E12 Education Funding Update

1
E-12 Education Funding Update

• Tom Melcher Minnesota Department of Education
• July 27, 2009

2
Topics for Discussion

• Education Finance Changes in
• E-12 Education Act (Laws 2009, Chapter 96)
• Tax Policy Bill (Laws 2009, Chapter 88)
• Overview of American Recovery and Reinvestment
  Act (ARRA)
• Overview of Funding Changes to Balance State
  Budget

3
2009 E-12 Education Act K-12 SPENDING SUMMARYFY
10 11 Biennium

• FY 2010 State General Educ Aid Reduction
  (500,000,000)
• Federal Fiscal Stabilization Funds
• Replacing State Aid
  500,000,000
• Reduction to MDE Agency Budget (3.7)
  (1,500,000)
• Minnesota Reading Corps
  750,000
• Math Science Teacher Academy
  750,000
• Total Change
  0

4
GENERAL EDUCATION REVENUE FY 2009 vs FY 2010 and
Later

• Districts Charter Schools Lose
• One-Time Additional General Educ Aid of 51 / PU
  and
• One-Time Technology Operating Capital Aid of
  55 / PU
• Districts Gain
• 27 million (about 33 / resident ADM) from
  elimination of endowment subtraction enacted in
  2008

5
BUDGET FLEXIBILITYFY 2010 and FY 2011

• Requirement to reserve 2 of Basic Revenue for
  staff development is waived for FY 2010 and FY
  2011
• District site staff development committees are
  still required to complete a staff development
  plan and submit an annual report on staff
  development activities expenditures
• Allows districts to transfer up to 51 per pupil
  unit from operating capital account to unreserved
  general fund in FY 2009 and in FY 2010
  (previously authorized for FY 2008 only)

6
What Wasnt Enacted

• Pay for Progress Aid (Gov)
• Q Comp Expansion to Statewide (Gov)
• Across the Board Cuts in General Education Aid
  (Senate)
• Shared Services (Senate)
• New Minnesota Miracle (House)
• State Tax Increases (House Senate)
• Payment Tax Shifts (Gov, House)
• (But Governor may use unallotment authority to
  implement shifts )

7
Sparsity Revenue Adjustment forClosed Schools

• A district closing a school will receive the
  greater of the sparsity revenue calculated
• for the prior school year, or
• with the school closed,
• IF it files a board resolution with the
  Commissioner at least 60 days prior to the
  beginning of the fiscal year stating that it
  intends to close the school but cannot proceed
  without the sparsity adjustment
• Special provision allows St Louis County Deer
  River school districts to qualify in FY 2010 if
  they adopt the resolution any time before the
  start of the 2009-10 school year.

8
Referendum by Petition

• Eliminates the authority in MS 126C.17 for an
  operating referendum or reverse operating
  referendum by petition, effective for petitions
  files after July 1, 2009
• However, language authorizing elections by
  petition still exists in MS 205A.05.
  Clarification is needed

9
Referendum Revenue Inflation Consolidated
Districts

• Clarifies the calculation of referendum
  allowances for consolidated districts where one
  or more of the consolidating districts had a
  referendum with an inflation adjustment
• Inflation is calculated based on each districts
  share of the RMCPU in the year before the
  consolidation

10
Q Comp

• Clarifies that the basic aid/equalized levy
  breakdown changes from 73.1 basic aid to 65
  basic aid (from 190/ pupil to 169/pupil in aid)
  beginning in FY 2010.
• Requires MDE to provide technical assistance
  model plans for rural districts interested in
  implementing Q Comp
• Requires MDE to annually establish 3 dates as
  deadlines for Q Comp applications. Retains 30
  day application review timeline but removes
  external reviewers from the process.

