finance update back to school msba conference
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1
Finance Update
Back To School MSBA Conference
Minnesota Department of Education
August 13, 2009
2
Topics for Discussion
• Recent School Finance Trends – Enrollments, Staffing, Expenditures, Financial
Condition, Revenues, State & Local Shares of Funding
• 2009 Changes:– Legislative Actions– Executive Actions
• Outlook for the Future
3
STATE TOTAL AVERAGE DAILY MEMBERSHIP
0
200,000
400,000
600,000
800,000
1,000,0001
96
0
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
Uncapped Capped
4
Portion of Students in Charter Schools
1.2%1.4%
1.7%2.1%
2.5%2.9%
3.4%3.9%
4.3%4.7%
0%
1%
2%
3%
4%
5%
6%
FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
5
Percent Change in Adjusted Pupil Units FY 2003 - 2010
53
40
55 55
49
33
16
11
7
18
0
10
20
30
40
50
60
Decrease20% ormore
Decrease15%-20%
Decrease10%-15%
Decrease5%-10%
Decrease0%-5%
Increase0%-5%
Increase5%-10%
Increase10%-15%
Increase15%-20%
Increase20% ormore
Nu
mb
er o
f D
istr
icts
6
Percent Change in Enrollment, FY 2003 – FY 2009School Districts and Charter Schools
2003 2009 % Change
Total Enrollment:
School districts 825,585 793,886 -3.84%
Charter Schools 12,144 32,776 169.89%
All Public Schools 837,729 826,662 -1.32%
Demographics – All Public Schools:
Special Education 108,587 116,884 7.64%
Free & Reduced 229,503 270,206 17.74%
LEP 51,177 63,627 24.33%
Students of Color 157,840 183,600 16.32%
7
Demographic Trends, FY 2003 – FY 2009School Districts and Charter Schools
School Districts Charter Schools All Public Schools
2003 2009 2003 2009 2003 2009
Special Education 13.0% 14.2% 12.2% 12.0% 13.0% 14.1%
Free & Reduced 27.0% 31.8% 54.6% 53.5% 27.4% 32.7%
LEP 6.0% 7.2% 13.0% 18.8% 6.1% 7.7%
Students of Color 18.4% 23.1% 50.6% 51.4% 18.8% 24.3%
8
PUPIL - TEACHER RATIOS1996 - 2009
17.116.5
16.215.7
15.2
15.616.1
16.1
16.1
16.0
16.1
15.9
15.8
15.8
19.0
19.019.3
19.4
20.5
19.3
18.818.3
18.3
19.2
19.2
19.3
19.2 19.2
14.0
15.0
16.0
17.0
18.0
19.0
20.0
21.0
22.0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Fiscal Year
Including Special Educ Excluding Special Educ
9
General Fund Expenditures by Program
FY 2004 FY 2008 Change
Regular Instruction 47.1% 46.2% -0.9%Career & Tech Instruction 1.5% 1.5% 0.0%Special Education 16.7% 17.4% 0.7%Subtotal, Instruction 65.4% 65.1% -0.3%
Administration 8.5% 8.3% -0.2%
Instr Support Services 4.4% 4.7% 0.3%Pupil Support Services 3.0% 2.7% -0.3%
Operation, Maint & Other 8.2% 8.3% 0.1%Student Transportation 5.4% 5.8% 0.4%Capital Expenditures 5.2% 5.1% -0.1%
10
UNRESERVED GENERAL FUND BALANCE OF SCHOOL DISTRICTS AND CHARTER SCHOOLS AS PERCENT OF EXPENDITURES
11.6%
13.5%
12.5%
8.3%8.8%
10.8%
11.9%11.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2001 2002 2003 2004 2005 2006 2007 2008
11
PERCENT OF SCHOOL DISTRICTS AND CHARTER SCHOOLS WITH NEGATIVE FUND BALANCES AND IN SOD
(calculations for FY 1997 - 1999 include all operating funds; calculations for FY 2000 - 2006 reflect general fund only)
7.3%
9.0%9.3%
7.5%6.5%7.0%
8.7%
7.8%
13.4%
17.7%
16.6%
13.4%
3.6%
4.9%4.1%
5.0%5.5%5.8%5.1%
4.0%
8.2%8.0%
9.7%
10.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Negative Fund Balance In SOD (Deficit > 2.5% of Expend.)
