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Accounting trick explains Minnesota schools' so-called 'windfall'

These numbers are accurate — but only in the same way it’s true that withholding 40 percent of school funding adds up to a balanced budget.
Courtesy of MN GOP
These numbers are accurate — but only in the same way it’s true that withholding 40 percent of school funding adds up to a balanced budget.

Wielded with enough might, it turns out a spreadsheet makes a pretty good blunt instrument.

Midway between July’s blitzkrieg special session and November’s referenda-heavy election, Minnesota House Republican leaders are revving up the message machine. The state’s public schools, they insist, are getting hefty budget increases and might not truly need the levies.

They’re circulating materials [PDF] that suggest that far from being in a financial crisis, schools will get an average of almost $500 per pupil in new funding in fiscal year 2012. The figures have been making the rounds in political circles for some time, and appear to be the underpinnings of a campaign to defeat the 120-plus operating levy requests appearing on ballots in November. 

They’re accurate — but only in the same way it’s true that withholding 40 percent of school funding adds up to a balanced budget.

A new calculation
The GOP leadership arrived at the numbers via a wholly new calculation that depicts public education as the session’s big winner, not by using the traditional method of calculating ups and downs in education revenue.

This week, the murmuring campaign burst onto the public stage. On Tuesday, DFL lawmakers announced plans to tour the state explaining their disappointment with the session’s final education package. Immediately House GOP leaders struck back, releasing a set of numbers they said showed that schools were receiving a generous increase in funding — the first in quite some time. 

According to one of the GOP documents, schools will receive an average of $488 in new money this year. Northfield will get almost $400 more per student, Crookston $365 and Anoka-Hennepin, the state’s largest district, an eye-popping $763.

Contrast those figures with the more traditional ones posted online in July by the Department of Education’s number crunchers. The statewide average they computed comes to just $230, and the increase Anoka-Hennepin can look forward to only $257.

Base over base
The underlying accounting trick? When policymakers talk about education finance, they compare, in their parlance, base over base — base being the last piece of budgeting legislation passed.

And base over base [PDF] being the apples to apples comparison used “since time immemorial,” in the words of the Association of Metropolitan School Districts Executive Director Scott Croonquist.

Illustrations are in order. In 2010, when the Legislature adjourned without passing an education package, base was the budget passed in 2009. If there had been no special session this year, base would still have been 2009. Base for 2012 will be the 2011 bill passed in July.

Base does not, however, mean the same number of dollars from one year to another. Under state law, special education reimbursement has an annual cost of living increase (which is actually far less than the actual increase), for example.

And other segments of the funding stream adjust automatically as well — some according to the amount of, ahem, base funding allocated to schools. Compensatory aid, the money used to compensate districts with concentrations of impoverished kids, adjusts along with the pot of money we think of as basic “tuition” dollars.

The only new money?
And the only real new money in that pot this year and next is the $50 per year per student Gov. Mark Dayton demanded to offset the costs of district borrowing that will be triggered by the shift. That alone explains $100 of the $230 average base over base per-pupil increase.

In sum, instead of $1-$1, base over base is more like $1-$1.14 or $1.11 — better than just $1, but still nowhere near the generous new funding described in the GOP’s literature.

To arrive at the set of numbers that describes schools as flush, the lawmakers compared budget to budget [PDF], a figure that encompasses money the Legislature has no responsibility for debating, finding or allocating. It includes all of the aforementioned increases, increases for projected enrollment increases, targeted federal aid, food service reimbursements and — this is the whammy that accounts for the big differences — local referendum dollars.

Experiencing math anxiety? Stick with me for another illustration.

If a district — let’s call it Lake Wobegon just for irony’s sake — passed a levy last fall, the resulting money would not be collected until 2012. Not part of the “base,” it would show up in the budget-over-budget calculation as an envelope stuffed with new money.

Even if you are willing to concede that — and it is factually accurate to say that Lake Wobegon’s gross revenues will be higher than they were last year — it’s not new money appropriated by the Legislature. And if you take the trajectory of state funding over the last decade into account, it’s not true that schools are getting a real increase.

Well below inflation rate
The explanation [PDF] penned by Dayton’s Education Finance Working Group:

“State aid per student for K-12 education increased over the past eight years, but at a rate well below the rate of inflation (15 percent increase in aid/student vs. 20-35 percent inflation, depending on the inflation measure used). Property tax levies per student for K-12 education more than tripled between 2003 and 2011, and more than doubled after adjusting for inflation. Voter approved operating referendum levies accounted for most of the increase.

“Total state aid plus levy revenue per student increased by 6 percent between FY 2003 and FY 2011 if the Consumer Price Index is used to measure inflation; or decreased by 15 percent if the implicit price deflator is used to measure inflation,” the group’s report concluded.

In other words, the “new” levy dollars used to create those rosy budget-over-budget materials is based in large part on money local communities voted to tax themselves to make up for dwindling state aid.

Yet in a recent constituent newsletter, Rep. Steve Drazkowski, R-Mazeppa, urged voters to reject referendum requests, insisting that schools came out of the legislative session with a “windfall.”