11
Compensatory Revenue Allocations

• Requires MDE to pay compensatory revenue for
  students enrolled at coops directly to the coop
• Excludes compensatory revenue from special
  education tuition billing calculations for
  students served in coops

12
MOE Requirement for Licensed Support Staff

• Under existing law
• Beginning in FY 2010, districts required to
  maintain effort at FY 2009 level for licensed
  school support staff, including guidance
  counselors, nurses, social workers,
  psychologists, and alcohol/chemical dependency
  counselors from all funding sources other than
  safe schools levy
• New legislation
• Modifies maintenance of effort requirement by
  allowing districts to calculate MOE using either
  (1) expenditures or (2) number of FTE licensed
  school support staff

13
Other Post Employment Benefits (OPEB) Bonding
Levy

• OPEB Bonds sold after October 1, 2009, must be
  approved by voters
• Creates new levy for school districts to fund
  annual costs associated with OPEB, limited to 9
  million for taxes payable 2010, and 30 million
  for taxes payable 2011, with an increase of 14
  million in the limit each year thereafter
  (Commissioner must prorate levy if requests
  exceed cap)
• Requirements
• Create an actuarial liability to pay OPEB
• Sunset clause in effect for current collective
  bargaining period
• Apply for levy authority to commissioner

14
Permanent School Fund Report

• Requires the State Board of Investment, instead
  of the Department of Finance, to annually report
  to the legislature on how they maximized the
  long-term return on the permanent school fund.

15
Start of School Before Labor Day Cooperating
Districts

• Clarifies that if any district involved in an
  academic pairing arrangement qualifies to start
  school before Labor Day due to a construction
  project over 400,000, the exemption applies to
  all districts involved in the agreement

16
Wind Energy Conversion Systems

• Authorizes a school board, individually or as a
  member of a joint powers board, to become a
  partner, member or shareholder in a company
  formed for the sole purpose of constructing,
  acquiring, owning or financing a wind energy
  conversion system
• Prohibits a district from selling, transmitting
  or distributing electrical energy at retail.

17
Cultural Exchange Program Registration

• Requires a cultural exchange organization be
  registered with the Secretary of States Office
  for its students to be eligible for generate
  Minnesota state aid.

18
Building Lease Levy for Desegregation Districts

• Technical change Updates language to reflect
  changes in statute and rule. No change from
  current administration of the program

19
Charter Schools

• Multiple changes to sponsorship, school
  formation, and governance
• Clarification of conflict of interest related
  to board and leases
• Clarification of charter contract requirements
• Clarification regarding exemption from statute
  and rule
• Allows state aid reduction for violation of law
• Changes allowed sponsor fees and requires a
  sponsor report regarding sponsor activities
• Provides for payments of an equal amount for all
  charter schools on 24 payment dates rather than
  23
• Establishes procedure for state aid payment
  close-out of closed or closing charter schools
• Allows the commissioner to withhold state aid for
  federal or state funds not returned upon request,
  or for unpaid amounts due to another state
  agency, a school district, or educational
  cooperative

20
Superintendents Report on Expenditures Passage
Rates

• Repealed effective the day following final
  enactment

21
Integration Revenue

• Adds Mpls, St Paul Duluth to requirement to
  submit integration budget to MDE for approval
• Modifies uses of integration revenue to include
  sustained interracial contacts, and improved
  educational opportunities designed to close the
  achievement gap
• Requires MDE to study districts use of and need
  for integration revenue, with report to
  legislature by Feb 1, 2011

22
Alternative Program Funding

• Clarifies that that revenue to be reserved for
  ALCs and other alternative programs includes 90
  of district average general ed revenue / PU,
  excluding transportation basic skills, plus
  100 of basic skills revenue generated by the
  students attending the program (e.g.,
  compensatory, LEP)
• Clarifies definition of project-based programs
  and calculation of project-based ADM

23
SPECIAL EDUCATION

• Clarifies that staff providing indirect services
  to students (e.g., OTs, PTs, autism specialists),
  excluding administrators supervisors, are
  eligible for state special education aid
• Requires a nonresident district to notify the
  resident district within 15 days of an emergency
  placement. Resident district has up to 5
  business days to request an opportunity to
  participate in the emergency placement decision
• Allows the resident district to place reasonable
  restrictions for transporting a child placed at a
  day care and treatment facility, subject to a
  court or agency order.
• Strikes language specifying that, if the resident
  district does not receive notification from the
  providing district by August 1 following the end
  of the school year, the resident district is not
  liable for any tuition billing received after
  August 1