12
STATE AVERAGE ANTC/AMCPU
3,631
4,097
4,665
5,233
5,814
6,461
7,1727,520 7,489
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
13
CONSUMER PRICE INDEX ANNUAL PERCENT CHANGE
July 2009 Estimate
3.0%
2.6%
1.4%
0.5%
2.2%
3.7%
2.2% 2.2%
3.8%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
14
K-12 EDUCATION REVENUE PER ADMCURRENT DOLLARS, FY 2003 - 2011
End of 2009 Legislative Session Estimates
7,0857,0607,105
6,1356,119
6,164 6,4396,783
6,977
8,1648,0067,982
6,6336,484 6,7767,085 7,507
7,759
9,8699,6269,6609,356
7,7127,898 7,996
8,3198,776
13,41812,624
12,268
9,907 10,255 10,48011,022
11,572
13,081
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
GEN ED REVENUE EXCL REF GEN ED REVENUE INCL REFERENDUMGEN FUND STATE AIDS & LEVIES ALL FUNDS ALL SOURCES
15
K-12 EDUCATION REVENUE PER ADMADJ FOR INFLATION (2009 $), FY 2003 - FY 2011
End of 2009 Legislative Session Estimates
6,9597,0787,1057,222 7,0667,1246,9386,8957,049
8,0198,0267,9827,633 7,641 7,578 7,634 7,885 7,858
9,6939,6519,6609,4759,2188,9648,9439,0999,079
12,847
13,452
12,624
11,663
12,42312,15411,87711,72211,814
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
GEN ED REVENUE EXCL REF GEN ED REVENUE INCL REFERENDUMGEN FUND STATE AIDS & LEVIES ALL FUNDS ALL SOURCES
16
17
PERCENT CHANGE IN GENERAL ED REVENUE PER ADM INCLUDING REFERENDUM FY 2003 - 2010 BY STRATUM
25.5%
28.0%
20.3% 20.2%21.3%
19.9%
15.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
MPLS & ST PAUL OTHER METRO NONMET>=2K NONMET 1K-2K NONMET 500-1K NONMET<500 CHARTERS
18
FY 2010 GENERAL EDUCATION REVENUE PER ADM BY STRATUM EXCLUDING THE STIMULUS REDUCTION
0
2,000
4,000
6,000
8,000
10,000
12,000
MPLS & ST PAUL OTHER METRO NONMET>=2K NONMET 1K-2K NONMET 500-1K NONMET<500 CHARTER
Basic Basic Skills Q Comp Ext Time Spars Tran Spar Other Referendum
19
Referendum Election Trends
• Year # Quest. $ Request $ Approved $ %
• 2000 71 107M 68M 63%• 2001 207 279 110
39• 2002 111 185 134
72• 2003 117 115 76 66• 2004 89 54 20 37 • 2005 106 84 67 80• 2006 86 136 64 48• 2007 132 250 167 67 • 2008 68 129 78 61
20
RATIO OF 95TH TO 5TH PECENTILES BASIC + REFERENDUM + EQUITY REVENUE PER PUPIL UNIT
1.371
1.352
1.352
1.304
1.299
1.298
1.310
1.3061.285
1.268
1.205
1.186
1.208
1.214
1.202 1.239
1.2471.262
1.278
1.000
1.050
1.100
1.150
1.200
1.250
1.300
1.350
1.400
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
21
SPECIAL EDUCATION EXPENDITURES AND REVENUESINCLUDING GEN EDUC REVENUE ATTRIBUTABLE TO SPECIAL EDUCATION
909
2,001
1,910
937 1,013
1,0681,134
1,215
1,2791,352
1,432
1,829
1,7471,653
1,5771,507
1,278
1,225
1,279
1,2271,0991,070
912
890853
818767
724666584
-
500
1,000
1,500
2,000
2,500
FY1999
FY2000
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
S M
illi
on
s
Expenditures Revenues
22
SPECIAL EDUCATION CROSS SUBSIDIES
520
685
724
550520
554
507
599
462
426397
367345347352
0
100
200
300
400
500
600
700
800
FY1999
FY2000
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
$ M
illi
on
s
23
SPECIAL EDUCATION REVENUESINCLUDING GEN EDUC REVENUE ATTRIBUTABLE TO SPECIAL EDUCATION
