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The Legislature is going to be debating education funding again. How, exactly, does Minnesota pay for its schools?

Brief answers to your basic questions.

In 2016, K-12 education expenditures accounted for about 42 percent of the state’s $20.4 billion general fund — or more than $8 billion.
MinnPost file photo by Bill Kelley

Of all the issues that seem to come up every single session of the legislature, education funding — the amount the state pays for its public schools — has to be one of the most reliable. That’s no accident: spending on K-12 public schools makes up the single largest part of the state’s biennial budget.

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Gov. Mark Dayton got the debate started this year by proposing an additional $609 million in funding for schools over the next two years. Republicans have also expressed interest in more money for education, but are waiting till the February budget forecast to offer a spending proposal. You can expect a big debate on money for schools to follow.

But to really understand that debate, it helps to understand the way that education is funded in Minnesota. With that in mind, we present brief answers to some basic questions about how Minnesota pays for its schools.

Just how much does Minnesota spend on education?

A lot. In 2016, K-12 education expenditures accounted for about 42 percent of the state’s $20.4 billion general fund — or more than $8 billion. That’s the single biggest area of expenditure in the state’s budget. (Higher education expenditures amounted to about $1.6 billion.)

That money goes to serve the more than 840,000 students, kindergarten through twelfth grade, enrolled in public schools in Minnesota, according to the Minnesota Department of Education. It takes more than 55,000 teachers and more than 2,000 public schools to educate them.

Minnesota's general fund, fiscal year 2016
K-12 education makes up 42 percent of spending in the state's general fund.
Source: Minnesota Department of Education

Why does the state spend so much on schools?

For one thing, because the state Constitution tells it to. Article XIII, Section I says: “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.”

Constitutional language notwithstanding, money for schools didn’t always come from state coffers. Early on in the state’s history, little schools on the prairie were funded through local property taxes, according to a report by the Minnesota House Research Department. Around 1900, the state began sending a “limited” amount of money to help out.

That limited amount gradually got bigger. By the 1970s, Minnesota used a weighted per-pupil funding scheme with some measures to provide extra help to districts with districts receiving less from local property taxes. But most of the revenue for schools still came from local sources. That led to rising property taxes, wide variation in tax rates for schools and big disparities in per-pupil funding. Taxpayers protested around the state.

The 1971 legislative session came and went with no deal on taxes or school finance between then-Gov. Wendell Anderson, a Democrat who pushed for higher state taxes to fund public schools, and the conservative-controlled legislature (legislators in Minnesota were elected as nonpartisans from 1914 until 1974).

After a four-months special session, the longest special session in state history, they reached a compromise. Instead of the $762 million state tax increase the governor proposed, lawmakers settled on a $580 million one, with a different mix of taxes. Under that deal, called the "Minnesota Miracle,” state funding supplanted local taxes as the primary source of money for schools, up to 65 percent of funding from 43 percent, according to the Minnesota Department of Education. With less reliance on local taxes for school funding, there would be fewer disparities between districts receiving more funding from local property taxes and districts receiving less.

Since then, the state has provided the majority of funding for schools, with various iterations of an equation that provides funding based on headcount, plus additional money based on districts’ characteristics.

The current system has been in place, with some changes, since the 1988-89 school year.

…and that system is what?

Say hello to the general education funding formula. It’s based on the number of students in a district, the types of students a district serves, and other characteristics of the district — things like age of school buildings and how spread out geographically a district’s schools are.

The biggest chunk of general education funding is determined by a simple calculation: the basic education formula, under which each student is worth $6,067 — a number that’s increased over time, but fallen in value due to inflation, said Tom Melcher, the director of the school finance division at the Minnesota Department of Education.

Students are weighted for funding based on the grade they are in. So schools get:

     $ 6,067 for each full-time K through 6th grade student, pre-K student
     $ 7,280 for each student in grade 7 to 12
+  $ 3,337 for each part-time kindergarten student
___________________________________________________

     $ Basic education funding

That right there, designed to cover the cost of an adequate basic education for students without special needs, is how schools get the largest share of their state funding — and can range between about 40 and 80 percent, depending on the district. The rest of a district’s general education state funding is based on characteristics of the district and the student population it serves, including:

  1. Students in extended time programs, such as after school and summer school programs

  2. Funding for gifted and talented programs

  3. Money to help stabilize districts with declining enrollment

  4. Funding in proportion to the number of English language learners and students eligible for free and reduced-price lunches

  5. Funding for small schools

  6. Money for districts with sparse population

  7. Transportation money for districts with sparse population

  8. Operating capital money for facilities and equipment

  9. Equity revenue, which levels out disparities in districts with high and low per-pupil funding

  10. Transition revenue, which minimizes changes to district funding due to a formula change

  11. Local optional revenue, based on referendums passed by districts

  12. Pension adjustments, allocated based on districts’ employer retirement contributions

  13. Options adjustments, based on students who live in the district and non-district schools, and vice-versa.

When you add up all the money Minnesota sends to school districts and average it out across all the state’s students, Minnesota ranks 21st among U.S. states in per-pupil state funding, according to the most recent U.S. Census Bureau report on the subject, which uses 2014 data. At that time, Minnesota spent $11,464 per student, while the national average was $11,009.