24
Review Comment on Facilities Construction

• Prohibits the Commissioner of Education from
  issuing an unfavorable or negative review
  comment based solely on
• Too little acreage, or
• The ratio of renovation costs to replacement
  costs
• Increases the threshold for review comment from
  500,000 to 1.4 million, except for districts
  with an outstanding capital loan
• Increases the threshold for consultation from
  250,000 to 500,000
• Expands info required for RC to include
• a description of pedestrian, bicycle and transit
  connections
• information on how the proposal maximizes
  cooperative use of existing park recreation and
  other public facilities, and
• Any existing info from the local unit of
  government on cumulative costs to proved
  infrastructure to serve the school such as
  utilities, sewer, roads sidewalks
• Requires only a summary of the review comment
  to be published in the newspaper, instead of full
  Review Comment

25
Alternative Facilities

• Eliminates requirement for a 5 year plan for
  districts eligible only for the Health Safety
  portion of alternative facilities revenue
• Eliminates requirement to publish review
  comment as part of the notice preceding sale of
  alt facilities bonds and certification of alt
  facilities pay as you go levies

26
FACILITIES TECHNOLOGY

• Clarifies that intermediate districts are
  eligible for telecommunications access aid
  (through member districts)
• Appropriates 3.75 million for Equity in
  Telecommunications Access Aid for FY 10 and for
  FY 11 (versus 8.7 million in FY 09)

27
Accounting for Separation Retirement Benefits

• Clarifies accounting requirements for designated
  separation retirement benefits
• Designated for separation retirement benefit
  account (BAL 418) includes compensated absences,
  termination benefits, pension benefits and OPEB
  not accounted for elsewhere
• BAL 418 will no longer be limited to 50 of the
  amount necessary to meet obligations for the
  portion of severance pay that constitutes
  compensation for accumulated sick leave
• MDE will eliminate BAL 411 (Reserve for
  Severance) beginning with FY 2010 reporting

28
Budget Publication

• Allows districts to publish a summary of its
  budget in the newspaper, with the address of the
  districts official web site where the full
  document can be found.

29
Transportation

• Modifies bill passed in 2008 that established
  regulations for drivers of Type 3 vehicles
• All type 3 drivers must undergo background check,
  have license verified annually by employer,
  notify employer if convicted of certain DWI and
  traffic offenses
• Clarifies exemption from physical exam and drug
  test for district employees not employed for the
  sole purpose of operating a type 3 vehicle
• Note Same language passed in separate bill and
  signed into law Chapter 24

30
Tax Policy ActTruth in Taxation

• Districts no longer required to hold separate TNT
  meeting
• Instead discuss at regularly scheduled board
  meeting
• Announce meeting date when proposed levy is
  adopted
• Meeting date also noted on TNT notices
• Must discuss levy and budget

31
Career Technical Levy for Cooperating Districts

• Requires a district participating in a pairing
  agreement (agreement for secondary education
  under MS 123A.30 or interdistrict cooperation
  under MS 123A.32) to allocate its career
  technical education costs among participating
  districts.

32
Distribution of Wind Energy Revenues

• Beginning with taxes payable in 2010, reallocates
  the 6 of wind energy tax receipts currently
  going to school districts (with an offsetting aid
  reduction) to cities townships instead

33
Taconite Aid

• Property tax levies are still reduced for
  estimated taconite receipts
• But state aid is no longer reduced for any
  remaining taconite receipts
• Remaining receipts are instead reallocated to
  cities towns

34
Minnesota ARRA Education Allocations (000)

• Stabilization Fund
• 817 Million in Two Parts
• Fiscal Stabilization Fund-Education 667,888
• Fiscal Stabilization-General Purpose 148,601
• Formula Grants
• IDEA (Special education)-Part B, Section
  611 189,839
• IDEA (Special education)-Part B, Section
  619 7,707
• IDEA (Special education)-Part C
  7,013
• Title 1-Grants to School Districts
  94,909
• Title 1-School Improvement 27,031

35
Minnesota ARRA Allocations

• Competitive Grants (to the state or LEAs)
• Education Technology 6,166
• McKinney-Vento (Ed for Homeless)
  691
• School-Lunch Equipment Grant 1,270
• Application period closed on May 8.
• State Incentive Grants (4.35 billion
  nationwide)Innovative Fund Grants (650
  million nationwide)
• -
• Teacher Incentive Fund (200 million
  nationwide)
• -States or partnerships between a state and an
  LEA and/or non-profit are eligible to apply for
  competitive Teacher Incentive Fund (TIF) grants.
• Statewide Data Systems (250 million
  nationwide)
• -Competitive grants for states to develop
  longitudinal data system.

