Surplus offers hope for Minnesota schools and communities

December 1, 2011

Nobody expected this morning’s good news – that the State of Minnesota is projecting an $876 million surplus for the current two-year budget cycle (FY 2012-13). This gives the state the chance to take positive steps toward keeping our promise to our kids and protecting vital investments in our economy.

While it’s nice to have good news for a change, it is short-lived. The November 2011 Economic Forecast projects a $1.3 billion shortfall for the next budget cycle (the FY 2014-15 biennium), or $2.6 billion if we include the impact of inflation. So policymakers must be careful how they use these one-time resources. In the face of serious economic hard times in the last few years, lawmakers have depleted most of the state’s rainy day resources and resorted to significant borrowing, including from our schools. The best thing we can do is to start reversing some of those actions.

Fortunately, that is exactly what will happen with this surplus. As required by state law, the first $255 million of the projected surplus will be used to refill the state’s cash flow account and the remaining $621 million will go to refilling the state’s budget reserve close to its target of $653 million.

That is good news for Minnesota’s schools, because it brings us closer to making good on the state’s promise to pay back what it borrowed from our schools. After the state’s cash flow and budget reserves are refilled, by law, any future surplus will be used to start buying back the school payment shift.

Unfortunately, the slow economic recovery means the state is projected to face deficits again. Using the current surplus to rebuild our rainy day funds will allow us to avoid deep cuts to areas vital to our future economic success – like education and training for Minnesotans of all ages.

Decisions being made at the federal level pose an additional threat for Minnesota’s economic future. The November Forecast assumes that Congress will extend the payroll tax cut and unemployment insurance benefits that expire at the end of this year. If Congress fails to do so, we face the serious risk of another national recession. Furthermore, federal deficit reduction could result in the loss of federal funding for health care, education, and other community services are the critical for Minnesota’s future prosperity.

Although some may float the idea of using the surplus for other purposes, policymakers will be wise to stay the course and refill our rainy day funds to position us to weather the storms on the horizon.

You can get all the details on the November Forecast on the Minnesota Management and Budget website.

-Christina Wessel

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K-12 education budget shifts costs to the future

July 21, 2011

The compromise reached between Governor Dayton and the Legislature on the K-12 education was a lynchpin to secure an overall budget agreement and end the state shutdown. The bill increases funding for K-12 education by $190 million in FY 2012-13, or one percent, mostly by increasing funding for the basic education formula. However, the bill also delays more than $2 billion in payments to school districts and includes some important policy changes.

The most significant element of the K-12 education budget is the decision to delay $2.2 billion in payments to school districts, reducing spending in the FY 2012-13 biennium by shifting those costs into the future. The agreement continues to delay $1.4 billion in aid payments that were shifted during the 2010 Legislative Session, and adds $772 million in new shifts. Normally, the state pays school districts 90 percent of their annual aid in one fiscal year, and a 10 percent settling-up payment in the following fiscal year. The bill changes that formula to a 60/40 split.

The bill does not include a plan for repaying that $2.2 billion debt to school districts. However, under current law, the shift will automatically start to be “bought back” when the state begins to see budget surpluses. The first $908 million of future surpluses will go to refill the state’s cash flow account and budget reserve. Only then are we likely to begin to reverse the payment shifts to school districts.

The delay in these payments creates cash flow problems for many school districts, forcing them to use reserves or rely on short-term borrowing. As a way of helping defray borrowing costs, the K-12 education bill increases the basic education formula by $50 per pupil in each year of the next biennium, an increase of $118 million in FY 2012-13.

The K-12 education bill also includes some other new investments:

  • The state sets a goal for every child to read at or above grade level by the end of third grade. To help achieve that goal, a new literacy incentive program for school districts is established, with the level of aid based on the number of students achieving reading proficiency and demonstrating improvement. There is also additional funding for the Minnesota Reading Corps, a statewide initiative that focuses on improving literacy among children up to third grade.
  • The bill includes an early childhood scholarship program to help children from low-income families to attend preschool.
  • The bill recognizes individuals who graduate early from high school by creating a scholarship program for those who go on to higher education and a cash grant award for those who enter military service. 

