There is a problem.

1. There is a problem. What can you expect from the legislature this year?

2. The stability of a republican form of government depending mainly upon the intelligence of the people, it is the duty of the legislature to establish a general and uniform system of public schools. The legislature shall make such provisions by taxation or otherwise as will secure a thorough and efficient system of public schools throughout the state. Minnesota Constitution Article XIII, Section 1

3. Financing Education in Minnesota • School districts receive funding from state aid, local property taxes, and some federal dollars. • State aid comes primarily from sales and income taxes and represents about 85% of total revenue received by schools. • Local aid comes from local property taxes.

4. How are schools funded? The legislature sets the amount for: • the basic general education formula allowance • other general education components • categorical aid formulas Operating levies are decided by local voter approval.

5. The Basic Education Formula • Referred to as the “basic formula” • Calculated on a “per-pupil” basis • The amount is set by the legislature and establishes the minimum level of funding for school districts. • The current basic formula is $4,601

6. A few more things you should know about the basic formula revenue… Actual students are weighted before figuring a district’s basic education revenue • Kindergartners = .557 • Grades 1-3 = 1.115 • Grades 4-6 = 1.06 • Grades 7-12 = 1.3

7. Property Tax Reform and the Basic Formula • Until 2001, the basic formula was a combination of state aid and local property taxes. • In 2001, legislation was passed making the state responsible for funding 100% of the formula. Note: we had a budget surplus. • Local property taxes went downsignificantly as state aid replaced the property tax portion of the formula.

8. But, there was one problem… • The legislature only passed the first part of the property tax reform—the part that makes the state responsible for funding 100% of the basic formula. • The second half, which would have created a new revenue stream to pay for these reforms, was never passed.

9. “The state crisis wasn’t inherited, it was self inflicted.” “Although the recession worsened the problem, school funding takeover and property tax reform created over one-half of the deficit, because state taxes weren’t restructured. The state doubled their 2004-05 problem by temporarily patching the 2003 budget with one-time fixes.” John Gunyou Finance Commissioner under Governor Arne Carlson www.gunyou.com

10. Operating Levies • Voter approved operating levies provide additional operating revenue for school districts. • Once called an excess levy that primarily funded “extras,” operating levies now fund basic classroom expenditures because the formula has not kept up. • Unlike the basic formula, which is all state aid, local property taxes fund 100% of an operating levy in ISD #834.

11. Unfunded Mandates • State and federal dollars only partially fund the cost of services which are mandated under state and federal law. • In most school districts, general education revenue is used to subsidize these services.

12. The special education cross-subsidy • While special education costs continue to climb, the state froze funding for special education in 2003. This helped balance the state budget, but because these services are mandated, school districts had to find the money somewhere. • The special education cross-subsidy in ISD 834 is approximately $395 per student -- which means that instead of $4.1 million in general fund dollars supporting regular class room instruction, it is used to subsidize special education.

13. What can you expect from the Legislature? • The budget forecast Is there a surplus? What does one time money mean? • Proposals Formula increases Funding the special ed cross-subsidy All-day Kindergarten and early childhood • The next five weeks

14. The Economic Forecast • A forecast of future state revenue and expenditures • A critical tool for legislators in budgeting and understanding the state’s financial health • Determines if the state has a deficit or a surplus

15. What make Minnesota unique? Minnesota is the only state in the nation that… • uses inflation to adjust the state’s revenues, but • prohibits considering the impact of inflation on most state expenditures when forecasting the size of the state’s general fund balance.

16. In the real world… …inflation affects both revenues and expenditures. No business would forecast its performance by assuming that revenue will rise in future years and expenses will stay flat. Businesses know that the things they pay for (labor, parts, services, rent, etc) are likely to rise over the course of two years.

17. February 2007 Forecast • $1.0 billion balance in FY 06-07 --considered one time money as it is not ongoing • $2.2 billion balance in FY 2008-09 -- Includes $1.0 billion in one time money from FY 06-07 -- 1.2 billion balance unique to FY 2008-09** • Check the fine print of the forecast: Minnesota's much heralded budget surplus does not exist. **Inflation costs for FY 2008-09 = $1.0 - $1.2 billion

18. The 9% increase in spending…isn’t that more than enough? • A biennium and budget cycle covers two years. • From July 1, 2007 to June 30, 2009, state revenues are projected to increase approximately 9.1% Note: that is not an increase of 9% per year. • This increase in revenue could support a cost of living adjustment of approximately 3% per year.

19. Let’s do the math… A 3% cost of living adjustment costs 3% more in the first year. 2007-08: $100 x 3% = $3 Maintaining that same 3% increase in the second year of the biennium would cost another $3. 2008-09: $3 In order to provide a cost of living increase in the second year of the biennium, it would cost another 3%. 2008-09: $103 x 3% = $3.10

20. Legislative Priorities $1 billion in ongoing revenue -- $1 billion in one time money • K-12 Education • Early Childhood / Learning Readiness • Higher Education • Property Tax Relief • Long Term Care Cost of Living AdjustmentsRestoring Cuts to Child Care Initiatives and Minnesota Care • Veterans and Reintegration Issues • Environment and Clean Water Initiatives

21. E - 12 Legislative Proposals • Pay back part of the special education cross-subsidy Cost: $500 million • Increase the basic formula by 2-3% in each year Cost: $290 - $440 million • All day kindergarten Cost: $245 million • Early Childhood & Learning Readiness Programs Cost: $65 million

22. House and Senate Proposals~best case scenarios~ • House over current base for ISD #834 2007-08: $ 244 2008-09: $ 677 • Senate over current base for ISD #834 2006-07 $ 115 (special education base/excess costs) 2007-08 $ 274 2008-09 $ 434

23. The next five weeks… • The Senate passed its major funding bills in March. • The House will pass its major funding bills this week. • Conference committees will be named and negotiate the difference between the House and Senate bills. • Negotiations will begin with the Governor. • Conference Committee bills need to pass the House and Senate and will then be sent to the Governor. • The Legislature must adjourn by May 21, 2007.

24. Will it be enough?No. Even with a mix of increased formula dollars, a greater commitment to pay the bill for the special education cross subsidy, and limited new dollars to fund all-day kindergarten and early childhood programs, any legislation passed in 2007 will not be enough to make up for the loss of our existing operating levy.