36
Minnesota ARRA Education Allocations

• Timeline ARRA Allocations Available to LEAs

37
Other ARRA Grants (Not Through MDE)

• Clean Diesel Program
• Energy Efficiency and Conservation Block Grants
• Head Start
• Impact Aid Construction
• Rural Community Facilities Program

38
Reduced Cost Borrowing-ARRA

• Qualified Zone Academy Bonds (QZAB)
• - renovation, purchasing equipment,
  developing curricula, and training school
  personnel
• - ongoing application process on a
  first-come-first-served basis
• - targeted to low-income districts
• Qualified School Construction Bonds (QSCB)
• -new construction, rehabilitation, repair,
  equipment or acquisition of land
• -Competitive application process. Application
  due June 30
• Build America Bonds (BAB)
• -Contact a financial advisor with BAB
  issuance experience.

39
State Fiscal Stabilization Fund-81.8 Education
Portion

• Enacted K-12 Budget
• -(500) million reduction in general education
  revenue
• -500 million in fiscal stabilization funds
  to replace general education revenue
• - Districts would receive the same amount of
  revenue

40
State Fiscal Stabilization Fund 81.8 Education
Portion

• Allowable Uses by Local Education Agencies
  include any activities under
• Elementary and Secondary Education Act
• Individuals with Disabilities Education Act
• Carl D. Perkins Career and Technical Education
  Act
• Adult Basic Education
• Modernization, renovation or repair of public
  school facilities, including modernization,
  renovation, and repairs that are consistent with
  a recognized green building rating system.

41
State Fiscal Stabilization Fund 81.8 Education
Portion

• Prohibitions on Funding for K-12 Education
• Payment of maintenance costs
• Stadiums or other facilities primarily used for
  athletic contests or exhibitions or other events
  for which admission is charged to the general
  public
• Purchase or upgrade of vehicles or
• Improvement of stand-alone facilities whose
  purpose is not the education of children,
  including central office administration or
  operations or logistical support facilities.

42
State Fiscal Stabilization Fund Application
Process

• Initial applications were due to MDE on June
  30th. Signed applications received by that date
  are considered substantially approved.
  Districts and charter schools that met the
  initial deadline may begin incurring expenses as
  of July 1.
• For districts and charter schools that have not
  yet applied, the deadline is August 15.
• Districts and charters that have submitted signed
  applications after July 1 have the authority to
  incur expenses as of the date the electronic
  signature is completed.

43
State Fiscal Stabilization Fund Application
Process

• The second step of the application process is
  entering a budget in the SERVS Financial system.
• Budgets in the SERVS Financial system will be
  reviewed and approved by MDE staff. Part of the
  budget review includes reviewing the paper
  application against the SERVS budget.
• The budget in SERVS must be approved before the
  draw-down of funds can occur.

44
Competitive Grants

• State Incentive Grants
• ( Race to the Top)
• Governor submits application to the Secretary of
  Education
• Each state receiving a state incentive grant must
  use at least 50 percent of the funding to provide
  LEAs with sub-grants based on the Title I, part A
  formula
• Guidance and application information is
  forthcoming from US ED.

45
Competitive Grants

• Innovative Fund
• (Investing in What Works and Innovation)
• -Guidance and application information is
  forthcoming from US ED.
• Eligible entities
• Local education agency or
• Partnership between a nonprofit organization and
  either one or more local education agencies or a
  consortium of schools.

