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WASBO Fall Conference 2013 New business office Track Understanding the Equalization Aid formula

WASBO Fall Conference 2013 New business office Track Understanding the Equalization Aid formula. Erin Fath, Assistant Director DPI School Financial Services October 3, 2013. Agenda. Review of Underlying Principles of Equalization Aid / General Aid

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WASBO Fall Conference 2013 New business office Track Understanding the Equalization Aid formula

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  1. WASBO Fall Conference 2013New business office Track Understanding the Equalization Aid formula Erin Fath, Assistant Director DPI School Financial Services October 3, 2013

  2. Agenda • Review of Underlying Principles of Equalization Aid / General Aid • Discuss Aid Adjustments, including “Special Adjustment” (aka “Hold Harmless”) Aid • Walk-Thru the Equalization Aid Worksheet

  3. What are General school aids? All 4 aid types are “General Aid” & are included in line 12A of the Revenue Limit Worksheet. Intra-District Aid: based on eligible pupils / equalization aid (only 4 districts) Special Adjustment Aid: if district’s combined Equalization/Inter-/Intra- Aids are less than 85% of prior year’s General Aid eligibility Inter-District Aid: based on eligible costs / pupils (only 23 districts) Equalization Aid: based on Membership, Shared Costs, Equalized Values – “ability to pay” determines position in formula

  4. What are General school aids? Aid types are not mutually exclusive, so numbers will not add to the 424 total districts in Wisconsin. In the July 1st Aid estimate: 345 districts received Equalization Aid but no Special Adjustment Aid; 18 districts received Special Adjustment Aid only; and 59 districts received both. All districts that receive Inter- and Intra-District aid also received Equalization Aid. All four aid types are used for the Revenue Limit computation (though most districts receive only Equalization Aid)

  5. Equalization aid review Why do you need to know how to calculate Equalization Aid when DPI calculates it??? • Because you will be asked by your board members, constituents and the media • So you can better understand AND explain why your district’s aid has changed • Because you may want to do your own analysis and run “what if” scenarios 5

  6. WHY Equalization aid? Under Article 10 of WI State Constitution the State Legislature is responsible for establishing school districts, which are to be: • “as uniform as practicable … ” • “free and without charge to tuition to all children” How does the State of Wisconsin achieve this? 6

  7. WHY Equalization aid? The State provides financial assistance, in the form of Equalization/General Aid, to school districts in order to: • To reduce the reliance upon the local property tax as a source of revenue for educational programs. • To guarantee that a basic educational opportunity is available to all pupils regardless of the local fiscal capacity of the district in which the reside. A student should not be unfairly disadvantaged as a result of where he or she lives 7

  8. WHY Equalization aid? One of the primary funding mechanisms for public K-12 education in Wisconsin is the local property tax, but …. Property values vary greatly from district to district 8

  9. Property value per student 51% of districts w/ Equal. Value / Member <$500k 2013 Certified Values, DOR

  10. Property value per student Because property values vary so greatly across the state, the resources districts can raise from just their tax base also vary.

  11. Property value per student Districts with less property value per member are aided at a higher proportion than districts with higher values per member.

  12. WHY Equalization aid? The fundamental purpose of the Equalization Aid formula is to “level the playing field” by providing assistance (distributing aid) to poorer districts (those with lower property value per member) to make up for what they can’t get from their property tax base. 12

  13. EQUALIZATION AID – GENERAL CONCEPT • State “shares” in district cost • Aid is based on a district’s ability to pay, as measured by its property wealth per member • The formula operates under the principle of equal tax rate for equal per pupil expenditures • Equalization Aid is intended to level the playing field by aiding districts with fewer resources at a higher level than those districts with more resources.

  14. Equalization aid review What factors affect my district’s Equalization Aid? District Factors - Shared Costs - Equalized Property Value - Membership State Factors - Cost Ceilings - Guaranteed Valuations Per Member - Total Amount Of Funding Available For Distribution

  15. Equalization aid review DISTRICT FACTORS 1. Membership (Pupils) 2. Shared Cost (Aidable Costs) 3. Property Value/ Member (“wealth”) * * * All Prior-Year Data (2012-13 data is used for 2013-14 aid.) * * * This is a cost-reimbursement formula.

