson www.gunyou.comwww.gunyou.com

Operating LeviesOperating Levies

Voter approved operating levies provide Voter approved operating levies provide additional operating revenue for school additional operating revenue for school districts.districts.

Once called an excess levy that primarily Once called an excess levy that primarily funded “extras,” operating levies now fund funded “extras,” operating levies now fund basic classroom expenditures because the basic classroom expenditures because the formula has not kept up. formula has not kept up.

Unlike the basic formula, which is all state Unlike the basic formula, which is all state aid, local property taxes fund 100% of an aid, local property taxes fund 100% of an operating levy in ISD #834. operating levy in ISD #834.

Unfunded MandatesUnfunded Mandates

State and federal dollars only partially State and federal dollars only partially fund the cost of services which are fund the cost of services which are mandated under state and federal mandated under state and federal law. law.

In most school districts, general In most school districts, general education revenue is used to subsidize education revenue is used to subsidize these services. these services.

The special education cross-The special education cross-subsidy subsidy

While special education costs continue to While special education costs continue to climb, the state froze funding for special climb, the state froze funding for special education in 2003. This helped balance the education in 2003. This helped balance the state budget, but because these services are state budget, but because these services are mandated, school districts had to find the mandated, school districts had to find the money somewhere.money somewhere.

The special education cross-subsidy in ISD 834 The special education cross-subsidy in ISD 834 is approximately is approximately $395$395 per student per student -- which -- which means that instead of $4.1 million in general means that instead of $4.1 million in general fund dollars supporting regular class room fund dollars supporting regular class room instruction, it is used to subsidize special instruction, it is used to subsidize special education. education.

What can you expect from What can you expect from the Legislature?the Legislature?

The budget forecastThe budget forecast Is there a surplus? Is there a surplus? What does one time money mean?What does one time money mean?

ProposalsProposals Formula increasesFormula increases Funding the special ed cross-subsidyFunding the special ed cross-subsidy All-day Kindergarten and early childhood All-day Kindergarten and early childhood The next five weeksThe next five weeks

The Economic ForecastThe Economic Forecast

A forecast of future state revenue A forecast of future state revenue and expendituresand expenditures

A critical tool for legislators in A critical tool for legislators in budgeting and understanding the budgeting and understanding the state’s financial health state’s financial health

Determines if the state has a deficit Determines if the state has a deficit or a surplus or a surplus

What make Minnesota What make Minnesota unique?unique?

Minnesota is the only state in the nation Minnesota is the only state in the nation that…that…

uses inflation to adjust the state’s revenues, but

prohibits considering the impact of inflation on most state expenditures when forecasting the size of the state’s general fund balance.

In the real world…In the real world…

……inflation affects both revenues and expenditures.inflation affects both revenues and expenditures.

No business would forecast its performance by No business would forecast its performance by

assuming that revenue will rise in future years and assuming that revenue will rise in future years and

expenses will stay flat. Businesses know that the expenses will stay flat. Businesses know that the

things they pay for (labor, parts, services, rent, etc) things they pay for (labor, parts, services, rent, etc)

are likely to rise over the course of two years. are likely to rise over the course of two years.

February 2007 ForecastFebruary 2007 Forecast

$1.0 billion balance in FY 06-07 --considered one time money as it is not ongoing

$2.2 billion balance in FY 2008-09 -- Includes $1.0 billion in one time money from FY

06-07 -- 1.2 billion balance unique to FY 2008-09**

Check the fine print of the forecast: Minnesota's much

heralded budget surplus does not exist.

**Inflation costs for FY 2008-09 = $1.0 - $1.2 billion

The 9% increase in The 9% increase in spending…spending…

isn’t that more than isn’t that more than enough?enough?

A biennium and budget cycle covers two years.A biennium and budget cycle covers two years.

From July 1, 2007 to June 30, 2009, state From July 1, 2007 to June 30, 2009, state revenues are projected to increase revenues are projected to increase approximately 9.1%approximately 9.1%

Note: that is not an increase of 9% per year. Note: that is not an increase of 9% per year.