46
Federal Special Education Funding

• Standard Rules for Use of IDEA Funds Apply To
  Increase in IDEA Funding Under Economic Stimulus
  Bill
• Funds Must be Used for Excess Cost of Special
  Education
• Interaction between 50 rule and 15 for EIS
• Maintenance of Effort (50 rule) New funds are
  considered to be part of FY 10 Allocation

47
Uses of Federal IDEA Funds

• Staff
• Contracted Services
• Staff Development
• Supplies
• Equipment
• Early Intervening Services (15)
• Fringe benefits for staff funded with state sp ed
  aid
• Portion of tuition adjustments related to
  expenditures not claimed for state special
  education aid (e.g., fringe benefits)
• Cannot be used to cover unreimbursed cost for
  staff funded with state categorical funds

48
Use of Federal IDEA Funds

• 50 Rule
• All IDEA funds must be used for approved special
  education expenses (No direct expenditure of 50
  rule for other purposes)
• Eligible LEAs allowed to reduce effort for
  special education from state local funds by up
  to 50 of increase in IDEA funds over prior FY
• LEA must document use of freed-up funds for
  activities allowable under ESEA
• Title VIII of ESEA allows expenditures for a
  broad range of general education purposes
• If an LEA uses IDEA funds for EIS and 50 rule,
  combined total is limited to lesser of 15 of
  total IDEA or 50 of Increase

49
Use of Federal IDEA Funds

• LEAs are excluded from using the 50 MOE
  reduction if they have been determined
• -Need Assistance implementing Part B
• -Have significant disproportionality for 3
  consecutive years
• -Have not maintained effort for the most
  recent year available after taking into account
  the exceptions outlined in 34 CFR 300.204
• -16 LEAs received a Needs Assistance
  Determination. Those districts will receive
  information on an appeals process.
• -No LEAs have had significant
  disproportionality for 3 consecutive years.
• -3 LEAs were notified that they did not
  maintain effort for FY 2007.

50
Requirements for Federal IDEA Funds

• Under the Tydings Amendment
• Standard rule is funds must be obligated within
  27 months and expended within 30 months
• For FY 10, new considered to be part of FY 10
  allocation and clock starts July 1. Funds must
  be obligated by Sept. 30, 2011, and expended by
  December 31, 2011. Payment requests must be
  submitted to MDE by Nov. 15, 2011.

51
Elementary and Secondary Education Act Funding

• Title I, Part A funding
• Formula based on census data
• School Improvement funding
• Targeted to schools/districts to assist schools
  in need of improvement
• Guidance is forthcoming.
• Title II, part D funding
• Used to enhance technology in schools - May be
  allocated on a competitive basis or 50 via a
  formula and 50 on a competitive basis
• McKinney Vento funding
• Competitive or formula to local school districts
  and based on number of homeless students in
  2007-08 and 2008-09

52
Title 1, Part A ARRA

• Expended consistent with Title 1, Part A
  requirements
• Supplement not supplant
• Set-aside requirements apply
• Not every district will receive an allocation
  (only targeted and EFIG grants were increased)

53
Title 1, Part A ARRA

• New funds are considered part of SFY 2010
  allocation
• Unless it is granted a waiver, an LEA must
  obligate at least 85 of its total SFY 2010 Title
  1 Part A funds, including its Title 1 ARRA funds,
  by September 30, 2010. Remaining funds are
  available until September 30, 2011.
• Guidance is expected from US ED on waivers.

54
New Reporting Requirements for ARRA Funds

• New reporting requirements applicable to K-12
  include
• Use and distribution of funds
• Number of jobs saved or created
• Tax increases averted because of funds
• Progress in reducing inequity in the distribution
  of highly qualified teachers, implementing state
  longitudinal data system, developing valid and
  reliable assessments for ELL students and
  students with disabilities
• Description of each modernization, renovation and
  repair project funded, which must include amounts
  awarded project costs
• Guidance is forthcoming on specific reporting
  requirements. There may be additional
  requirements for reporting.

