On November 8, voters in 28 school districts will go to the polls to vote on school operating referenda.* As noted in a recent North Star article, a primary cause for the prevalence of operating referenda in Minnesota (all but 3 of Minnesota’s approximately 330 school districts rely on referendum revenue to finance a portion of school operating costs) has been the sharp decline in real state operating aid to Minnesota school districts since fiscal year (FY) 2003.
FY 2003 was a watershed year in terms of Minnesota school district finances. Beginning in that year, the state eliminated nearly all general education property tax levies through a massive infusion of new state aid. However, since FY 2003, per pupil state aid to school districts has not kept pace with inflation. As a result, school districts have had to rely more heavily on property taxes—including school operating referenda—to fund school operating costs.
The 28 districts holding operating referenda on November 8 are no exception to this rule. Of these 28 districts, all but two experienced reductions in real (i.e., inflation-adjusted) state aid ranging from $383 to $3,065 per pupil since FY 2003 (constant FY 2017 dollars).† The chart below shows the change in state operating aid per pupil for 27 out of the 28 districts holding operating referenda this November.‡
The above graph does not reveal the full extent of the financial challenges confronting these districts. For example, Minnesota school districts have new funding responsibilities in FY 2017 that they did not have in FY 2003, such as all-day kindergarten and expanded services for pre-kindergarten children. In addition, the concentration of special need students in Minnesota school districts has increased over the last fourteen years; while the number of kids enrolled in Minnesota school districts has declined slightly since FY 2003, the number of free & reduced lunch students (a proxy measure of poverty) has increased by 34 percent, the number of Limited English Proficiency students has increased by 17 percent, and the number of special education students has increased by 12 percent. Changing demographics and new program requirements impact school finances in ways that are not reflected in this chart.
The one district holding an operating referendum in November that did experience a significant increase in real per pupil state aid from FY 2003 to FY 2017 is Lancaster. Over this period, Lancaster’s state operating increased by $247 per pupil (1.9 percent) in constant 2017 dollars. Located in the remote northwest corner of the state, Lancaster is the smallest district holding a referendum, with FY 2017 adjusted average daily membership of 146. In addition to the programmatic and demographic cost drivers noted above, Lancaster has experienced a 31 percent reduction in enrollment since FY 2003. Tiny districts like Lancaster often experience significant increases in per pupil expenses due to declining enrollment, since closing schools in response to the decline is not a realistic option, as Lancaster has only one elementary and one secondary school.
As noted in an April 2016 North Star report, many school districts have seen a significant increase in real per pupil state operating aid since FY 2013. However, for most districts this aid increase has come nowhere near what was necessary to replace the aid losses over the preceding decade. Among most of the districts holding a November 8 referendum, aid increases in recent years have been sufficient to replace less than half of the real per pupil aid reductions from preceding years. The charts below show the change in real per pupil school operating aid since FY 2003 for 27 of the 28 districts holding an operating referendum this November, listed alphabetically.‡
*There will be 31 separate operating referendum questions on the ballot on November 8. Three districts will have two separate questions, so the total number of districts holding operating referenda will be 28.
†The conversion from nominal (i.e., unadjusted for inflation) to constant 2016 dollars in this article is based on the implicit price deflator for state and local government purchases. The use of this implicit price deflator was the subject of a February 2016 North Star article. Per pupil amounts are calculated using adjusted average daily membership (AADM).
‡Prinsburg is excluded from charts in this article because it has zero AADMs in FY 2017 and thus per pupil amounts for Prinsburg cannot be calculated. Prinsburg is a non-operating school district governed by a statutory exception. The district does not serve any regular K-12 students, but does provide special education services to students in non-public schools.