Not all areas of education fare as well:

  • Growth in funding for adult basic education (ABE) aid is reduced from a three percent increase to two percent in FY 2012-13. ABE helps individuals enter and advance in the workforce by providing high school equivalency degrees, workplace literacy training, and English language and citizenship classes.
  • Integration aid, which goes to districts with high concentrations of children of color to promote integration in and between school districts, is phased out in the bill. A task force is created to make recommendations for how to reuse those resources.
  • There is a five percent cut to the Department of Education and the Perpich Center for Arts Education.
  • Charter school start-up grants and metropolitan magnet school grants are eliminated.

Special education, which had been cut by $48 million in FY 2012-13 in the Legislature’s budget, is not cut in the final bill.

There are several policy changes included in the K-12 education bill:

  • The requirement that districts spend two percent of revenue for staff development is suspended and districts no longer have to set aside a portion of the Safe Schools Levy to pay for school counselors and other professionals.
  • There is a new evaluation process for principals, teachers and probationary teachers. And “inefficiency in teaching or in managing a school” is added as grounds for terminating a teacher.
  • School boards are allowed to create “full-service school zones” for schools in high-crime neighborhoods, providing education, health, human services and parent support in a collaborative manner.  
  • The bill eliminates the January 15 deadline for collective bargaining agreements to be settled. School districts that did not have a contract in place by that date faced a reduction in state aid. 

The final agreement drops a number of high-profile proposals backed by either Governor Dayton or the Legislature. Not included in the bill is the elimination of teacher tenure, developing an A-F school grading system, a prohibition on strikes under some circumstances, additional funding for all-day kindergarten, implementing an early childhood quality rating and improvement system, and creating an Achievement Gap Innovation Fund.

Minnesotans value a high-quality education system. We know that a well-educated workforce is a critical building block for the economic success of our children, and our state. Unfortunately, the payment shifts policymakers have turned to in the last two legislative sessions are an unsustainable way of funding this important priority. We need to raise adequate revenues to pay for critical services like education.

-Scott Russell


Legislature makes a budget offer

June 16, 2011

On Thursday, the legislature presented an offer to Governor Dayton that withdraws $203 million in tax cuts and slightly backs off of spending cuts in some areas. The major elements of the offer include:

  • Withdrawing the $203 million in tax cuts contained in their tax bill, including gradually eliminating the state property tax paid by businesses and cabins, a corporate tax cut and conforming to a number of federal tax changes.
  • Increasing funding for K-12 education by $80 million above the conference committee target, including $10 million for early education scholarships. This would match the Governor’s spending target in his March budget proposal. However, the additional funding appears to be contingent on the Governor accepting a number of controversial provisions, including shifting integration aid away from core cities, limiting collective bargaining rights, and instituting a new teacher and principal evaluation system.
  • Reducing proposed cuts to higher education by $50 million. The legislature still leaves $361 million in cuts to higher education in FY 2012-13, $190 million more than the Governor.
  • Reducing proposed cuts to the environment and energy by $13 million. The budget proposals from the legislature and Governor would still differ by a significant margin.
  • Reducing proposed cuts to public safety and the judiciary by $30 million, bringing the legislature closer to the Governor’s proposed increase in base funding for this area.
  • Providing $9 million for flood and disaster relief.
  • Reducing proposed cuts to tax aids and credits by $20 million, which would not make much of a dent in the $925 million in proposed cuts in aids to cities and counties and property tax refunds for low- and moderate-income renters, which are expected to result in increased property taxes.

The legislature’s offer doesn’t include any changes in the funding targets for health and human services, transit, jobs and economic development, or state government. The offer “expires” at 5:00 p.m. on Monday, June 20.

Governor Dayton expressed disappointment with the offer, suggesting that it didn’t show real movement on the part of the legislature.

-Christina Wessel


A tale of two visions: K-12 education

June 6, 2011

This week, we’re taking a look at the two visions that have been laid out for how to meet the state’s needs as Minnesota slowly emerges from a recession, comparing Governor Dayton’s budget (as presented in March) and the legislature’s budget (articulated in the conference committee reports approved by the House and Senate).