  16. Equalization aid review DISTRICT FACTOR #1: Membership FTE = Full Time Equivalent 2 halftime (.50) K students = 1 F.T.E. Summer School = 48,600 minutes = 1 F.T.E. AVERAGE of: 3rd Friday in September count (FTE) 2nd Friday in January count (FTE) PLUS (+) Summer School count (FTE) • Remember: summer school “starts” the school year for aid membership purposes • 2013-14 aid will use Summer 2012, September 2012, January 2013 & Summer 2012 numbers

  17. Equalization aid review DISTRICT FACTOR #2: Shared Costs Total General Fund (Fund 10) Expenditures plus (+) Total Debt Service Funds (Funds 38 & 39) Expenditures minus (-) All local non-property tax revenue (e.g., gate receipts), grant revenue (federal/state) and categorical aid. equals (=) SHARED COSTS (the costs in which the state shares, aka “Aidable Costs”)

  18. Equalization aid review DISTRICT FACTOR #3: Property Value/Member Property tax base & membership are used to measure the local ability to support district expenditures: • Uses Equalized Valuation (Fair Market Value) NOT Assessed Value • Values provided by WI Department of Revenue • “May 2013 Values” (final January 2012 values) will be used for 2013-14 aid

  19. Equalization aid review DISTRICT FACTOR #3: Property Value/Member Measured as Value per Member (Total Equalized Value ÷ Membership) District A: $400,000,000 ÷ 800 = 500,000/member District B: $400,000,000 ÷ 1,000 = 400,000/member District B will have a greater proportion of its costs (per member) aided by the state, even though they have the same total property value base.

  20. Equalization aid review STATE FACTORS 1. Cost Ceilings (Primary & Secondary) 2. Guarantee Values (Primary, Secondary & Tertiary) 3. Total Aid Appropriation * * * Equalization Aid is calculated at three levels: Primary, Secondary & Tertiary * * * Aid calculation is driven by each districts’ factors relative to the cost ceilings & guarantees

  21. Equalization aid review STATE FACTOR #1: “Cost Ceilings” The lines separating the three levels of state aid are the “cost ceilings” – per member amounts: • PRIMARY Cost Ceiling = $1,000. The first $1,000 of shared cost per member are aided in the Primary level. Set in statute. • SECONDARY Cost Ceiling = 90% of the state-wide shared costs average. July 1st estimate for 2013-14 General Aid = $9,261. Costs between $1,000 and the Secondary Cost Ceiling are aided in the Secondary level. Formula is set in statute. • Shared costs above the Secondary Cost Ceiling are aided in the Tertiary level (per statute)

  22. Equalization aid review STATE FACTOR #1: “Cost Ceilings” $10,000 Shared Cost

  23. Equalization aid review STATE FACTOR #2: “Guaranteed Values” Within each level, the share of state vs. local costs is based on the district’s wealth – equalized value per member – compared to state determined levels: • PRIMARY Guaranteed Value = $1,930,000 (for K-12 districts). Set in statute. • SECONDARY Guaranteed Value = “floating value” calculated by DPI to fully expend the general aid appropriation (as required by statute). July 1st estimate for 2013-14 General Aid = $1,049,683 (for K-12 districts) • TERTIARY Guaranteed Value = the state-wide average of property value per member. July 1st estimate for 2013-14 General Aid = $536,510 (for K-12 districts). Formula set in statute.

  24. Equalization aid review STATE FACTOR #3: Appropriation • The amount of dollars appropriated by the State Legislature and approved by the Governor for use as general aids to schools. • This amount is determined as part of the State Biennial Budget process. • Appropriations for 2013-14 and 2014-15 were decided as part of the 2013-15 State Budget.

  25. Equalization aid review General Aid Appropriation Over Time

  26. Equalization aid review • The change in the State’s appropriation for General Aid DOES NOT = the change in your district’s general aid payment. Rather, your district’s general aid amount will depend on: • Your district’s prior-year Shared Costs per Member, and how those costs break out into the Secondary and Tertiary level costs. • Your district’s Equalized Value per Member, and how it compares to the Primary, Secondary and Tertiary Guarantee Values. • Other Factors: Special Adjustment and Integration Aids eligibility; reductions for the Independent Charter schools; prior year adjustments.

  27. Equalization aid review • Regardless of what is happening at the state level with funding, your district’s general aid is a function of: • Your district’s “factors” • The relationship between your district’s factors and the statewide averages, which are affected by …. • Every other districts’ factors

  28. Equalization aid review How does the formula work? Example District: • Shared Costs per Member = $10,000 • Value per Member = $500,000 • Cost Ceilings and Guarantee Values = July 1st aid estimate values

  29. Putting it all Together TOTAL $9,261 (Secondary Cost Ceiling) Local (prop tax) State (Equal Aid) $1,000 (Primary Cost Ceiling) Example District: Shared Costs per Member = $10,000

  30. Equalization aid review We will walk through the Equalization Aid worksheet section by section … AFTER we review three more key concepts: • Negative Aid • Special Adjustment Aid • Adjustments to gross aid eligibility 30

  31. Equalization aid review 31 What happens when a district’s value/member exceeds the guaranteed value per member? NEGATIVE AID July 1st Aid Estimate: 184 districts are negatively aided at the tertiary level because their property value/member is greater than the tertiary guarantee. Of these districts: • 43 Districts received just Primary Aid; and • 20 districts receive no Equalization Aid (i.e., do not qualify for even Primary Aid). All but 2 of those districts qualify for Special Adjustment Aid (more in later slide).

