Despite Recent Increases, School Aid Remains Well Below FY 2003 Level


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Despite increases in recent years, real per pupil state operating aid to Minnesota school districts is still ten percent less than it was in fiscal year (FY) 2003. Over the same period, school property taxes have soared, although these property tax increases have not provided a net increase in real per pupil school district revenue, but have simply helped to backfill state aid cuts.

The following analysis and the information in the accompanying report examines trends in operating revenue, levy, and aid for each Minnesota school district and for all districts in aggregate based on data from the Minnesota Department of Education (MDE). (MDE divides total revenue into levy and state aid components; total revenue equals the sum of levies plus state aid.) The MDE data examined comprises nearly all school operating revenue.* Conversion to per pupil amounts is based on adjusted average daily membership. The dollar amounts in this article and the accompanying report are expressed in constant FY 2016 dollars.† Amounts for FY 2016 and 2017 are MDE projections based on current law.

The chart below tracks the change in total per pupil operating aid, levy, and revenue for all Minnesota school districts since FY 2003. FY 2003 is a suitable baseline for this analysis because it was a watershed year in terms of Minnesota school finances. In that year, school property taxes were cut in half and general education levies were massively reduced through a large infusion of state aid.

SD graph

In the years following FY 2003, state aid to school districts failed to keep pace with inflation. As a result, real per pupil state aid declined each year from FY 2004 to FY 2012, with one exception. (From FY 2007 to 2008, real per pupil aid increased by less than one-half of one-tenth of a percent). From FY 2003 to FY 2012, state aid declined by $1,915 per pupil (18.2 percent). As a result of this loss of state aid, school levies (i.e., property taxes) increased by $935 per pupil, effectively doubling from FY 2003 to FY 2012. Over the same period, total school district operating revenue fell by $979 (8.6 percent), as property tax increases were not sufficient to replace the drop in state aid.

State aid to school districts has rebounded somewhat since the nadir of 2012. From FY 2012 to FY 2017, state aid is projected to increase by $854 per pupil. This increase in state aid has allowed real per pupil revenue to increase relative to the FY 2012 level without any significant increase in real per pupil school levies. However, even after recent aid increases, state aid in FY 2017 is projected to be $1,061 per pupil (10.1 percent) less than in FY 2003. Meanwhile, real per pupil operating revenue in FY 2017 is projected to be within 0.3 percent of the 2003 level. While state aid is much less than it was in 2003, Minnesota property taxpayers have made up most of the difference.

SD graph 2.jpg

While increases in real per pupil state aid since FY 2013 are a welcome development for school districts, it must be noted that a substantial portion of the new revenue is not available to pay for general school operations, but is instead dedicated to specific new funding responsibilities. For example, the state aid increases enacted in recent years include dollars for all-day kindergarten and expanded services for pre-kindergarten children—funding responsibilities that districts did not have in FY 2003.

In addition to the responsibility to fund new services for kindergarten and pre-K students, school districts also have additional costs related to an increased concentration of special need students—such as students from immigrant backgrounds with limited English language skills. The special education cross subsidy (i.e., the amount that must be diverted from general education revenue to pay for mandated special education services that are not funded by the state or federal governments) has increased significantly faster than the rate of inflation since FY 2003.

In short, on a statewide basis school districts have additional expenses today that they did not have in 2003, but they do not have additional resources after adjusting for inflation.

The companion report to this article contains graphs similar to those above for each school district in Minnesota, as well as a table showing per pupil operating aid, levy, and revenue amounts for each school district for each year from FY 2003 to FY 2017. The revenue, aid, and levy trends that have impacted Minnesota school districts in aggregate are also apparent in the trends of individual districts. For example, 93 percent of Minnesota’s 332 school districts are projected to receive less real per pupil aid in FY 2017 than they did in FY 2003—and in 78 percent of districts this decline is expected to exceed five percent. In addition, real per pupil operating levies have increased in 96 percent of districts and total real per pupil operating revenue has declined in 56 percent of districts.

In recent years, the state has made progress in restoring funding for E-12 education. However, the information presented here and in the companion report demonstrate that real per pupil state aid to Minnesota school districts remains significantly below that of the watershed fiscal year of 2003. Minnesota school districts continue to face serious fiscal challenges.

Read the full report, School Revenue Trends FY 2003-FY 2017.

*Specifically, the categories of revenue included in this analysis are general education, special education, career technical, integration, alternative facilities, deferred maintenance, telecommunications, operating capital technology, and miscellaneous levies. Special thanks to Bob Porter for assistance in compiling the data used in this report.

The conversion of nominal dollars (i.e., dollars unadjusted for inflation) to constant FY 2016 dollars is based on the Implicit Price Deflator for State and Local Government Purchases (S&L IPD) as calculated the U.S. Bureau of Economic Analysis and reported by MDE. The rationale for using the S&L IPD to adjust state and local government revenues and expenditures for the effects of inflation was discussed in a recent North Star article.