“Despite these very generous funding increases — paid for by you, the taxpayer — 133 school districts statewide are considering asking their local property taxpayers to pony up even more money — the largest number that would call for a vote in a decade,” he wrote.

'Windfal' only if ...
In at least 120 of those districts, this “windfall” is based on operating levies that school administrators are seeking to renew. So if voters heed the call of Drazkowski and his partisans to reject the referenda requests, a sizable chunk of the supposed windfall will evaporate.

Some districts are asking voters to approve an increase to make up for the net reduction in state aid, but the more crucial vote is to continue existing levies.

“They’re just trying to hang on to what they have,” said Croonquist of the districts. “This is the kind of thing we battle all session.”

Levies, it should be pointed out, were never supposed to be used to pay bus drivers and electric bills. They were supposed to go for capital improvements and other big-ticket items. And — and we’re working up to another fiscal awareness post on this one soon — they are inherently and hugely inequitable.

One final number needs parsing before we wrap this post up: That whopper increase Anoka-Hennepin supposedly is in line for. This is perhaps the most disingenuous number on any of the spreadsheets.

Anoka-Hennepin assumption
The $763 figure includes an assumption from the February financial forecast that Anoka-Hennepin’s very large teachers union would join the state’s pay-for-performance program, Q-Comp, starting in 2013. New Q-Comp money accounts for $270 per pupil of the $763 figure. 

The state is supposed to reimburse districts for the higher costs of implementing Q-Comp, a controversial initiative spearheaded by former Gov. Tim Pawlenty, but has never fully funded the program. And in any case, last spring Anoka-Hennepin’s teachers voted no on Q Comp. 

To all of this, Department of Education Communications Director Charlene Briner would like to add one observation: that neither set of calculations has anything to do with deciding whether Minnesota’s children are receiving an adequate education.

“We have always tried to divide the pie up fairly,” she said. “But we’ve never defined the cost of educating kids to the standards we’ve identified.”

For politicians, I’d wager, that math is even tougher.

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Comments (10)

Base over base...

Funding streams that "adjust automatically" don't count as increases...

"Well below inflation rate"...so long as you the special rate created to mask government's yearly, scale swamping, cost increases.

This is the same scud district taxpayers have been wading through for years. Public school funding is cryptoclastic enough to make any government number cruncher's toes curl in extasy, and make any taxpayer reach for the Excederin; and deliberatly so.

In 2000, in response to a complaint filed by yours truly, Ramsey County Attorney Susan Gaertner concluded that a claim being made on literature in support of a new excess levy referendum by the Saint Paul School District (and it's leftist PAC imps), that their funding wasn't keeping up with inflation was patently false. Gaertner declined to file charges, for reasons she didn't care to explain, but the finding is public information.

So here's a simple question Beth. Did Minnesota public school budgets for the year 2011-2012 increase, decrease or stay the same as they were last year.

Ah, Swifty, how I wish I were signing on to debate you...

I'm prompted to comment on my own story by a private e-mail from Rep. Pat Garofalo accusing me of inaccurate reporting. I'm not willing to cop to that, but I do think his point merits making here.

Specifically, Garofalo, the Farmington Republican who can take credit for many of the GOP education reforms passed in the recent session, complains that I erred in reporting that the only new state money going to schools was the $50 per year proposed by the governor to compensate districts for the cost of the shift. He is correct in pointing out that there are in fact other sources of new money, including literary incentive aid, which kicks in in the second year of the biennium, as well as small school aid and a handful of other programs.

What I wrote was that the only "real" new money was the $50 to offset borrowing. I'm currently kicking myself for the use of such a poor qualifier. What I meant to suggest--and stand by--is that there is no significant increase in base-over-base state funding. And yes, I do realize that the literacy incentive aid may add up to $58 per pupil, but we could then turn around and argue about the disappearance of the integration revenue.

One other imprecision the good representative failed to point out: The more conservative $230 figure preferred by the state DOE is actually the figure for the second year of the biennium. The overall increase for the year just begun is actually closer to $65.

The simple answer is that budgets for Minnesota public schools did increase for the 2011-2012 school year, primarily due to increased voter-approved funding (levies) which more than offset the shortfall in expected funding from the State of Minnesota. In other words, costs rose for everything from textbooks to computers to wages to building maintenance to fringe benefits, but the legislature refused to provide funds to cover increased costs, so local voters made up the difference. Effectively, the legislature succeeded in shifting taxes from the state to local governments. As with so much this Republican state legislature has done, this results in the same costs to end users; the only difference is who collects and disburses it - the state or a local government. It's the great Pawlenty Shift - no one is better off except for Republican state legislators who can say they took it to those liberal teachers.

I believe Mr. Swift could answer his own question to Beth if he read the column, though I confess – not being an accountant – discussions of accounting generally make my eyes glaze over very quickly.

I’m especially interested in this paragraph:

‘ “Total state aid plus levy revenue per student increased by 6 percent between FY 2003 and FY 2011 if the Consumer Price Index is used to measure inflation; or decreased by 15 percent if the implicit price deflator is used to measure inflation,” the group’s report concluded.’

