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E-12 Education Finance Shift Discussion

Explore payment shifts, aid entitlement, and appropriation adjustments in E-12 education finance for better financial understanding.

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E-12 Education Finance Shift Discussion

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  1. E-12 Education FinanceShift Discussion Eric L. Nauman, Fiscal Analyst 296-5539

  2. Table of Contents Getting “Shifty” • Aid Payment Shift • Basic Terms & Shifted E-12 Programs • Aid Payment Schedule – No Shift • Aid Payment Schedule – Pre & Post 2011 Session • Aid Payment Schedule – After the 2011 Session • Property Tax Recognition Shift • Pre Shift Environment • How A Legislative PTRS Works • Current PTRS Under Unallotment • Accounting for the Shifts • Shift History & Summary • Where to Get More Information

  3. Aid Payment Shift 60/40 Auto-Buyback 90/10 Entitlement 73/27 Current Payment Final Payment

  4. Basic Terms • Aid Entitlement • 100 percent of the state aid a district or a charter school is eligible to receive in a given fiscal year. Aid may actually be paid in a separate fiscal year • Current Payment • The percentage of an entitlement that is paid in the fiscal year in which the state aid is generated. • Final Payment • The percentage of an entitlement that is paid in the fiscal year after the state aid is generated. Difference between prior year’s entitlement and that year’s current payment (MS127A.45, subd. 9). • Payment Schedule • A schedule which expresses the amount of education aid entitlements that are paid as a “current” payment and the amount that is paid as a “final” payment. Must add to 100%. • Appropriation (Education Context) • The amount of state aid that the state pays to districts and charter schools in a given year. In most cases, an appropriation consists of a portion of an aid entitlement from the “current” fiscal year and a “final” payment from an aid entitlement from the prior fiscal year.

  5. Basic Terms • Payment Shift • An adjustment to the balance of current and final payment percentages which constitute the state aid appropriation made to schools. • In an “unshifted” environment, school aid payments are comprised of a combination of 90% of the current year’s entitlement added to 10% of the prior year’s entitlement. • The appropriation is metered to schools in 23 payments throughout the year – roughly every two weeks

  6. E-12 Programs on Payment Schedule • General Education • Abatement Aid • Consolidation Transition Revenue • Nonpublic Pupil Aid • Nonpublic Pupil Transportation Aid • Charter School Building Lease Aid • Charter School Start-Up Aid • Integration Aid • Magnet School Start-Up Aid • Success for the Future • Tribal Contract Schools • Special Education – Regular • Special Education – Excess Cost • Travel for Home-Based Services • Transition Programs – Students with Disabilities • Health and Safety Aid

  7. E-12 Approps on Payment Schedule • Debt Service Equalization Aid • Alternative Facilities Bonding Aid • Deferred Maintenance • Basic Support Grants for Libraries • Multicounty, Multitype Library Systems • Regional Library Telecommunications Aid • School Readiness • Early Childhood Family Education Aid • Health and Developmental Screening Aid • Community Education • Adults with Disabilities Program Aid • School Age Care Aid • Adult Basic Education Aid

  8. School Payment Shift • Mechanics of Payment Schedule (Without Shift) • 2013 • 2009 • 2010 • 2011 • 2012 • Fiscal Year • $100 • $100 • $100 • $100 • Entitlements • (amounts generated by formula) • $100 • Payment • Schedule • 90%/ • 10% • 90%/ • 10% • 90%/ • 10% • 90%/ • 10% • 90%/ • 10% From FY 2008 • Current Payment • $90 • $90 • $90 • $90 • $90 • Final Payment • + $10 • + $10 • + $10 • + $10 • + $10 • Appropriations • $100 • $100 • $100 • $100 • $100

  9. School Payment Shift • Mechanics of Aid Payment Shift (2010-11 biennium & Feb 2011 Fcst law) • 2013 • 2009 • 2010 • 2011 • 2012 • Fiscal Year • $100 • $100 • $100 • $100 • Entitlements • (amounts generated by formula) • $100 • Payment • Schedule • 70%/ • 30% • 90%/ • 10% • 90%/ • 10% • 73%/ • 27% • 90%/ • 10% From FY 2008 • Current Payment • $90 • $73 • $70 • $90 • $90 • Final Payment • + $10 • + $10 • + $27 • + $10 • + $30 • Appropriations • $100 • $ 83 • $97 • $120 • $100 • Entitlements: Under a payment shift, there is not adjustment to entitlements. A payment shift creates a delay of WHEN schools receive aid. It does not reduce the amount.

