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