At first glance, Governor Dayton and the legislature are not very far apart on overall K-12 education funding. The Governor increases funding for education by $36 million in FY 2012-13 compared to base funding, while the legislature proposes $44 million in reductions – not a huge difference given the state will spend more than $14 billion on K-12 education in the next biennium. 

On closer examination, however, the two proposals present very different visions for K-12 education. The Governor’s limited new investments focus on early childhood development and efforts to close the achievement gap. The legislature provides some additional funding for schools, but also shifts funding away from urban school districts and includes a number of controversial policy changes to how schools and teachers are evaluated. Resolving these policy differences will be a critical piece to getting a K-12 education funding bill passed.

Areas of similarity or agreement between Governor Dayton and the legislature include:

  • Continuing the shift in school aid payments passed in the 2010 Legislative Session, reducing state spending by $1.4 billion in FY 2012-13.
  • Reducing growth in Adult Basic Education (ABE). The Governor reduces growth in ABE from three percent to two percent in FY 2012-13; the legislative proposal reduces growth to one percent. ABE helps individuals enter and advance in the workforce by providing high school equivalency degrees, workplace literacy training, and English language and citizenship classes.
  • Cutting administrative funding for the Department of Education by five percent in FY 2012-13. The department would also likely be impacted by $95 million in overall state agency staff and funding cuts included in the legislature’s state government bill.
  • Ending charter school start-up grants and magnet school grants.

Proposals unique to Governor Dayton’s budget include:

  • Increasing funding for optional all-day kindergarten programs by $32 million in FY 2012-13. According to the Department of Education, all-day kindergarten has been shown to result in greater academic gains in language, literacy and math skills.
  • Proving $2 million in one-time funds for a statewide early childhood quality rating and improvement system to assess program quality, support teacher improvement and better inform parents about their choices.
  • Creating two grant programs to encourage better outcomes in schools: $5 million for an Achievement Gap Innovation fund to support projects that develop innovative approaches for using technology to help close Minnesota’s achievement gap and $12 million for a Governor’s Excellence in Education Award that would recognize schools with outstanding achievement growth.
  • Capping funding for QComp, a voluntary alternative teacher compensation program, saving $5 million in FY 2012-13.

Proposals unique to the legislature’s budget include:

  • Increasing the basic education formula by $20 per pupil in FY 2012 and an additional $21 per pupil in FY 2013, an increase of $47 million in FY 2012-13. Although it was not in his budget proposal, the Governor’s veto letter indicates he supports increasing the formula allowance by $50 per pupil in each year of the biennium, an increase of $164 million in FY 2012-13.
  • Increased funding for Minnesota Reading Corps of close to $6 million in FY 2012-13. This is a statewide initiative that focuses on ensuring every child in Minnesota can read by third grade.
  • Reducing growth in funding for special education, resulting in a one-time cut of $48 million in base funding for FY 2012-13.
  • Significantly reducing integration aid that goes to districts with high concentrations of children of color to promote integration in and between school districts. The savings are redirected to fund two new programs: innovation achievement transition aid that flows to the same districts as the current integration aid, but decreases over time, and literacy incentive aid that flows to all school districts based on literacy proficiency and improvement in literacy scores.
  • Providing vouchers to low-income students living in Minneapolis, St. Paul or Duluth who attend persistently low-performing schools to allow them to switch to an out-of-district or a private school.
  • Controversial policy changes such as developing an “A to F” grading system for schools and schools districts (with financial bonuses for successful schools), imposing a new performance-based evaluation system for teachers and principals, prohibiting strikes under some circumstances, proposing an alternative salary system based on student performance, and ending teacher tenure.

The Governor and legislature will need to find a way to resolve these differences before the June 30th deadline, when the current biennium ends. Although K-12 education funding was not signficantly affected during the 2005 partial government shutdown, it appears that officials may be following a stricter reading of Minnesota’s constitution this time around.

