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Lawmakers consider retooling ‘equalization aid’ to better help property-poor school districts

The formulas that determine how aid is distributed have become “outdated and upside-down,” says Sen. Roger Chamberlain, R-Lino-Lakes.

Meadow Lake Elementary School
Lt. Gov. Peggy Flanagan, Gov. Tim Walz and Education Commissioner Mary Cathryn Ricker speaking to students at Meadow Lake Elementary School.
MinnPost photo by Taryn Phaneuf

A class of preschoolers had mostly left the Meadow Lake Elementary School classroom, and Gov. Tim Walz, wrapping up his education tour of the state on Tuesday, had finished thanking the adults around him. The tone in his voice switched as he leapt into his pitch for investing more state funding in education to fix the achievement gap and stabilize district budgets.

“I want to see measurable gains,” Walz said. “I know this is a very hard lift. I know that many have tried and not got there. … And to do that, I’m going to expect, to ask, that we have the resources for me to be able to do that.”

The new administration has high hopes for its first budget, which includes education funding increases over the next two years that would add $733 million to the E-12 budget for general aid, special education, preschool, and safety. He has support from his party’s lawmakers, who have additional interests of their own, but the priority list is long and the dollar figures are up in the air until final budget targets are set next month.

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Though they differ on the details, legislators of both parties share the goal to reduce disparities in education funding. An idea with traction in the Senate would reform another school funding formula – this one would benefit poor school districts struggling to raise enough money through school levies.

Known as “equalization aid,” numerous state programs help property-poor school districts to repay bonds issued for facility construction and upkeep or to fund operations. But the formulas that determine how aid is distributed have become “outdated and upside-down,” Sen. Roger Chamberlain, R-Lino-Lakes, said at an E-12 Finance and Policy Committee hearing March 6.

MinnPost photo by Peter Callaghan
State Sen. Roger Chamberlain
A report issued this month by the Office of the Legislative Auditor found one of those programs no longer has the impact it was meant to have when it was put in place 25 years ago. Though equalization isn’t in the governor’s budget, Education Commissioner Mary Cathryn Ricker agreed with the findings in a letter attached to the OLA report and called for changes to the formula.

Chamberlain said after years of only discussing it, legislators are poised to act. As an Education Committee member and head of the Senate Tax Committee, he’s backing two bills (SF 670 and SF 1237) that would retool the program to help more needy districts.

Conversations have started in the House between the Education Finance and Tax committees, as well. Education Finance Division Chair Rep. Jim Davnie, DFL-Minneapolis, told MinnPost levies are a critical part of school funding now, but they were originally intended to raise extra – not essential – money.

‘The crux of the problem’

For some districts, getting local taxpayers to agree to a new levy is hard. For others, agreement is there, but property owners feel the squeeze, said Deb Griffiths, a spokesperson for Schools for Equity in Education (SEE), a group lobbying for more equalization aid.

“Our districts are making compelling arguments about why they need additional funding,” she told MinnPost. “But now our taxpayers are paying too much.”

To contend with weaker state funding and growing costs for special education, Stewartville School DIstrict relies on property taxes, Superintendent Belinda Selfors told Senate Education Committee members. But the district has a smaller tax base. To generate the same dollar per student, she said property owners in her district would have to pay three times the amount of those in a neighboring district in Olmsted County with a larger tax base.

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“This disparity is a burden on our taxpayers, and it is the crux of the problem,” Selfors said. “This disparity is causing significant gaps in opportunities for our students. Our taxpayers cannot afford the high burden of generating referendum revenue due to low property wealth.”

Put another way, neighboring districts can pass the same levy and bring in far less revenue because their tax base is made up of residences and small businesses instead of commercial and industrial outfits. The closing of the stockyards more than a decade ago in South St. Paul changed the city’s property tax potential, South St. Paul Public Schools Superintendent Dave Webb said at the March 6 hearing. Now, a $7-per-household levy in South St. Paul raises $26 million while the same levy in West St. Paul raises $117 million, he said.

The impact is visible in class sizes, facility conditions, and other ways. “This doesn’t take away existing aid from [wealthy] schools,” Chamberlain said. “It helps poorer districts get the money they deserve. Not every school will get extra money, but the goal is equality for schools that are lagging behind.”

District examples show that increasing the general education formula and addressing other issues, like paying for special education, still don’t completely address inequality in school funding, Sen. Chuck Wiger, DFL-Maplewood, told MinnPost.

“In many respects, addressing debt service equalization will be just as important as the funding formula,” Wiger said. “It’s a very important issue, especially for those districts that are adversely affected. … This would be even more important to those districts – by making that long-term reform – than the extra percent or two on the formula.”

Gathering support for the ‘unwanted stepchild’ of funding

In the first budget under a governor dubbed “educator-in-chief,” there’s going to be competition for every dollar of the education budget. Equalization proponents are happy, then, that their cause will not be in that mix. In previous sessions, equalization went nowhere because neither the tax committees nor the education committees wanted to be the champion.

“It’s like the unwanted stepchild,” Griffiths of Schools for Equity in Education said. SEE spent five years lobbying on the issue. Griffiths said Chamberlain included some funding in the last budget but it was axed at the conference committee level. She senses more energy behind it this time around. “Because it’s been going on for years, I think it’s the pinch-point now.”

The OLA report helps, too. It explains that the state determines if a school is eligible for debt service equalization aid by looking at the amount property taxes contribute per student (it has to be low) and the amount of debt the district is carrying (it has to be high). When funding for the program peaked in 1997, about 40 percent of the state’s 329 school districts were eligible for aid. And half of those (131 districts) actually received it, according to the OLA report.

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But the numbers show the program helps fewer schools now (just 34 districts in 2019), and doesn’t have the same impact for those receiving aid. While the state used to pay 11 percent of all eligible debt service, it now pays only 3 percent.

“That’s just because our formulas are so dated,” Sen. Carla Nelson, R-Rochester, head of the education committee and author of SF 1237, told MinnPost.

Bills heard in the Senate Education Committee would seek to reverse that trend by putting more funds toward debt service and operating referendums equalization, as well as updating the formula. “Together these changes have the effect of increasing the number of districts eligible for state aid and increases amount they get,” Nelson said.