AS A PERCENT OF EXPENDITURES
62.4%63.9%
64.1%
69.9%70.2%
66.5%
67.9%
60.3%
65.8%
66.7%67.4%
67.6%
67.7%65.8%
63.7%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
FY1999
FY2000
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
24
SPECIAL EDUCATION CROSS SUBSIDY PER WADM BY STRATA, FY 2008
808
497 493 485 484449
0
100
200
300
400
500
600
700
800
900
MPLS & ST PAUL OTHER METRO NONMET>=2K NONMET 1K-2K NONMET 500-1K NONMET<500
25
STATE SHARE OF STATE-LOCAL TAX REVENUE FOR K-12 EDUCATION
75%75%78%79%83% 82% 80%
84%86%
71%73%70%
66%61%
83%85%87% 85%87%89%90%91%93%
77%77%75%
64%70%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Fiscal Year
All Funds School District General Fund
26
STATE SHARE OF STATE-LOCAL TAX REVENUE Selected Equalized Levy Programs
26%
19%
23%25%
18%
23%
33%
35%34%34%34%
12%
16%
9%8%
3%4%5%
6%6%
5%7%
8%9%10%
2%1% 1% 1%
0%0%1%2%
4%6%
12%
18%19%
22%
0%0% 0%0%
5%
10%
15%
20%
25%
30%
35%
40%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Fiscal Year
Referendum Debt Service Health & Safety
27
STATE SHARE OF OPERATING CAPITAL REVENUE
36%36%
100%
79%77%
47%43%
38%
0%
20%
40%
60%
80%
100%
120%
2004 2005 2006 2007 2008 2009 2010 2011
Fiscal Year
28
2009 E-12 Education Act K-12 SPENDING SUMMARYFY 10 – 11 Biennium
FY 2010 State General Educ Aid Reduction ($500,000,000)Federal Fiscal Stabilization Funds Replacing State Aid 500,000,000
Reduction to MDE Agency Budget (3.7%) (1,500,000)
Minnesota Reading Corps 750,000Math & Science Teacher Academy 750,000
Total Change $ 0
29
GENERAL EDUCATION REVENUE FY 2009 vs FY 2010 and Later
Districts & Charter Schools Lose:• One-Time Additional General Educ Aid of $51 / PU
and • One-Time Technology & Operating Capital Aid of $55 /
PU
Districts Gain: $27 million (about $33 / resident ADM) from elimination
of endowment subtraction enacted in 2008
30
BUDGET FLEXIBILITYFY 2010 and FY 2011
• Requirement to reserve 2% of Basic Revenue for staff development is waived for FY 2010 and FY 2011– District & site staff development committees are still required
to complete a staff development plan and submit an annual report on staff development activities & expenditures
• Allows districts to transfer up to $51 per pupil unit from operating capital account to unreserved general fund in FY 2009 and in FY 2010 (previously authorized for FY 2008 only)
31
MOE Requirement for Licensed Support Staff
Under existing law:
• Beginning in FY 2010, districts required to maintain effort at FY 2009 level for licensed school support staff, including guidance counselors, nurses, social workers, psychologists, and alcohol/chemical dependency counselors from all funding sources other than safe schools levy
New legislation:
• Modifies maintenance of effort requirement by allowing districts to calculate MOE using either (1) expenditures or (2) number of FTE licensed school support staff
• In determining the number of full-time equivalent employees, do not include contracted services. Contracted services would only be included in total spending.