-Christina Wessel & Scott Russell


The education budget: Less about money, more about priorities

April 7, 2011

With a budget of $14.2 billion in FY 2012-13, E-12 education is the single largest area of the state general fund budget, accounting for 40 percent of spending. Other than continuing the shift in school aid payments, the House (House File 934), Senate (Senate File 1030) and Governor Dayton do not recommend significant changes to the total size of the E-12 budget in FY 2012-13. The House and Senate propose reducing spending by less than one percent and the Governor increases spending by less than one percent.

However, there is plenty of disagreement over how to divide up that $14.2 billion. The proposed changes could have a significant impact on how schools operate and how that funding is distributed among school districts.

First, let’s mention the one big-ticket item that all sides agree on – continuing the shift in school aid payments. Normally, the state pays school districts 90 percent of their annual aid in one fiscal year, and a 10 percent settling-up payment in the following fiscal year (allowing the state to adjust for enrollment or other changes that may have happened during the year). In the 2010 Legislative Session, policymakers changed the formula to a 70/30 percent split to help reduce the state’s budget deficit by shifting $1.9 billion in school aid payments into the future. Under current law, the state is scheduled to “buy back” the shift in FY 2012. All three proposals delay that buy back into the future, saving $1.4 billion in FY 2012-13.

Although there is not much change in the size of the education budget, the House, Senate and Governor propose cuts in some areas to pay for increases in others. The proposed cuts impact education for children and adults, and reduce funding for schools with high concentrations of children of color, children in poverty and children with disabilities.

  • Special education funds mandated services for students with emotional, learning and other disabilities. The House and Senate freeze spending for special education, which amounts to a $94 million reduction in FY 2012-13. The resulting cut from base spending will put pressure on school districts to find funding in other areas of their budget to meet their obligations to serve children with special needs.
  • Compensatory revenue is distributed to schools based on the concentration of students receiving free- or reduced price lunch and is used to meet the educational needs of students that are not meeting grade standards. The Senate freezes funding at FY 2011 levels, a $46 million reduction in FY 2012-13.
  • Integration aid promotes integration within and between school districts and is provided to school districts with high concentrations of children of color. The House replaces integration aid with “innovation aid” that flows to the same districts currently receiving integration aid, but cuts funding dramatically in FY 2012-13. The Senate phases out funding for integration aid and cuts funding for desegregation transportation, using most of these resources to create a “literacy incentive aid” that will flow to all school districts based on literacy proficiency and improvement in literacy scores.
  • Adult Basic Education helps individuals enter and advance in the workforce by providing high school equivalency degrees, workplace literacy training, and English language and citizenship classes. The Governor and Senate reduce the built-in growth rate for the program from three percent to two percent, resulting in a $1 million cut in FY 2012-13 compared to base funding. The House proposes deeper cuts to the program, freezing funding at FY 2011 levels.
  • The Department of Education is cut by five percent in the Governor’s budget and by 14 percent in the Senate budget. The House not only cuts department funding by nearly one-third, but also adds new responsibilities, including creating a task force on new teacher evaluations, annual reports on a student’s growth and progress towards grade-level achievement, developing a performance-based evaluation system for principals, and studying the effect of teacher diversity on achievement.

The spending cuts mentioned above, as well as other reductions in the E-12 education budget are used to fund spending increases in other areas.

  • The House and Senate increase funding for the basic education formula by two percent for the biennium, which provides funding to all school districts on a per pupil basis. But the cuts to integration aid, compensatory revenue and special education disproportionately affect schools in Minneapolis, St. Paul and Duluth. As a result, these school districts will see an overall decline in funding for education. Minneapolis and St. Paul will both experience a three percent reduction in total state funding in FY 2012-13.
  • The Governor’s proposal includes several initiatives, including an Early Childhood Quality Rating system, expanding all-day kindergarten and rewarding schools that have innovative strategies to improve student performance.
  • The House proposes $10 million for early childhood education scholarships for children in low-income families and new money for small school districts.
  • The Senate proposes a $1,000 bonus for teachers who successfully complete a reading instruction assessment.
  • Both the House and Senate propose a college scholarship program for students who graduate early from high school.

The House and Senate proposals include other policy changes that could significantly change how schools operate.

