School Aid: Halfway Back to 2003

Over the last fifteen years, trends in state aid to Minnesota school districts can be framed as a tale of two time periods: from fiscal year (FY) 2003 to 2012, real (i.e., inflation-adjusted) per pupil state aid to Minnesota school districts fell sharply; since FY 2012—and especially since FY 2014—real per pupil state aid is projected to increase. From FY 2012 to 2019, total state aid to school district is expected to increase by an amount equal to half of what was lost from FY 2003 to 2012. On a statewide basis, school districts recovered the net decline in real per pupil state aid from FY 2003 to FY 2019 by increasing local property taxes.

The trend for individual districts does not necessarily resemble the statewide pattern, although in most districts it is roughly similar. A new North Star report examines total general fund state aid and property tax levies for each of the 332 Minnesota school districts from FY 2003 to projected FY 2019, based on Minnesota Department of Education (MDE) data. These “general fund revenues” include general education, special education, career technical, integration, alternative facilities, deferred maintenance, telecommunications, operating capital technology, and miscellaneous levies. The following discussion and the information in the report are limited to these general fund aid, levies, and revenues.

The report begins with FY 2003, since that was a watershed year in terms of the fiscal relationship between the state and Minnesota school districts. In that year, the state virtually eliminated the general education property levy, replacing this foregone revenue with a large increase in state aid.

When examining school finance trends over time, it is important to adjust for the erosion in the purchasing power of the dollar due to inflation. Inflation adjustments in the report and in the following discussion are based on the Implicit Price Deflator for State and Local Government purchases as reported by MDE. As noted in a 2016 North Star article, this Implicit Price Deflator is the appropriate index to use when examining the impact of inflation upon the purchases of school districts. All amounts in this report will be expressed in constant FY 2018 dollars. In addition, amounts will be shown on a per pupil basis (as measured by adjusted average daily membership or AADMs) to adjust for changes in school enrollment over time.

Total state aid to school districts in FY 2003 was $10,910 per pupil. Due to a struggling economy, large tax cuts enacted in the preceding years, and an over-extension of state financial commitments, the state entered a period of recurring budget deficits in the years following FY 2003. Among the most common responses to these repeated deficits were cuts in real general fund spending—a trend to which state aid to school districts was not immune.

The largest declines in real per pupil state aid occurred in FY 2004 and 2005; over the course of these two years, aid fell by nearly $1,000 per pupil. Real per pupil state aid continued to decline in each of the next seven years; from FY 2005 to 2012, state aid fell by another $1,000 per pupil, for a total decline from FY 2003 to FY 2012 of $1,990.

Per pupil state aid to school districts increased each year since FY 2012, with the largest single increase occurring in FY 2015, paid for with new revenues generated from tax increases enacted in 2013. Per pupil state aid increased at a more modest pace in FY 2016 and 2017, and is projected to continue to increase at a somewhat slower pace in FY 2018 and 2019. Projected FY 2018 and 2019 aid increases are due in large part to a school formula allowance increase enacted in 2017. During the entire period from FY 2012 to FY 2019, school aid is projected to increase by $1,012 per pupil—replacing slightly over half of what was lost over the preceding nine years.

Total state aid in FY 2019 is projected to be $978 dollars per pupil (9.0 percent) less than it was in FY 2003. On a statewide basis, this loss of aid was replaced with an increase in school levies, as property taxpayers made up for waning state support for public education. From FY 2003 to FY 2019, school property taxes are projected to increase by $1,199 (122.3 percent) per pupil. Taking into account both the property tax increases and state aid reductions, net total general fund school revenues are projected to increase by $221 (1.9 percent) over this sixteen year span.

The experience of most individual districts resembles the statewide pattern. In 294 of 331 Minnesota school districts* (88.8 percent), real per pupil aid is projected to decline from FY 2003 to FY 2019. These 294 school districts contain 91.4 percent of statewide district enrollment. In 233 (70.4 percent) of these districts, decline in per pupil aid exceeds five percent. These 233 districts contain 68.6 percent of statewide district enrollment.

In 321 of the 331 districts (97.0 percent), real per pupil school property taxes are projected to increase from FY 2003 to FY 2019. These 321 districts contain 98.5 percent of statewide district enrollment. In 251 (75.8 percent) of districts, real per pupil property taxes are projected to more than double, although these taxes were very low in the base year (FY 2003) due to the state takeover of general education expenses. These 251 districts contain 70.4 percent of statewide enrollment.

Finally, in 130 districts (39.3 percent), total real per pupil revenue (i.e., property taxes plus state aid) is projected to decline. These 130 districts contain 36.6 percent of statewide enrollment. In these districts, property tax increases from FY 2003 to FY 2019 are not projected to be large enough to offset aid reductions, leading to a net revenue decline.

In six out of every seven Minnesota school districts, FY 2019 real per pupil state aid is projected to be lower and real per pupil property taxes are projected to be higher than in FY 2003; in nearly half of these districts, total per pupil revenue is projected to decline relative to FY 2003, as projected levy increases will not be sufficient to offset state aid reductions. Whatever increase in revenue did occur since FY 2003 among the remaining districts should be considered in the context of the increased concentration of special need students, increased testing, and other requirements that have been placed upon districts over the last sixteen years.

The conclusion is clear: while the financial circumstances of Minnesota school districts have improved in recent years, real per pupil state aid remains significantly below the FY 2003 level, both in aggregate and in the vast majority of districts. To the extent that real per pupil revenues have increased at all over the last sixteen years, the cost has been borne primarily by local property taxpayers.

School Revenue Trends 2003-2019 by North Star Policy Institute on Scribd

 

*There are actually 332 Minnesota school districts. The Prinsburg district is excluded from the following analysis because MDE projects no AADMs for this district for FY 2019—and thus the projected per pupil change for this district cannot be calculated. Districts’ share of total statewide enrollment is based on FY 2018 AADMs. MDE projects just over 800,000 AADMs in Minnesota school districts in FY 2018.