  32. Equalization aid review • NEGATIVE TERTIARY AID • Occurs when: • District has costs at the Tertiary Level • District has Equalized Value/Member > TGV • Negative aid reduces the district’s aid at the secondary level • But the district’s Equalization Aid can not go below the amount of Primary Aid generated by the formula – this is the “Primary Guarantee” 32

  33. Negative Tertiary Aid • District’s value per member is greater than the Tertiary Guarantee • District has costs at the tertiary level Negative Tertiary Aid reduces the amount of aid at the Secondary Level

  34. Negative Tertiary Aid TOTAL $9,261 (Secondary Cost Ceiling) Local (prop tax) State (Equal Aid) $1,000 (Primary Cost Ceiling) Example District: Shared Costs per Member = $10,000

  35. More examples of negative aid in the appendix 35

  36. Equalization aid review KNOW YOUR DISTRICT’S POSITION IN THE AID FORMULA • If a districts is positively aided at the Tertiary Level, an increase in shared costs will increase aid at the tertiary level – more shared costs to be aided* • If a district is negatively aided a the Tertiary Level, an increase in shared costs will decrease aid at the tertiary level – more shared costs to be negatively aided* *Relative to the aid it otherwise would have received (i.e., all other things being equal).

  37. Position in the formula: http://sfs.dpi.wi.gov/sfs_buddev_eq

  38. Position in the formula: http://sfs.dpi.wi.gov/sfs_buddev_eq

  39. SPECIAL ADJUSTMENT AID To ensure that districts don’t see a dramatic drop in aid amounts from year to year, the aid formula includes “Special Adjustment Aid.” • Sometimes called “hold harmless aid” • Equal to 85% of the gross general aid (equalization + special adjustment + Inter/Intra District aids) for which the district was eligible in the previous year* • Acts as a parachute for districts with declining aid (often result of rapidly declining enrollment). • Very property wealthy districts may be “out of the aid formula” but continue to receive Special Adjustment Aid for years. *Less any prior year Revenue Limit Penalty (because that amount was deducted from the district’s prior year general aid payment)

  40. CHARTER/CHOICE DEDUCTIONS, etc. Reductions/adjustments to general aid eligibility: • Independent (“2r”) Charter Schools: cost is spread over all districts via an equal % reduction to gross general aid (equalization/special adjust/inter/intra aids) • July 1st aid estimate for 2013-14 aid: -1.479% • May change in the October 15th aid certification (small change) • Prior Year (“October to June”) adjustment: the difference in general aid amounts calculated between the October 15th aid certification and the final aid run of the prior year (+ or – value) • Parental Choice Program: reduction in aid to partially offset the cost of the program – but affects Milwaukee only

  41. Equalization aid takeaways One pot of money is split over 424 school districts based on district membership, shared costs and values; changes in individual district data affect every other district’s aid. Aid Membership = average of September + January FTE, plus 100% of Summer FTE. This is different from Revenue Limit Membership. Depending on district value per member, some districts increase their aid by increasing expenses, while others decrease their aid by increasing expenses (negative vs. positive tertiary aid). Special Adjustment Aid ensures that districts receive at least 85% of the prior year [gross] general aid eligibility. Reductions for the Independent Charter schools & prior year aid adjustments impact the actual aid payment. Be aware of what is happening to your district over time …

  42. Equalization Aid Worksheet

  43. Equalization aidworksheet header

  44. Equalization aidworksheet part a 44 44

  45. Equalization aidworksheet part b 45 45

  46. Equalization aidworksheet part c Line C8 = Fund 10 portion of shared costs, i.e., those cost that are funded by general aids and property taxes. 46 46

  47. Equalization aidworksheet part d Line D11 = Debt Service portion of shared costs, i.e., those cost that are funded by general aids and property taxes. 47 47

  48. Equalization aidworksheet part e 48 48

  49. Equalization aidworksheet parts F&G 49 49

  50. Equalization aidworksheet part H 50 50

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