This increase in revenue could support a cost of This increase in revenue could support a cost of living adjustment of approximately 3% per year.living adjustment of approximately 3% per year.

Let’s do the math…Let’s do the math…

A 3% cost of living adjustment costs 3% more in the A 3% cost of living adjustment costs 3% more in the first year. first year. 2007-08: $100 x 3% = 2007-08: $100 x 3% = $3$3

Maintaining that same 3% increase in the second Maintaining that same 3% increase in the second year year

of the biennium would cost another $3. of the biennium would cost another $3. 2008-09: 2008-09: $3$3

In order to provide a cost of living increase in theIn order to provide a cost of living increase in thesecond year of the biennium, it would cost another second year of the biennium, it would cost another

3%. 3%. 2008-09: $103 x 3% = 2008-09: $103 x 3% = $3.10$3.10

Legislative PrioritiesLegislative Priorities

$1 billion in ongoing revenue -- $1 billion in one time $1 billion in ongoing revenue -- $1 billion in one time moneymoney

K-12 EducationK-12 Education Early Childhood / Learning ReadinessEarly Childhood / Learning Readiness Higher EducationHigher Education

Property Tax ReliefProperty Tax Relief

Long Term Care Cost of Living AdjustmentsRestoring Cuts to Long Term Care Cost of Living AdjustmentsRestoring Cuts to Child Care Initiatives and Minnesota CareChild Care Initiatives and Minnesota Care

Veterans and Reintegration IssuesVeterans and Reintegration Issues

Environment and Clean Water InitiativesEnvironment and Clean Water Initiatives

E - 12 Legislative ProposalsE - 12 Legislative Proposals

Pay back part of the special education cross-Pay back part of the special education cross-subsidysubsidy

Cost: $500 million Cost: $500 million

Increase the basic formula by 2-3% in each year Increase the basic formula by 2-3% in each year Cost: $290 - $440 millionCost: $290 - $440 million

All day kindergartenAll day kindergarten Cost: $245 millionCost: $245 million

Early Childhood & Learning Readiness ProgramsEarly Childhood & Learning Readiness Programs Cost: $65 millionCost: $65 million

House and Senate House and Senate ProposalsProposals

~best case scenarios~~best case scenarios~

House over current base for ISD #834House over current base for ISD #834 2007-08: $ 244 2007-08: $ 244

2008-09: $ 6772008-09: $ 677

Senate over current base for ISD #834Senate over current base for ISD #834 2006-07 $ 115 (2006-07 $ 115 (special education base/excess costs)special education base/excess costs)

2007-08 $ 2742007-08 $ 274

2008-09 $ 4342008-09 $ 434

The next five weeks…The next five weeks… The Senate passed its major funding bills in March. The Senate passed its major funding bills in March.

The House will pass its major funding bills this week.The House will pass its major funding bills this week.

Conference committees will be named and negotiate Conference committees will be named and negotiate the difference between the House and Senate bills. the difference between the House and Senate bills.

Negotiations will begin with the Governor.Negotiations will begin with the Governor.

Conference Committee bills need to pass the House Conference Committee bills need to pass the House and Senate and will then be sent to the Governor. and Senate and will then be sent to the Governor.

The Legislature must adjourn by May 21, 2007. The Legislature must adjourn by May 21, 2007.

Will it be enough?Will it be enough? No.No.

Even with a mix of increased formula dollars, Even with a mix of increased formula dollars,

a greater commitment to pay the bill for the a greater commitment to pay the bill for the

special education cross subsidy, and limited special education cross subsidy, and limited

new dollars to fund all-day kindergarten and new dollars to fund all-day kindergarten and

early childhood programs, any legislation early childhood programs, any legislation

passed in 2007 will not be enough to make passed in 2007 will not be enough to make up up

for the loss of our existing operating levy.for the loss of our existing operating levy.