  10. Where We’re At Today (2011 E-12 Education Bill) School Payment Shift • FY 2010-11 Biennium • FY 2012-13 Biennium • 2013 • 2009 • 2010 • 2011 • 2012 • Fiscal Year • $100 • $100 • $100 • $100 • Entitlements • (amounts generated by formula) • $100 • Payment • Schedule • 70%/ • 30% • 60%/ • 40% • 90%/ • 10% • 73%/ • 27% • 60%/ • 40% From FY 2008 • Current Payment • $90 • $73 • $70 • $60 • $60 • Final Payment • + $10 • + $10 • + $27 • + $40 • + $30 • Appropriations • $100 • $ 83 • $97 • $90 • $100 • Confusing Comparison: The shift percentage in FY 2012 is 10 percentage points lower than the prior year, BUT is 30 percentage points lower than the Feb Fcst for FY 2012.

  11. Property Tax Recognition Shift (PTRS) H.F.2323 UFARS Aid Cut Unallotment Recognition Percentage Levy Recognition Final Payment

  12. Basic Terms • Property Tax Recognition Shift (PTRS) • A PTRS is an accounting entry that takes a portion of a district’s property tax revenue and moves it back one year. (ie. PT revenue that would otherwise be revenue in FY 2012 is shifted into FY 2011) • The second step is to reduce state aid in an amount equal to the property taxes shifted forward. This generates one-time savings. • The current PTRS was enacted by the legislature in 2010. The amount shifted will grow over time as property taxes grow.

  13. Property Tax Recognition Shift Calendar Year 2011 • Prior to Change FY 2011 FY 2012 May July 1 Oct Dec Jan ‘11 Property taxes paid Property taxes paid Property tax revenue recognized by districts Property tax revenue recognized by districts • School property taxes currently paid in two separate years, BUT prior to FY 2011 both May and October payments were “recognized” by districts as revenue in the later fiscal year. • Rules governing recognition dates based on statute and UFARS.

  14. Property Tax Recognition Shift Calendar Year 2011 • Prior to Change • Legislative Change – Creating a Shift FY 2011 FY 2012 May July 1 Oct Dec Jan ‘11 Property taxes paid Step #1 –Change Levy Recognition Property taxes paid Property tax revenue recognized by districts Property tax revenue recognized by districts Increase Levy Revenue by $515 million * in FY 11 Aid cut in FY 11 by $515 million* Step #2 – GenEd Appropriation Reduction • *Based on Feb. 11 Fcst

  15. Accounting for the Shift MS 16A.152 Budget Balance Automatic Buybacks Forecasts One-time Levy Recognition Fund Balance

  16. Shift Accounting • Budget Balance & the Shifts • (Dollars in 000s, Relative to Feb 11 Fcst) • February 2011 Forecast • Enacted Budget • FY 2012-13 • FY 2010-11 • FY 2012-13 • FY 2012-13 • Difference • ($831,351) ($2,213,719) • Aid Payment Shift (73%, 70% & 90%) • (60% in FY12 & later) • ($1,382,368) * $1,382,368 • ($79,917) ($13,673) • ($515,014) ($66,244) • Property Tax • Recog Shift • ($1,897,382) $1,316,124 • ($911,268) ($2,227,392) • Shift Savings • *Aid shift numbers include tax credits.

  17. Contingent Shift Buy-Back • Because shifts have historically been used as a defacto “budget reserve” a system was created in 2004 to pay them back automatically. This law remains in effect today. • Shifts are paid back when the Commissioner of MMB “determines that there will be a positive unrestricted budgetary general fund balance at the close of the biennium.” • In order of precedence: (1) Cash flow account, (2) budget reserve, (3) payment shift,(4) property tax recognition shift and two other small payments. • This process used once already. Shifts from 2002 & 2003 sessions were paid back in two years.

  18. Contingent Shift Buy-Back MS.16A.152 Budget Reserve and Cash Flow Accounts If on the basis of a forecast of general fund revenues and expenditures, the commissioner of management and budget determines that there will be a positive unrestricted budgetary general fund balance at the close of the biennium, the commissioner of management and budget must allocate money to the following accounts and purposes in priority order: (1) the cash flow account established in subdivision 1 until that account reaches $350,000,000; (2) the budget reserve account established in subdivision 1a until that account reaches $653,000,000; (3) the amount necessary to increase the aid payment schedule for school district aids and credits payments in section 127A.45 to not more than 90 percent rounded to the nearest tenth of a percent without exceeding the amount available and with any remaining funds deposited n the budget reserve; (4) the amount necessary to restore all or a portion of the net aid reductions under section 127A.441 and to reduce the property tax revenue recognition shift under section 123B.75, subdivision 5, by the same amount………..

