Impact of Legislative Decisions on School Funding

State aid to Minnesota school districts—properly adjusted for inflation—has fluctuated significantly over the last fifteen years, but the overall trend has been downward, as documented in a recent North Star report. Of course, long-term trends are not exclusively the result of changes enacted by state policymakers.* Using information compiled during the 2017 special legislative session, it’s possible to isolate the impact of legislative actions during the current fiscal year (FY) 2018-2019 biennium. And those actions led to a decline in real (i.e., inflation-adjusted) per pupil general education revenue.

The nonpartisan House Research Department† tracks the impact of the 2017 special session E-12 (early childhood through grade 12) school finance bill passed by the legislature and signed into law by Governor Mark Dayton for each Minnesota school district. This material shows estimated “baseline” general education revenue for schools under the old law, prior to any adjustment for inflation, as well as the estimated revenue under the new law. By focusing exclusively on the impact of changes made in the final tax act, this information provides an excellent resource for determining the impact of state policymakers’ choices in isolation from all other factors.

The rate of inflation from FY 2017 to 2018 is 2.8% and 5.5% from FY 2017 to 2019.‡ To keep pace with inflation, a school district’s final general education revenues needs to exceed the FY 2018 and 2019 baseline amounts by these percentages. They do not. The general education revenue increase for Minnesota school districts (excluding charter schools) approved under the 2017 special session tax act was approximately $260 million short of what is needed to keep pace with inflation during the 2018 and 2019 school years.

Every Minnesota school district faces a shortfall in the funding needed to keep pace with inflation during the current biennium. In the vast majority of school districts, FY 2019 general education revenue fell between 1.5% and 3.0% short of what was needed to keep pace with inflation, with an average shortfall among all districts of 2.1%. Click here for a printout with details for every Minnesota school district, grouped by House legislative district.

Things could have been worse for Minnesota schools. During the 2017 regular legislative session, the Minnesota House and Senate proposed a scant 1.5% increase in the basic formula allowance—the source of most general education revenue for Minnesota public schools—in both FY 2018 and 2019. Meanwhile, Governor Mark Dayton proposed a 2.0% increase in both years. During special session negotiations, the higher formula allowance increase proposed by Dayton prevailed. The larger basic formula allowance increase proposed by the Governor allowed total general education revenue to come closer to the amount needed to keep up with inflation.

During the 2017 special session, state policymakers failed to fund Minnesota public schools at a level sufficient to match the increase in school costs resulting from inflation. This fact—combined with large reductions in real per pupil state aid extending back to FY 2003—has resulted in financial crises and budget cuts in many Minnesota school districts.

 

*Other factors—including changes in tax base and the composition of student enrollment—also impact school finances. The purpose of the analysis presented here is to isolate the impact of the legislative changes enacted during the 2017 special legislative session from all of the other factors that affect the level of school district revenue.

The House Research general education revenue amounts compiled during the 2017 special legislative session (the source of information used in this article) are the best estimates as of that point in time, but do not represent the final actual general revenue of public schools. However, this is the best source of information to use for purposes of determining the impact of legislative actions in isolation from all other factors that impact school general education revenue.

Inflation estimates used in this article are based on the Implicit Price Deflator for State and Local Government Purchases. For reasons noted in a 2016 North Star article, this is the appropriate index to use for determining the impact of inflation upon state and local governments, including school districts. Specific index values used here were derived from the most recent Minnesota Department of Education revenue trends spreadsheet.