32
Other Post Employment Benefits (OPEB) Bonding and Levy
• OPEB Bonds sold after October 1, 2009, must be approved by voters
• Creates new levy for school districts to fund annual costs associated with OPEB, limited to $9 million for taxes payable 2010, and $30 million for taxes payable 2011, with an increase of $14 million in the limit each year thereafter (Commissioner must prorate levy if requests exceed cap)
• Requirements: – Create an actuarial liability to pay OPEB– Sunset clause in effect for current collective
bargaining period– Apply for levy authority to commissioner
33
Charter Schools
Multiple changes to sponsorship, school formation, and governance• Clarification of “conflict of interest” related to board and leases• Clarification of charter contract requirements• Clarification regarding exemption from statute and rule• Allows state aid reduction for violation of law• Changes allowed sponsor fees and requires a sponsor report
regarding sponsor activities• Provides for payments of an equal amount for all charter schools on 24
payment dates rather than 23• Establishes procedure for state aid payment close-out of closed or
closing charter schools• Allows the commissioner to withhold state aid for federal or state funds
not returned upon request, or for unpaid amounts due to another state agency, a school district, or educational cooperative
34
Superintendent’s Report on Expenditures and Passage Rates
• Repealed effective the day following final enactment
35
Integration Revenue
• Adds Mpls, St Paul & Duluth to requirement to submit integration budget to MDE for approval
• Modifies uses of integration revenue to include sustained interracial contacts, and improved educational opportunities designed to close the achievement gap
• Requires MDE to study districts’ use of and need for integration revenue, with report to legislature by Feb 1, 2011
36
Review and Comment on Facilities ConstructionProhibits the Commissioner of Education from issuing an unfavorable or
negative review & comment based solely on:– Too little acreage, or– The ratio of renovation costs to replacement costs
• Increases the threshold for review & comment from $500,000 to $1.4 million, except for districts with an outstanding capital loan– Increases the threshold for consultation from $250,000 to $500,000
• Expands info required for R&C to include: – a description of pedestrian, bicycle and transit connections – information on how the proposal maximizes cooperative use of existing
park recreation and other public facilities, and– Any existing info from the local unit of government on cumulative costs to
proved infrastructure to serve the school such as utilities, sewer, roads & sidewalks
37
Accounting for Separation and Retirement Benefits
• Clarifies accounting requirements for designated separation and retirement benefits
– Designated for separation & retirement benefit account (BAL 418) includes compensated absences, termination benefits, pension benefits and OPEB not accounted for elsewhere
– BAL 418 will no longer be limited to 50% of the amount necessary to meet obligations for the portion of severance pay that constitutes compensation for accumulated sick leave
– MDE will eliminate BAL 411 (Reserve for Severance) beginning with FY 2010 reporting
38
Separation and Retirement Benefits
• UFARS Balance Sheet Account 418– Designated account– No longer limited to 50%– Will continue to be used as unreserved/undesignated for
Statutory Operating Debt (SOD) calculation
• UFARS Balance Sheet Account 411 – Reserve account – Not used in SOD calculation– Does not have statutory authority – Does not comply with the applicable Governmental Accounting
Standards Board (GASB) Statements. – Account will be eliminated in FY 2010
39
Transportation
• Modifies bill passed in 2008 that established regulations for drivers of Type 3 vehicles– All type 3 drivers must undergo background check, have
license verified annually by employer, notify employer if convicted of certain DWI and traffic offenses
– Clarifies exemption from physical exam and drug test for district employees not employed for the sole purpose of operating a type 3 vehicle
– Note: Same language passed in separate bill and signed into law – Chapter 24
40
Tax Policy ActTruth in Taxation
Districts no longer required to hold separate TNT meeting– Instead discuss at regularly scheduled board
meeting– Announce meeting date when proposed levy is
adopted– Meeting date also noted on TNT notices– Must discuss levy and budget
41
UFARS Changes
• Major UFARS changes in FY 2010:– New finance codes to track the American Recovery and
Reinvestment Act– New finance codes to track federal competitive awards in
SERVS– New finance and object codes to track special education activity
that once was collected in EDRS (no longer available in SERVS)– New course codes to track AYP set-asides for Title programs– New course codes to track the award year of all federal awards– New course code to track the special education maintenance of
effort provision
42
Executive Actions to Balance State Budget
• State Aid Payment Deferral
• Property Tax Revenue Recognition Change
• One-Time Aid Adjustment for Property Tax Revenue Recognition Change
43
State Aid Payment Deferral
For FY 2010 and FY 2011 only:• All state aids normally paid on a 90 -10
schedule will be changed to a 73 - 27 schedule
• Reduction in current aid payments is spread fairly evenly throughout the fiscal year
• Final payments will be increased to offset the reduction in current payments
44
State Aid Payment Deferral – SOD
• For districts and charter schools in Statutory Operating Debt as of 6/30 of the previous fiscal year, the amount of the deferral will be reduced by the lesser of:– 17% of general education aid (the difference between 90%
and 73%), or– The amount of the district or school’s SOD.
