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When It Comes to School Finances, No News is Not Good News

August 23, 2010 By Jeff Van Wychen, Fellow and Director of Tax Policy & Analysis

Using published data from state sources, Minnesota 2020 has repeatedly demonstrated that real (i.e., inflation-adjusted) state aid to Minnesota public schools has declined sharply since fiscal year (FY) 2003.*  Unfortunately for Minnesota children and the state's long-term economic health, this disturbing trend shows no sign of abating.

The 2010 legislative session produced no breakthrough in terms of education funding.  Renewed attempts to pass major education funding reform through passage of the "new Minnesota miracle"stalled, another victim of the "no new tax" agenda that has been driving school funding lower and school property taxes higher over the last eight years.

Based on projections from the 2010 end-of-session "Price of Government" report from Minnesota Management & Budget (MMB), state aid to Minnesota school districts in constant FY 2011 dollars? will be $1.216 billion (15.0 percent) less in FY 2011 than in FY 2003.  An $814 million (62.0 percent) increase in school property taxes along with increases in other revenue were not sufficient to replace the state aid loss.  As a result, total FY 2011 school revenue will be $177 million (1.6 percent) less than in FY 2003.
Change in State Aid, Property Taxes and Total School Revenue
School revenues in FY 2011 are bolstered somewhat by temporary federal recovery dollars.  The budget situation for Minnesota public schools gets even bleaker after this federal assistance sunsets.  Based on planning estimates from MMB, total school revenues are projected to drop by another $63 million (0.6 percent) by FY 2013 in constant FY 2011 dollars, despite a projected nine percent increase in school property taxes.  To make matters worse, the decline in revenue coincides with a projected 1.5 percent growth in school enrollment over the next two years, leaving school districts with less revenue and more students.

On a per pupil basis, state aid to school districts dropped $1,366 (13.9 percent) from FY 2003 to FY 2011 in constant FY 2011 dollars based on MMB projections.  This drop in aid precipitated a corresponding per pupil property tax increase of $1,012 (64.0 percent) and school revenue reduction of $55 (0.4 percent).

The total school revenue loss from FY 2003 to FY 2011 would have been considerably greater if not for an infusion of federal recovery dollars.  However, these federal funds are temporary.  In addition, the decline in real per pupil state aid will continue in FY 2012 and 2013 based on MMB planning estimates.  Continued property tax increases will not be sufficient to replace declining state aid and the disappearance of federal recovery dollars, resulting in a projected real per pupil revenue decline of $277 (2.1 percent) from FY 2011 to FY 2013.

The decline in real per pupil state aid and total school revenue in FY 2012 and 2013 is projected to occur even before the state takes steps to solve its anticipated $6.8 billion budget deficit.  This massive deficit could create even further pressure for erosion in real per pupil state funding.  To make matters even worse, this analysis does not take into account the deleterious effect of school aid and levy recognition shifts; these shifts can create additional financial hardships for school districts by delaying school aid payments. While a large portion of this shift is scheduled to be repaid in the next biennium, the looming budget deficit makes attainment of this goal doubtful.

Minnesota's steady erosion of education funding underscores the failure of the "no new tax" policy.  This policy has starved the state of revenue, as illustrated by the fact that Minnesota leads the nation in the decline of public own-source revenue since 2002.  The state has dealt with its share of the decline in public revenue by shifting more public costs on to regressive property taxes, which fall most heavily on those families with the least ability to pay.Change in School District Property Taxes

At the same time that school property taxes have soared, real per pupil funding for education has declined.  Perhaps no public investment is more critical for the long-term health of our economy and society than the education of our children.  The inability to maintain this investment even after imposing large property tax increases on Minnesota residents is clear proof that the "no new tax" agenda is an irresponsible and unworkable long-term fiscal strategy.

While the need for continued spending reprioritization and reductions is undeniable, the need for reasonable state tax increases-increases that do not fall disproportionately on low-income households-is equally obvious.  Now more than ever, Minnesota needs a balanced solution to the state's ongoing fiscal mess.

*Minnesota 2020's most recent examinations of this subject include an October 2009 article which documented a decline in total state aid to schools of approximately $1,400 per pupil using Minnesota Management & Budget data and a May 2010 report that demonstrated a decline in operating aid of about $1,300 per pupil based on data from the Minnesota Department of Education.  The May report also included information for each Minnesota school district.

?All inflation adjustments in this analysis are based on the implicit price deflator for state and local government purchases, which is the appropriate measure of inflation for state and local government purchases.

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