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

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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.]


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