55
Increased Accountability

• Unprecedented levels of federal stimulus funds
  come with increased levels of required
  accountability
• Enhanced budget review process for all federal
  programs
• Federal expenditures must be reimbursement based
  (no metering)
• Enhanced monitoring requirements
• Minimum reporting quarterly ARRA spending
  comparisons to regular federal spending
• Additional reporting requirements are forthcoming
  in Federal Guidance documents

56
Funding Changes to Balance State Budget

• State Aid Payment Deferral
• Property Tax Revenue Recognition Change
• One-Time Aid Adjustment for Property Tax Revenue
  Recognition Change

57
State Aid Payment Deferral

• For FY 2010 and FY 2011 only
• All state aids normally paid on a 90 -10
  schedule will be changed to a 73 - 27 schedule
• Reduction in current aid payments is spread
  fairly evenly throughout the fiscal year
• Final payments will be increased to offset the
  reduction in current payments

58
State Aid Payment Deferral SOD

• For districts and charter schools in Statutory
  Operating Debt as of 6/30 of the previous fiscal
  year, the amount of the deferral will be reduced
  by the lesser of
• 17 of general education aid (the difference
  between 90 and 73), or
• The amount of the district or schools SOD.
• For a district or charter school where the amount
  of SOD exceeds 17 of general education aid, the
  payment schedule for general education aid will
  remain at 90 -10
• Other state aids will be paid at 73-27

59
State Aid Payment Deferral SOD

• SOD status will be determined based on audited
  UFARS data after the November 30 deadline for
  data submission
• Districts / charter schools in SOD as of 6/30/09
  eligible for FY 2010 adjustment
• Districts / charter schools in SOD as of 6/30/10
  eligible for FY 2011 adjustment
• The general education aid adjustment for affected
  districts and charter schools will be made on
  June 20

60
State Aid Payment Deferral

• Final payments will be paid according to
  statutory schedule
• Property tax credits paid on August 15
• Other final payments
• 30 August 30,
• 40 September 30,
• 30 October 30
• Cash Flow Simulation and annual aid entitlement
  estimates used for simulation for FY 2010 and FY
  2011 are available on MDE Web site under Program
  Finance / MFR
• For additional Information, please refer to July
  10 memo from Commissioner Seagren to
  Superintendents Charter School Directors
  (copies sent to business managers auditors)

61
Property Tax Revenue Recognition Change

• Beginning in FY 2011, school districts will
  recognize the May, June and July tax settlement
  revenue received during the calendar year in
  Funds 1 and 4, and not recognized early under MS
  123B.75, subd. 5, paragraph (b), in June of the
  calendar year in which it is received, instead of
  July.
• In the absence of new legislation, this change
  will be permanent, and will be reflected in the
  UFARS manual

62
Property Tax Revenue Recognition Change

• The change in levy recognition policy will create
  a large increase in the amount of property taxes
  recognized by school districts as revenue during
  FY 2011.
• For FY 2012 and later, the impact of this change
  will be smaller, but still significant
• Districts with growing operating levies (e.g.,
  new operating referendum) will recognize the
  increase in May/June/July tax settlements earlier
  (50 of net levy proceeds)
• Districts with declining operating levies (e.g.,
  expiring operating referendum) will recognize the
  decrease in May/June/July tax settlements earlier
  (50 of net levy proceeds)

63
One-Time Aid Adjustment for Property Tax Revenue
Recognition Change

• State aid payments during FY 2011 will be reduced
  by the difference between the amount each
  district is estimated to recognize in FY 2011
  under the new property tax revenue recognition
  policy, compared with the amount the district
  would have recognized in FY 2011 under the old
  property tax revenue recognition policy.
• This is a one-time adjustment to state aids for
  FY 2011 only, which will occur as late in FY 2011
  as possible, to align with the receipt of the
  levy revenue

64
One-Time Aid Adjustment for Property Tax Revenue
Recognition Change

• Barring a change in law, or an additional
  unallotment by the Governor during the next
  biennium, there will be no adjustment to state
  aids for the change in property tax levy revenue
  recognition during FY 2012 or later.
• While state policy makers may elect to reverse
  the property tax levy recognition change and pay
  back the amount of the FY 2011 aid reduction when
  the states budget outlook improves, without new
  legislation there will be no payback in FY 2012
  or later.

65
Department Staff

• Title 1
• Jessie Montano 651-582-8615
• IDEA Part B
• Carol Hokenson 651-582-8840
• Stabilization Fund
• Lisa Mueller 651-582-8225
• Levy Recognition Policy and Actions to Balance
  the State Budget
• Tom Melcher [phone]
• Cash Flow Simulations
• Judy Kuck [phone]