WASBO New School Administrators and Business Support Staff Conference

1. WASBO New School Administrators and Business Support Staff Conference State Equalization & general Aid Erin Fath – ASSISTANT DIRECTOR DPI School Financial Services TEAM August 14, 2013

2. Equalization & General Aid So … you’ve just learned about Revenue Limits and that the amount of Equalization / General Aid your district receives will impact the levy your district can set. During this presentation, you will: • Learn how Equalization/General aids are calculated (including the resources on the DPI web site). • Have the opportunity to ask questions to further your understanding of equalization/general aid (and revenue limits/levy). • See how your district’s aid amount figures into the revenue limit worksheet to produce your district’s levy each year.

3. Equalization & General Aid Why do you need to know how to calculate Equalization/General Aid when DPI calculates it for you? • Because you will be asked by your board members, your community and the media. • So you can better understand AND explain why your aid has changed. • Because you may want to do your own analysis and run “what if” scenarios …

4. Equalization & General Aid Knowing where your district is in the formula will help you better explain how changes in local finances might affect your state aid. If we go to referendum, how will our aid change? What if we over/under spend our budget? How does that affect our aid?

5. Handouts • District Specific Data • July 1 Estimate of 2013-14 Equalization Aid (“General Aid Worksheet”) • Percentage Method Aid Computation: Bar Graph • Positioning on the Equalization Aid Graph • Longitudinal Analysis of Equalization/General Aid

6. Equalization & General 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?

7. Equalization & General Aid The State provides financial assistance 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

8. Equalization & General Aid Three types of aid that the State provides to districts: • Unrestricted “General Aid”: • Distributed primarily by formula on the basis of relative fiscal capacity of each school district – this is Equalization Aid. • Also includes “Special Adjustment Aid” and “Integration Aid” • High Poverty Aid is funded from a separate appropriation, but treated like General Aid for revenue limit & spending purposes. • Categorical aids – targeted purpose • School levy tax credit –reduces property tax bills. This presentation will discuss just General Aids, with a primary focus on Equalization & Special Adjustment Aids.

9. 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

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

11. Why Equalization Aid? • How, then, to establish funding for schools that provides “equal opportunity,” and is “uniform as practicable”? • The fundamental purpose of the Equalization Aid formula is to “level the playing field” by providing assistance (distributing aid) to poorer districts to make up for what they can’t get from their property tax base.

12. Why Equalization Aid? Because property values vary so greatly across the state, the resources districts can raise from just their tax base also vary.

13. Why Equalization Aid? Districts with less property value per member are aided at a higher proportion than districts with higher values per member

14. 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 – levels the playing field by providing more aid to districts with fewer resources (property value)

15. Analogy: Needs-Based College Scholarship • State “shares” in district cost, just as the College shares in the student’s costs (tuition/books/housing) • Aid is based on ability to pay (measured by districts’ property value per member) just as the scholarship is based on need … ability to pay (measured by student’s financial resources) • State aid attempts to level the playing field for districts just as a needs based scholarship attempts to level the playing field for individual students

16. Equalization Aid “State Factors” • The total amount of money allocated for general aid • Cost ceilings • State property value guarantee levels What are the factors that affect aid? “District Factors” • The number of pupils (membership) in your district • Your district’s shared (aidable) costs • Property values in your district

17. District Factors 1. Pupils – Membership 2. Shared Costs 3. Property Tax Base – Wealth * * * All Prior-Year Data (2012-13 data is used for 2013-14 aid.) * * * Equalization Aid is a cost-reimbursement formula

18. District Factor #1 – Membership (prior year) Average of: 3rd Friday in September (FTE)* and 2nd Friday in January (FTE)* plus (+) Summer School (FTE ) Includes Foster Care/Part-Time/YCA pupils (as applicable) FTE = full-time equivalent: 2 halftime (.50) K students = 1 FTE Summer School = 48,600 minutes = 1 FTE 2013-14 aid based on membership derived from: Summer 2012* FTE, September 2012 & January 2013 *NOTE that summer starts the school year for membership data purposes

19. District Factor #2 – Shared Costs (prior year) Total General Fund (Fund 10) Expenditures plus (+) Total Debt Service Funds (Funds 38 & 39) Expenditures minus (-) All categorical aid, grant revenue, local misc revenue equals (=) Shared Cost (a.k.a. “Aidable Costs”) – these are the costs in which the state shares with the district via equalization aid

20. District Factor #3 – Wealth (prior year) • Property Tax base is used to determine wealth and ability to support district expenditures • This measure of district wealth uses equalized valuation (fair market value), NOT assessed value • Equalized property values are calculated by and provided to DPI by the Department of Revenue. • Timing: DOR assessments on Jan 1, 2012 became “final” in May 2013 – we use these “May values” for the 2013-14 aid calculation.

21. District Factor #3 – Value Per Member Crucial Statistic: District “wealth” Value per Member = Total Equalized Value ÷ Membership District A: $400,000,000 ÷ 800 = $500,000 District B: $400,000,000 ÷ 1,000 = $400,000 District B would have a higher proportion of it’s shared costs aided, per member, than district A, because of its lower value per member.

