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E-12 Education Finance Shift Discussion

This article explains the concept of E-12 payment shifts in education finance and discusses the relevant terms, payment schedules, and the impact of legislative and gubernatorial unallotments. It also provides information on the mechanics of payment shifts, current laws governing payment shifts, and where to find more information.

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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. Getting “Shifty” Unallotment Authority Aid Payment Shift Basic Terms & Shifted E-12 Programs Aid Payment Schedule – No Shift Aid Payment Schedule – Legislatively Enacted Shift Aid Payment Schedule – Gubernatorial Unallotments Property Tax Recognition Shift Pre Shift Environment How A Legislative PTRS Works Current PTRS Under Unallotment Cash Flow Delay – M.S. 127A.46 Shift History Where to Get More Information

  3. Unallotment Authority MMB “Defer” Current Biennium Budget Reserve Gubernatorial Authority 16A.152 “Suspend”

  4. Unallotment Authority – 16A.152 Statutory Language in Your Packets Key Language for E-12 Unallotments (b) An additional deficit shall, with the approval of the governor, and after consulting the legislative advisory commission, be made up by reducing unexpended allotments of any prior appropriation or transfer. Notwithstanding any other law to the contrary, the commissioner is empowered to prior statutorily created obligations which would prevent effecting such reductions. defer or suspend Spreadsheets Also Included in Packets

  5. School Payment Shift H.F.2323 Auto-Buyback 90/10 Unallotment 73/27 Current Payment Final Payment

  6. 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 The amount of state aid that the legislature pays to districts and charter schools in a given year. In many 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.

  7. Basic Terms Payment Shift An adjustment to the balance of current and final payment percentages which constitute the state aid appropriation made to schools. For most state aid schools’ 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

  8. 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

  9. 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

  10. 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

  11. School Payment Shift Mechanics of Aid Payment Shift (Legislative Enacted) 2013 2009 2010 2011 2012 Fiscal Year $100 $100 $100 $100 Entitlements (amounts generated by formula) $100 Payment Schedule 73%/ 27% 73%/ 27% 90%/ 10% 73%/ 27% 73%/ 27% From FY 2008 Current Payment $90 $73 $73 $73 $73 Final Payment + $10 + $10 + $27 + $27 + $27 Appropriations $100 $ 83 $100 $100 $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. Under Current Law: An enacted shift is paid back when forecasted revenues EXCEED forecasted expenditures (16A.152, subd. 2). No legislative action is required.

  12. Where We’re At (Gubernatorial Unallotment) 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 73%/ 27% 90%/ 10% 90%/ 10% 73%/ 27% 90%/ 10% From FY 2008 Current Payment $90 $73 $73 $90 $90 Final Payment + $10 + $10 + $27 + $10 + $27 Appropriations $100 $ 83 $100 $117 $100 Returning to “Real Numbers”: In the Nov ’09 Forecast, the payback of the $17 in hypothetical is equal to $1.2 billion. This is a legal liability that the state must pay. If codified, the forecasted 90/10 schedule in the next biennium remains at 73/27 and reduces E-12 expenditures by $1.2 billion AND triggers the automatic buyback language based on positive forecasted revenues and expenditures.

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

  14. 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.

  15. 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 unallotments 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.

  16. 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 $561.5 million * in FY 11 Legislatively Enacted Aid cut in FY 11 by $561.5 million* GenEd appropriation cut w/legislative action Step #2 – GenEd Appropriation Reduction *Based on Nov. 09 Fcst

  17. Property Tax Recognition Shift Calendar Year 2011 PTRS Under Unallotment 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 $561.5 million * in FY 11 UFARS Definition altered to require earlier recognition Step #2 – GenEd Appropriation Reduction Aid cut in FY 11 by $561.5 million* • Governor used unallotment authority to reduce GenEd appropriation. Will not be automatically bought back because of adjustment to UFARS definition unless legislature mandates a change. *Based on Nov. 09 Fcst

  18. 127A.46 Change in Payment of School Aids (Cash Flow) 127A.45 Sept 1 1986 Session Cash Flow Borrowing District Reserve Cash Balances May 30

  19. Statutory General Fund shortfalls expected in March-May 2010 Shortfalls driven by inadequate cash available to meet the payment obligations of the General Fund. Chart based on Minnesota Management & Budget cash flow analysis.