  • The House proposal establishes a grading system for schools that includes financial rewards for successful schools and imposes a new performance-based evaluation system for teachers and principals.
  • The House would allow low-income students living in Minneapolis, St. Paul or Duluth who attend persistently low-performing schools to switch to an out-of-district school or a private school.
  • The Senate allows school boards to create “full-service” school zones in high-crime areas that will coordinate the delivery of educational, health and social services.
  • The collective bargaining rights of teachers are significantly altered in the House and Senate proposals. Both prohibit teacher strikes over compensation issues if the school board has offered an increase equal to the district’s basic revenue increase. Both propose an alternative salary system based on student performance. And both end teacher tenure, putting teachers on five-year renewable contracts. The Senate also freezes teacher salaries through June 2013.

House and Senate proposals are headed to conference committee. Although overall funding for education is left largely intact, there are many changes beneath the surface that will impact the quality of education of Minnesota. The cuts in special education, integration aid and other services will increase the challenges facing schools with a high concentration of children of color, children with disabilities, or children struggling to succeed. With the future economic health of our state depending on a well-educated workforce, it is in our best interest to ensure all children are successful in school.

-Scott Russell

[A quick update: When we originally published this blog on Thursday, we inadvertently included the impact of the school payment shift in the size of the cuts we reported. We have revised the numbers in the blog to accurately reflect the cuts proposed by the House, Senate and Governor.]


Dayton’s school budget expands all-day kindergarten, continues school funding shift

February 24, 2011

During his campaign, Governor Dayton promised to protect funding for K-12 education. The Governor’s proposed budget invests $14.2 billion in early childhood and K-12 education in FY 2012-13, or 38 percent of all general fund spending for the biennium. The budget proposal includes $53 million in new investments and $28 million in spending reductions, resulting in a net $25 million increase in funding for E-12 education for FY 2012-13, or less than a one percent increase from base funding. His proposal also continues the school funding shift, saving the state $1.4 billion in FY 2012-13.

The Governor’s budget invests in early childhood education and seeks to close Minnesota’s achievement gap. His proposal:

  • Provides $33 million in additional funding for optional all-day kindergarten programs for school districts and charter schools in FY 2012-13 (and $98 million in FY 2014-15). According to the Department of Education, all-day kindergarten has been shown to result in greater academic gains in language, literacy and math skills.
  • Appropriates $2 million in one-time funds for a statewide early childhood quality rating and improvement system to assess program quality, support teacher improvement and to better inform parents about their choices.
  • Establishes the Achievement Gap Innovation Fund, a competitive grant program to fund projects that develop innovative approaches for using technology to help close Minnesota’s achievement gap ($5 million in FY 2012-13). 
  • Creates a Governor’s Excellence in Education Award that would recognize schools with outstanding achievement growth. Up to half of the grant could be used to maintain the school’s performance, with the remainder used to share their successful teaching techniques with other schools ($12 million in FY 2012-13).

The Governor’s budget includes small reductions to several education programs, including:

  • Reducing funding for Adult Basic Education (ABE) by $1 million in FY 2012-13. ABE helps adults access educational opportunities such as getting their GED or improving their English skills. The proposed cut may result in some waiting lists.
  • Capping participation in Q Comp, a teacher performance pay program, at current levels until there has been further evaluation of the effectiveness of the program ($4 million in FY 2012-13).
  • Ending charter school start-up grants and magnet school grants ($3 million).
  • Proposing a five percent administrative reduction to the Department of Education ($2 million in FY 2012-13).

The Governor’s budget also continues to the shift in school aid payments, saving the state $1.4 billion in FY 2012-13. Normally, the state pays school districts 90 percent of their annual aid in one fiscal year, and a 10 percent settling-up payment in the following fiscal year (allowing the state to adjust for enrollment or other changes that may have happened during the year). In the FY 2010-11 biennium, policymakers changed the formula to a 70/30 percent split to help reduce the state’s budget deficit by shifting $1.9 billion in school aid payments into the future. Under current law, the state is scheduled to “buy-back” the shift to the 90/10 split, at a cost of $1.4 billion in FY 2012-13. The Governor’s proposal would delay buying back the shift until FY 2014, and then buy it back at a rate of two percentage points a year over a 10-year period.

