News & Updates

Basic School Revenue Hasn't Kept Up with Inflation

by | Apr 18, 2017 | Education, Taxes

Most of the assistance that Minnesota school districts receive from the state comes in the form of basic general education formula revenue. This revenue establishes a base level of funding for all districts, from which—in theory—basic school operating expenses can be funded. Despite increases in recent years, real (i.e., inflation-adjusted) basic formula revenue is over twelve percent less than it was fifteen years ago, when the state assumed responsibility for funding nearly all public school general education costs. With one exception, school funding proposals currently before the legislature would exacerbate the real decline in basic education formula revenue.

For the current fiscal year (FY 2017, which encompasses the 2016-17 school year), the amount of basic general education revenue per pupil—referred to as the “formula allowance”—is $6,067. A district’s total general education formula revenue is equal to this formula allowance multiplied by the number of pupils* in the district. Based on the most current information from the Minnesota Department of Education (MDE), total FY 2017 statewide basic general education revenue is $5.6 billion, which—with the exception of a $20 million student achievement property tax levy—is provided in the form of state aid.

While the per pupil formula allowance has never declined in nominal dollars, it failed to keep pace with inflation† during the decade following the state takeover of general education costs in FY 2003. In constant FY 2017 dollars, the formula allowance fell from $6,949 in FY 2003 to $5,504 in FY 2014—a decline of over $1,400 (20.8 percent).

The formula allowance has increased in real (i.e., inflation-adjusted) dollars since FY 2014, with the largest jump occurring from FY 2014 to FY 2015, when revenue from the 2013 tax act was used to increase the allowance by nearly $500 (8.9 percent) in constant FY 2017 dollars; however, this increase—combined with smaller increases in FY 2016 and 2017—were sufficient to recoup only 39 percent of the real decline that occurred from FY 2003 to 2014. Even after the increases over the last three years, the formula allowance is still $882 (12.7 percent) less than it was in FY 2003.

The school formula allowances proposed by the House, Senate, and Governor during the current legislative session for FY 2018 and 2019 do nothing to further reduce the real decline in the allowance since FY 2003, although the Governor’s proposal alone comes close to keeping pace with inflation. The chart below shows the nominal increase in the FY 2018 formula allowance proposed by the House, Governor, and Senate relative to the FY 2017 level, with the dashed blue line showing the increase needed to keep pace with inflation.‡

The estimated increase in the FY 2018 formula allowance needed to keep its actual inflation-adjusted purchasing power constant at the FY 2017 level is $127. The proposed House formula allowance increase of $76 comes $51 short of what is needed keep pace with inflation, while the Senate’s proposed $91 increase comes $36 short. With a formula increase of $121, only the Governor’s proposed increase comes close to holding the purchasing power of the formula allowance constant at the FY 2017 level. The following chart shows similar information for FY 2019.

The estimated increase in the FY 2019 formula allowance relative to the FY 2017 allowance needed to hold its actual purchasing power constant at the FY 2017 level is $257. The House’s proposed allowance comes $104 short of this target, while the Senate proposal comes $75 short. Meanwhile, the Governor’s proposed FY 2019 formula allowance is only $12 short of what is needed to keep pace with inflation. As was the case for FY 2018, only the Governor’s proposed FY 2019 formula allowance comes close to keeping up with inflation.

Some conservatives are seeking to divert public dollars to pay for private education at the same time that they are allowing the purchasing power of the public school formula allowance to further deteriorate. For example, one proposal—summarized in a recent North Star article—would provide $35 million in tax credits for corporations and primarily wealthy households that make contributions to private schools; this $35 million would be sufficient to close or nearly close the gap between Senate’s and House’s proposed FY 2018 formula allowance and what is needed to keep pace with inflation. Public education should be adequately funded before we divert public revenue to pay for private schools.

The reduction in the formula allowance since FY 2003 has contributed to perennially tight school budgets and significant property tax hikes, as school districts attempt to replace a portion of the real decline in the formula allowance and other forms of state aid to school districts. Of the three budget proposals currently before the legislature, only the Governor’s proposal comes close to preventing a further decline in the real purchasing power of the public school basic formula allowance.


*Specifically, the formula allowance is multiplied by the district’s “adjusted pupil units,” which equals the number of students weighted by grade level. For example, secondary students (grades 7 through 12) are weighted as 1.2 pupil units, with others students—with the exception of half-day kindergarten and voluntary pre-kindergarten students—weighted as 1.0.

 The inflation adjustment used in this article is based on the Implicit Price Deflator for State and Local Government Purchases, which is the appropriate index when gauging the effects of inflation on state and local governments. The specific index values used in this analysis were taken from the most recent MDE revenue trends spreadsheet, covering the period from FY 2003 to FY 2017.

 Inflation from FY 2017 to 2018 and from FY 2018 to 2019 is conservatively estimated to be 2.1 percent for each period.

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