I’d like to see an explanation of the “implicit price deflator.” Sounds like a chrome-plated ray-gun sort of apparatus that’s pointed at school district budgets to make their costs… um… deflate?

While I search online for an implicit price deflator – can I get one at Target? – it sounded to me like school districts have gotten more money from the state over the past several budgetary periods, but not enough to keep up with inflation. Sort of like “Sun rises in East,” this is news only in that it is more or less in line with every other news story about school district finances in just about every state. As Beth suggests, when state contributions decline – relative to actual cost increases – school districts have to resort to tax increases, which are inherently inequitable. Some districts have huge tax bases upon which they can draw, while others have very little in the way of financial resources. Where that’s the case, rhetoric about “equal opportunity” is something we can assume to be false.

My word, Beth. You mean they're, um, lying?

A bedrock principal of accounting is the consistency principle, that financial reporting needs to use the same accounting method from one accounting period to the next. The self-proclaimed fiscal conservatives are playing fast and loose with the numbers, violating the fundamental rule of accurate and true fiscal conservatism. I suppose there is the possibility that their numbers are pure politics, where Enron accounting is more than adequate.

"What I meant to suggest--and stand by.."

In which Beth parses the meaning of "is".

I read the story Ray, and I know the answer. I just wanted to see if Beth had enough brass to try and tap dance around a straight forward question.

The fact is, levies aside, MN public schools have more money to spend this year than they did last year. That is what House GOP is saying, and it is the truth.

Will we see a comensurate increase in academic achievement? LOL!

Beth, I'm ready when you are, but be advised; when it comes to public education in Minnesota, I know where the bones are buried.

There is a long time member of the SPPS board whose ears I've pinned back so efficiently that she has literally run from the board room when I entered.

The energy index advanced 19.0 percent from the first half of 2010 to the first half of 2011. Within the energy category, the index for gasoline increased 29.9 percent. The indexes for electricity (7.0 percent) and utility (piped) gas service (1.5 percent) were also higher. This information is specific to the Minneapolis/St.Paul area, for the first half of 2011.

Mr. Swift, one question I would have for you is this. How do you reconcile just the rising energy costs (a large percentage of school district's costs) without a yearly increase in funds?

The reality for our family is that the cost of running our house at the same level is more than it was this time last year. Our household expenses have increased by 8% over last year (that is comparing base to base, by the way) without any increases in services. If we only pay what we paid last year for these services/food/gas, etc, we would have to cut back. Garbage collection, Xcel Energy bill, food, city water and especially the purchase of gas to get to and from work have risen. Our cost for health insurance has increased by over $2000...in one year. House insurance and car insurance premiums increased.

Very similar increases hold true for every school district, and if you would compare your costs from last year to this year, Mr Swift, you may find the same to hold true in your own household budget.

I think we all agree that we want the most "bang" for our taxpayer "buck" in education. With that in mind, we need to carefully take measure and not come in with our biases of (a) every increase in education has merit or (b) no increase in education has merit. I appreciate the perspective this article gives in regards to the numbers republicans are presenting (which appear to be intentionally misleading).

The biggest insult is that these guys obviously have no clue what local referendums pay for. For example, many referendums pay for all day kindergarten since Minnesota thinks kindergartners are only 61% of a human. St. Paul's referendum also pays for 4 year old kindergarten half day. These two programs are not funded by the state at all, so what is his right to come in and tell a locality what it should do?

(1) In St. Cloud we have about a nine million dollar special education deficit, our share of the states 700 million annual shortfall in special education spending. We are not allowed under state law to close this gap by reducing special education spending, because of the "maintenance of effort" requirement. We cover about six million dollars of that deficit with an operating referendum. We urged the legislature to give school districts the power to control special education costs, and that bill could not get a hearing, not even a hearing, in the republican controlled committees. When our levy is up in 2014, the way things are going, our special education deficit is going to be higher still. If we increase the levy, then evidently the same guys in the legislature who refuse to do anything about the special education deficit, will come up to St. Cloud and tell the voters that our school board has been irresponsible. But the fact is that the both parties have been irresponsible on special education: without the special education deficit, almost all of the school districts with operating levies, could drop their levies and be money ahead.
(2) Public education is mired in a dysfunctional labor cost system. As with special education, the legislature and governor have created a cost driver that is systemically increasing faster than the revenues to support it. Once again, the legislature and governor refuse to fix the system so that costs and revenues are in balance. Both parties refuse to take on the cost drivers and the interest groups who support them, and neither party is willing to take the heat for providing the funds necessary to support the system they have created.
(3) The mission of education has fundamentally changed since 1990. In 1990, school districts were responsible to offer opportunity to grow. Today, the legislature requires delivery of success for all students. That mission is fundamentally more costly, especially since the number of students coming to school way behind at the kindergarten age is growing significantly. The Republican position, that you can accomplish today's mission for the same inflation adjusted price as the mission assigned decades ago is preposterous and indefensible. Teaching algebra to a classroom, and accepting that some will learn it and others will not, the 1990 paradigm, and getting all students, regardless of ability and disability to learn algebra are two fundamentally different missions, and you can't do the second for the price of the first.