• For a district or charter school where the amount of SOD exceeds 17% of general education aid, the payment schedule for general education aid will remain at 90 -10
• Other state aids will be paid at 73-27
45
State Aid Payment Deferral – SOD
• SOD status will be determined based on audited UFARS data after the November 30 deadline for data submission – Districts / charter schools in SOD as of 6/30/09
eligible for FY 2010 adjustment– Districts / charter schools in SOD as of 6/30/10
eligible for FY 2011 adjustment
• The general education aid adjustment for affected districts and charter schools will be made on June 20
46
State Aid Payment Deferral
• Final payments will be paid according to statutory schedule:– Property tax credits paid on August 15 – Other final payments:
• 30% August 30, • 40% September 30, • 30% October 30
• Cash Flow Simulation and annual aid entitlement estimates used for simulation for FY 2010 and FY 2011 are available on MDE Web site under Program Finance / MFR
• For additional Information, please refer to July 10 memo from Commissioner Seagren to Superintendents & Charter School Directors (copies sent to business managers & auditors)
47
Property Tax Revenue Recognition Change
• Beginning in FY 2011, school districts will recognize the May, June and July tax settlement revenue received during the calendar year in Funds 1 and 4, and not recognized early under MS 123B.75, subd. 5, paragraph (b), in June of the calendar year in which it is received, instead of July.
• In the absence of new legislation, this change will be permanent, and will be reflected in the UFARS manual
48
Property Tax Revenue Recognition Change• The change in levy recognition policy will create a
large increase in the amount of property taxes recognized by school districts as revenue during FY 2011.
• For FY 2012 and later, the impact of this change will be smaller, but still significant:– Districts with growing operating levies (e.g., new operating
referendum) will recognize the increase in May/June/July tax settlements earlier (50% of net levy proceeds)
– Districts with declining operating levies (e.g., expiring operating referendum) will recognize the decrease in May/June/July tax settlements earlier (50% of net levy proceeds)
49
One-Time Aid Adjustment for Property Tax Revenue Recognition Change
• State aid payments during FY 2011 will be reduced by the difference between the amount each district is estimated to recognize in FY 2011 under the new property tax revenue recognition policy, compared with the amount the district would have recognized in FY 2011 under the old property tax revenue recognition policy.
• This is a one-time adjustment to state aids for FY 2011 only, which will occur as late in FY 2011 as possible, to align with the receipt of the levy revenue
50
One-Time Aid Adjustment for Property Tax Revenue Recognition Change
• Barring a change in law, or an additional unallotment by the Governor during the next biennium, there will be no adjustment to state aids for the change in property tax levy revenue recognition during FY 2012 or later.
• While state policy makers may elect to reverse the property tax levy recognition change and pay back the amount of the FY 2011 aid reduction when the state’s budget outlook improves, without new legislation there will be no payback in FY 2012 or later.
51
Outlook for the Future
• The compromise that almost was enacted in 2009:
– House: Minnesota Miracle with Phase -In
– Senate: Consolidated General Education Levy
– Governor: Pay for Progress, Q Comp Statewide
• Was this a one-time opportunity lost, or will it be a blueprint for the future?
52
State Budget OutlookJuly 2009 - Executive Actions -- Dollars in Millions
FY 2010-11 FY 2012-13Beginning Balance $ 538 $ 350 Current Revenues 30,318 33,527 Other Resources 824 778
Total Resources Available 31,680 34,655
Expenditures – K-12 Before Shifts 13,393 14,348 K-12 Shifts (1,760) 1,159 All Other 19,697 21,120
Total Expenditures & Transfers31,330 38,627
Cash Flow Account 350 350
Budgetary Balance $ 0 ($ 4,431)
53
Outlook for the Future Given the state budget outlook, there are more questions than
answers:
– Can the Minnesota Miracle be enacted, even with a delay/extended phase-in?
– Will the aid payment schedule be restored to 90-10 in FY 2012, remain at 73-27, or go to some other level?
– Will the property tax shift be permanent?
– Will there be an increase in state taxes (income, sales)?
– Will there be a consolidated general education levy?
– Will reliance on operating referendum levies increase?
54
Outlook for the Future
• How can K-12 education be delivered more efficiently and effectively?
• Will there be an increase in school district consolidations?
• Greater pressure for shared services?• Movement toward a 4 day week?• Greater use of on-line learning?
55
If you have questions or need additional information
Tom Melcher, Program Finance DirectorPhone: 651-582-8828E-Mail: tom.melcher@state.mn.us
Lisa Barnidge, Government Relations Coordinator
Phone: 651-582-8663E-Mail: lisa.barnidge@state.mn.us
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