You said that state funding makes up most of the school’s budget, but not all of it — where does the rest come from?

School districts also receive funding from local property taxes and voter-passed referendums. Since the tax base in different districts — and voters’ willingness to authorize additional taxes for schools — varies, these sources make up different-sized pieces of districts’ funding streams.

Federal funding programs, too, are based on certain characteristics of a school district like Title I, which provides additional funding to schools with high levels of low-income students, and special education funding.

So it seems like there are some pretty big differences in how much different school districts get per student.

That’s right. Let’s consider some examples. First, up to Roseau.

Way up in the North Country near the Canadian border, we have Roseau Public School District, with two schools and 1,174 students. In 2016, state funding made up 85.6 percent (or $10.3 million) of the district’s $12.1 million in funding. Local sources accounted for 10.6 percent ($1.3 million), a lower figure than a number of other districts due in part to receiving a smaller share of revenue from local taxes. The federal government kicked in 3.8 percent ($458,000). Add it all together and you get about $10,268 per student.

Roseau Public Schools funding by source, 2015-16
Source: Minnesota Department of Education

Now let’s take a trip down south to the Twin Cities suburbs.

Anoka-Hennepin Public Schools, a district with 38,016 students and about 40 schools, located in the northern suburbs of the Twin Cities, had total funding of $466.2 million in 2016. State funding made up 77.7 percent of funding ($362.1 million). Local sources accounted for 19.6 percent (91.4 million), while federal was 2.7 percent ($12.6 million). Total per-pupil funding was $11,736.

Anoka-Hennepin Public Schools funding by source, 2015-16
Source: Minnesota Department of Education

Finally, how about an urban district?

St. Paul Public Schools, one of the state’s biggest urban districts, had $574 million in funding in 2016. SPPS serves 37,646 students in 67 schools. In 2016, state sources made up 74.2 percent of funding ($440 million). Local sources accounted for 18.4 percent ($113.3 million). Federal funding was 7.4 percent ($41 million) —  more than twice the level of federal funding of either our suburban or rural districts discussed above, because the district serves more than twice as many low-income students as either Roseau or Anoka-Hennepin. Total per-pupil funding in St. Paul was $15,788, with 37,646 students in the district in 2016.

St. Paul Public Schools funding by source, 2015-16
Source: Minnesota Department of Education

What about charter schools?

Charter schools are public schools that operate independently of school districts, though some of them are sponsored by districts. For charters, the revenue breakdown is much the same as for regular district schools, with the bulk of money coming from the state’s general education formula. But there are some changes within the formula’s components and some streams — such as small school revenue and local optional revenue —  for which charters aren't eligible.

Hey, I understand how education funding in Minnesota works! But now, what are people at the Legislature proposing to do about it?

For one thing, Dayton wants to increase the amount the state kicks toward the basic education formula — that $6,067 that’s the basis of a huge portion of a district’s funding.

In a slew of proposals in his education budget, including $40 million in special education spending and $75 million in voluntary pre-K funding, the biggest one for school districts by far is a $371 million proposal to increase the basic formula allowance by 2 percent per year for the next two years,  meaning schools would get a baseline $6,188 per student in 2017-18 and $6,312 per student in 2018-19.

School formula allowance
The value of the basic formula allowance, currently $6,067 per pupil unit, has increased over time but not kept pace with inflation. Here, the allowance is shown in nominal (non-inflation-adjusted) dollars.
Source: Minnesota House Research

What would Dayton’s proposal mean for our three example districts — Roseau, Anoka-Hennepin and St. Paul?

Roseau would gain an additional $660,000 in 2018-19. Anoka-Hennepin would gain  $21.3 million, while St. Paul Public Schools would see an increase of $25.4 million, according to the governor’s office. Estimates on increases in funding to other Minnesota districts that would result from Dayton’s proposal can be found here.

Melcher said Dayton’s plan wouldn’t really add new revenue — just offset inflation, which the basic pupil allocation hasn’t kept up with. And the 2 percent bumps in the basic formula allowance are smaller than some who testified in front of the Senate Education Finance committee Monday would like them to be.

Last week, Sen. Carla Nelson, R-Rochester, who chairs the Senate Education Finance Committee, told the Star Tribune she shares many of Dayton’s goals. Republicans will release their proposal for funding education after the next budget forecast at the end of the month.

Other bills to tweak aspects of the state’s funding scheme, such as minor changes to the small schools and gifted and talented formulas are also on the table this session.

Correction: This article has been updated to reflect the basis of local revenue for school districts. Local tax levies applied to property tax bases determine local funding.