  19. Shift Accounting 3,895 3,808 3,727 3,623 SCRFA, ELNauman

  20. History of E-12 Shifts Unallotments UFARS PTRS Contingent Buyback Recognition Percentage Payment Shift

  21. Education Shift Savings – A History of Legislative Changes Education Budget • Year Paid • Back • Amount When Enacted (if known) • Fiscal Year • Type • Level • 1983 PTRS 32% ($240.7 M) Partially in ’85, ’96-’99 • 1985 PTRS 24% shift reduced • 1988 PTRS 27% shift expanded 1996-1999 • 1990 PTRS 31% shift expanded 1996-1999 • 1992 PTRS 37% shift expanded 1996-1999 • 1993* PTRS 50% shift expanded Partially in ‘94 • 1994 PTRS 37.4% shift reduced • 1996 PTRS 18.1% shift reduced • 1997 PTRS 7% shift reduced • 1997 Payment 90/10 shift reduced • 1999 PTRS 0% PTRS eliminated • 2003 Payment 83/17 ( $437.5 M) Nov. 2005 Fcst • 2004** Payment 80/20 ($185.3 M) Nov. 2005 Fcst • 2004** PTRS 48.6 ( $230.3 M ) Feb. 2006 Fcst • *Previous shift high point in FY 1993, $688 million owed to schools. • **2004 the Legislature passed the contingent shift buyback language.

  22. Education Shift Changes – A History of Legislative Changes Education Budget • Year Paid • Back • Amount When Enacted • (if known) • Fiscal Year • Type • Level • 2005 Payment 81.9/18.1 $116.3 M Nov. 2004 Fcst • 2005 Payment 84.3/15.7 $143.7 M Feb. 2005 Fcst • 2006 Payment 84.3/15.7 $355.0 M Nov. 2005 Fcst • 2006 PTRS 10.8% $265.9 M Nov. 2005 Fcst • 2006 PTRS 0% $72.9M Feb. 2006 Fcst • 2010* Payment 73%/27% ( $1,160.4M) Based on pos fcst • 2011* PTRS 48.6% ($561.5M ) Based on pos fcst • 2011 Payment 70%30% ($207.7M) Based on pos fcst • 2012 Payment 60%/40% ($739.2M ) Based on pos fcst * Shifts initially created by Gubernatorial unallotment process and subsequently codified into law.

  23. Briefing Summary There are two kinds of Education shifts -- Aid Payment Shifts -- Property Tax Recognition Shift Neither type makes any changes in the revenue that districts have to spend Shifts have a lengthy history in Minnesota budgeting -- Frequently used as a budget reserve Current law requires shifts to be paid back once MN forecasts positive budget balances in the general fund -- Reasonable assumptions project over $3.6 billion in contingent spending (based on current law) -- This spending will occur prior to having any resources available for other budget purposes

  24. Where to Get More Information Senate Counsel, Research and Fiscal Analysis, This briefing will be archived at: http://www.senate.leg.state.mn.us/departments/scr/presentations/index.php#header Department of Education; PTRS Shift Explanation Letter http://www.education.state.mn.us/mdeprod/groups/Communications/documents/Announcement/014480.pdf Senate Counsel, Research and Fiscal Analysis, 2011 Final Education Act Aid Tracking: http://www.senate.mn/departments/fiscalpol/tracking/2011/Edu_AidSS.pdf 2011 Final Education Act Property Tax Tracking: http://www.senate.mn/departments/fiscalpol/tracking/2011/Edu_PropTaxSS.pdf House Research School Finance Guide For Legislators http://www.house.leg.state.mn.us/hrd/pubs/mnschfin.pdf

  25. Minnesota Senate E-12 Education Staff Caucus Staff Greg Marcus, Education Committee Administrator 651/296-5312 Ed Cook, Republican Research 651/296-0129 Danna Elling, DFL Research 651/296-7089 Nonpartisan Staff Shelby McQuay, Research Analyst 651/296-5259 Eric L. Nauman, Fiscal Analyst 651/296-5539 Ann Marie Butler Yunker, Counsel 651/296-5301

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