The Governor’s budget also includes small changes to the Minnesota State Academies, which includes the Minnesota Academy for the Deaf and the Minnesota Academy for the Blind. His budget includes $17,000 in FY 2012-13 to allow students 60 to 90 days to attend one of the academies to determine if the school is an appropriate fit for the child. The Governor also proposes to save $618,000 in FY 2012-13 by contracting for the schools’ nutrition services. 

Governor Dayton has made E-12 education one of the top priorities in his budget, recognizing the value of this long-term investment in Minnesota’s citizens and future workforce. The Governor’s proposal, however, will not completely protect local school districts from cuts. For example, rising costs for health insurance, utilities and other budget items are placing significant pressures on school budgets. In a recent survey of its members, the Association of Metropolitan School Districts found that a zero percent increase in education funding would mean a $153 million shortfall for metropolitan school districts in FY 2012. The survey also found that the shift in school aid has cost school districts $5 million in interest costs from loans or lost interest from using reserves.

-Scott Russell



Governor’s budget spares K-12, but cost shifts remain

February 22, 2010

The Governor’s K-12 Supplemental Budget proposal is both the easiest to understand and the most complex.

The easy part: The proposal does not cut state aid to local school districts. The complex part: The budget requests the legislature ratify the Governor’s 2009 unallotment decisions, including $1.8 billion in shifts to education spending.

The Governor’s proposal puts the legislature in a difficult spot. Some have argued that the Governor overstepped executive authority in making the unallotments. Yet ratifying at least part of the K-12 unallotment plan would reduce next biennium’s deficit and clarify a somewhat murky situation.

The $1.8 billion in school payment shifts actually have two components: the School Aid Payment Deferral and the Property Tax Recognition Shift. Here’s how they work.

Shift No. 1: School Aid Payment Deferral

The state staggers its school aid payments for any given year over a two-year period. It’s called the “90/10” formula. Prior to unallotment, districts got 90 percent of their aid in the current year, and the remaining 10 percent in the following year.

Unallotment changed the formula. It reduced the school aid paid in the current year, shifting costs forward to the next year. (It went from a 90/10 split to 73/27 split.) In the short run, it reduced the amount of money the state had to pay to school districts in FY 2010, saving $1.2 billion. While schools get the money eventually, such a shift can create cash-flow problems for districts.

Because unallotment only applies to the FY 2010-11 biennium, the shift is only temporary. The state budget forecast assumes the state will revert to the 90/10 school aid formula in the next biennium, which would require the state to make a catch-up payment, a one-time, $1.2 billion expense.

The Governor’s budget proposes leaving the 73/27 formula as is and continuing the shift. It would reduce the projected FY 2012-13 deficit by $1.2 billion. Putting the formula shift into law this session could clarify when the state intends to pay back the shift. But given the size of the FY 2012-13 deficit, it’s hard to see where the resources will come from anytime soon.

Shift No. 2: Property Tax Recognition Shift

Similar to the State Aid Deferral, the Property Tax Recognition Shift creates a one-time savings. It requires school districts to count a portion of their property taxes earlier than they used to. (For example, part of the property tax revenue school districts would have counted in FY 2012 under the old rules now gets counted in FY 2011.) This accounting change inflates school district budgets in FY 2011, allowing the state to reduce its aid payments to schools. The shift saved the state $600 million in FY 2011 under unallotment.

Unlike the aid payment formula change, the property tax recognition shift is assumed to be ongoing – it will continue unless the legislature acts to change it.

Some E-12 cuts, new spending

The Governor’s Supplemental Budget proposal would cut the Department of Education by $1 million this biennium, part of the standard departmental cuts (3 percent of unspent FY 2010 funds and 3 percent of FY 2011 funds). The Perpich Center for the Arts gets cut $390,000. The proposal also adds $360,000 of new spending, primarily for data collection and rule making related to academic standards and teacher/administrator preparation.

Funding for early childhood programs will be covered in a later blog. The bottom line is that the Supplemental Budget makes minimal cuts to early childhood programs funded through the Department of Education, but some significant cuts in early childhood programs funded through the Department of Human Services, notably Basic Sliding Fee Child Care.

-Scott Russell

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