  20. Cash Flow Delay – 127A.46 Statutory Language in Your Packets Original Authority Passed in 1986 Original statute applied only to fiscal year 1987. The 1987 legislature amended the language to make it part of permanent statute. FY 2010 is the first occasion in which this statute has been applied

  21. Cash Flow Delay – 127A.46 Requires MMB to modify school district payments to reduce the need for short-term borrowing by the state. Establishes a formula for delaying state aid payments Formula is a ceiling. State cannot delay payments greater than the formula. Formula must be fully implemented prior to cash-flow borrowing by the state. Formula recognizes district cash, investments, certificates of indebtedness. Formula has not been changed since original 1986 law. Does not apply to charter schools. Payment modifications may not begin before Sept. 1 & must end by May 30 Unlike the payment shift, this delay only operates within the confines of a single fiscal year.

  22. Cash Flow – 127A.46 MMB and the MDE will implement statute on March 15, March 30, & April 15 school district aid payments $423.3 million will be delayed from 231 school districts (69% of total) Approximately 614,000 resident pupil units (65% of total) are educated in affected districts. In implementation, the MDE adjusted formula to reduce the amount of funds delayed and create a higher threshold before districts are affected by the delay. April 30 and May 15 payment will return to normal schedule May 30 payment will be normal -- plus it will pay the entire delayed $423.3 million from March and April. See district-by-district data run.

  23. History of E-12 Shifts Unallotments UFARS PTRS Contingent Buyback District Cash flow Recognition Percentage Payment Shift

  24. Education Shift Savings – A History of Legislative Changes Education Budget Year Paid Back Amount (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.

  25. Education Shift Savings – A History of Legislative Changes Education Budget Year Paid Back Amount (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 Scheduled for FY 2012. 2011* PTRS 49.1% $561.5M Unknown * Shifts created by Gubernatorial unallotment process.

  26. Contingent Shift Buy-Back • 2004 forecast bill (Laws 2004, Ch. 272, Art. 3, Sect. 1) created a structure to pay shifts back automatically. • In order of precedence: (1) Cash flow account, (2) budget reserve, (3) payment shift and (4) property tax recognition shift • 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.” • This process used once already. Shifts from 2002 & 2003 sessions were paid back in two years.

  27. 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, Unallotment Issue Brief: http://www.senate.leg.state.mn.us/departments/fiscalpol/reports/2010/IB%20FY2010-11%20Unallotments.pdf Senate Counsel, Research and Fiscal Analysis, Gubernatorial Unallotment Tracking: http://www.senate.leg.state.mn.us/departments/fiscalpol/tracking/2010/LAC_GovUnallot_Final.pdf

  28. Where to Get More Information Senate Counsel, Research and Fiscal Analysis, E-12 Budget Detail, End of Session, Unallotments, November Forecast: http://www.senate.leg.state.mn.us/departments/fiscalpol/tracking/2010/e12aid_Nov09.pdf Department of Management and Budget, Payment Delay Letter: http://www.mmb.state.mn.us/doc/citizen/misc/gov01-10.pdf Department of Management and Budget, Payment Delay Data Run: http://www.mmb.state.mn.us/doc/citizen/misc/spread01-10.pdf Department of Management and Budget, Cash Flow Report: http://www.mmb.state.mn.us/doc/budget/bud-cap/10/cash-flow.pdf

  29. Minnesota Senate E-12 Education Staff Caucus Staff Daron Korte, Committee Administrator 651/296-5312 Jeri Wenzel, Committee Legislative Assistant 651/296-8660 Danna Elling, K-12, Majority Research 651/296-7089 Ed Cook, Republican Research 651/296-0129 Nonpartisan Staff Shelby McQuay, Research Analyst 651/296-5259 Eric Nauman, Fiscal Analyst 651/296-5539 Ann Marie Butler Yunker, Counsel 651/296-5301

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