22. District Factors/Equalization Aid • VERY IMPORTANT: • The equalization aid formula is driven by the relationship between an individual district’s factors and state averages (costs & property values). • Because changes in other districts’ factors will affect state averages, it is not simply the factors in your district that affect the amount of aid that your district will receive. • Let’s look at the State factors …

23. State Factors 1. Total amount appropriated for aid 2. Costs Ceilings 3. Property Value Guarantees

24. State Factor #1 – Aid Appropriation The amount of dollars appropriated by the State Legislature & approved by the Governor for use as general aids to schools.

25. State Factor #1 – Aid Appropriation The change in the State’s appropriation for General Aid does NOT EQUAL 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 Chapter 220 Integration Aid eligibility; reductions for the Independent Charter schools; prior year adjustments.

26. State Factor #2 – Costs Ceilings Equalization Aid is calculated at three levels – the line between those levels are called “cost ceilings”: There is no ceiling on the total amount of shared costs that are aidable. TERTIARY COSTS *: shared costs per member above the secondary cost ceiling xtotal membership SECONDARY COST CEILING: 90% of the statewide average shared costs per member (statute); July 1st aid est: $9,261 SECONDARY COSTS: shared costs per member between $1,000 and the secondary cost ceilingxtotal membership PRIMARY COST CEILING: $1,000 per member, set in statute PRIMARAY COSTS: the first $1,000 in per-member shared costs xtotal membership *Not all districts have shared costs at the tertiary level.

27. State Factor #2 – Costs Ceilings Example District: Shared Costs per Member = $10,000 $9,261 (Secondary Cost Ceiling) $1,000 (Primary Cost Ceiling)

28. State Factor #3 – Guarantee Levels Within each level, the proportion of shared costs that are aided by the state is based on a district’s property value per member (“wealth”) compared to state determined levels*: TERTIARY GUARANTEE 100% of the statewide average property value per pupil (formula set in statute) July 1st aid estimate for 2013-14: $536,510 SECONDARY GUARANTEE This value “floats” such that the general aid appropriation is fully expended July 1st aid estimate for 2013-14: $ 1,049,683 PRIMARY GUARANTEE $1,930,000, set in statute *These are the guarantee levels for K-12 districts; guarantees levels are adjusted for K-8 and UHS districts.

29. Remember the Scholarship Analogy? The scholarship example we used as an analogy still works, but we do it three times to determine each district’s aid: • PRIMARY AID – the state’s share of the first $1,000 of shared cost. • SECONDARY AID – the state’s share of the district’s shared cost over $1,000 up to the secondary ceiling (est. $9,261). • TERTIARY AID – the state’s share of cost over the secondary ceiling.

30. Putting it all Together Example District: • Shared Costs per Member = $10,000 • Value per Member = $500,000 • Cost Ceilings and Guarantee Values = July 1st aid estimate values

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

32. Putting it all Together 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].

33. Negative Aid 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”

34. 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

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

36. Negative Aid – Primary Aid Only (1) • District’s value per member is greater than the Tertiary Guarantee • District has costs at the tertiary level A district is always eligible for at least the Primary Aid generated by the formula

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

38. Negative Aid – Primary Aid (2) • District’s value per member is greater than the Secondary Guarantee • District has costs at the tertiary level A district is always eligible for at least the Primary Aid generated by the formula

39. Negative Aid – Primary Aid (2) Example District: Shared Costs per Member = $10,000 TOTAL $9,261 (Secondary Cost Ceiling) Local (prop tax) State (Equal Aid) $1,000 (Primary Cost Ceiling)

40. Negative Aid – Primary Aid (3) • District’s value per member is greater than the Secondary Guarantee • District has NO costs at the tertiary level: Shared Cost/Member = $9,000 A district is always eligible for at least the Primary Aid generated by the formula

41. Negative Aid – Primary Aid (2) Example District: Shared Costs per Member = $9,000 TOTAL $9,261 (Secondary Cost Ceiling) Local (prop tax) State (Equal Aid) $1,000 (Primary Cost Ceiling)

42. No Equalization Aid • District’s value per member is greater than the Primary Guarantee • District has costs at the tertiary level A district would be eligible for Special Adjustment Aid, if they received any General Aid in the prior year

43. 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).

44. Conceptualizing the Equalization Aid Formula This chart is available on the DPI website at: http://sfs.dpi.wi.gov/sfs_aid_grid

45. Equalization Aid 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

46. Equalization Aid is part of “General Aid” *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 General Aid types are used for the Revenue Limit computation (though most districts receive only Equalization Aid)

47. 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)

48. From Gross Aid Eligibility to Actual Aid Payment 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

49. 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 [gross] general aid awarded the prior year. 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 …

50. GENERAL AID AND THE LEVY You know your district’s general aid estimate for the 2013-14 year – now what? The amount of General Aid (and High Poverty Aid, if applicable) has a direct impact on the allowable controlled levy.