State lawmakers increased education spending by $543 million this year. The majority of those dollars closely matched Gov. Tim Walz’s top three education funding priorities — enough to maintain 4,000 voluntary pre-K seats, increase general per-pupil allocations to help offset inflationary costs, and freeze the special education cross-subsidy.
In Minnesota this year, school districts shifted $724 million from their general funds to cover special-education costs that continue to outpace public aid earmarked for special-education expenses. This shortfall is known as the cross-subsidy, and it’s become a major driver of the financial challenges many districts are facing. Without any new state action, the Education Department had projected the cross-subsidy would grow to $858 million by 2023.
This year, state leaders approved $91 million in new special-education aid to temporarily cover any growth in cross-subsidy expenses. It’s something the state education commissioner, Mary Cathryn Ricker, has billed as a major victory.
Many districts, along with those who had been lobbying on their behalf this session, agreed.
“It was … probably the highlight, from a funding standpoint, because it was the first time we’ve really significantly addressed special education in several years,” said Scott Croonquist, executive director of the Association of Metro School Districts, noting that if this specific chunk of funding hadn’t come through, many “districts would have lost even more ground.”
For some districts shouldering the largest special education cross-subsidy expenses, however, the new special-education aid is too little, too late.
“This is the most they’ve put to special education in the last six biennium — so it’s a step in the right direction, but it’s a baby step,” said Amy Skaalerud, executive director of finance and business services for the St. Cloud Area School District. “We have a long way to go to really make up significant ground.”
‘Damage is done’
According to 2017 data collected by the state Department of Education, the St. Cloud district shouldered a $1,282 per-pupil cross-subsidy — the third largest in the state.
That sets it far above the current statewide per-pupil average: $820.
The district’s cross-subsidy expenditures actually peaked during the 2016-2017 school year, says Skaalerud. They were negatively impacted by a cap set on state special-education aid — a feature now slated to be phased out by the year 2021. That year the district also faced a significant decline in enrollment, which resulted in roughly $4 million in budget reductions, across the board.
From there, the district focused on “holding the line as much as possible, from a staffing expenditure standpoint,” explained Skaalerud. So, prior to any changes to the formula, the district had projected that its cross-subsidy expenses for the upcoming school year would “likely fall below that growth factor.”
“So removing the cap — it’s kind of like the damage is done. The millions of dollars we had to cut because of the cap had already been cut,” she said.
Looking at the new aid, she estimates the St. Cloud district will get roughly $275,000 in the first year and about $625,000 in the second year — aid that doesn’t offer much relief “when you’re looking at a cross-subsidy that’s still $9.8 million.”
As for the 2 percent increases on the general formula, she says the district generally counts on this inflationary increase to go toward salary increases during contract negotiations.
Duluth still struggling
In Duluth, where the district recently passed a two-tiered referendum to increase revenues by $5 million per year, Superintendent Bill Gronseth says they’re still struggling. “You’d think we’d have a windfall and be able to make some pretty significant investments, but we weren’t able to do that,” he said. “We’re able to make some increase in our priority areas, but very little.”
Part of that is because they’ve seen a reduction in their free-and-reduced-price lunch population — along with the state and federal dollars that follow these students. Gronseth says families may be doing better, or they may no longer be capturing all qualifying families now that they’ve moved to an online application. Either way, the needs of students aren’t going away. This loss in revenue aimed at supporting them is essentially balanced out with the 2 percent increases that passed this session, he explained.
In terms of special education aid, the district — saddled with a $1,069 per-pupil cross-subsidy amount in 2017 — isn’t going to benefit much.
The state’s special-education aid estimates are based on a 4 percent average increase in cross-subsidy costs. But the Duluth district has been holding its increase to 1 percent, Gronseth said. “We’re being financially responsible, so we’re losing out,” he said. “If we would have spent more, we would have gotten more.”
Prioritizing tuition billing reforms
Josh Downham, a lobbyist for the Minneapolis Public Schools district — where the per-pupil cross-subsidy amount totaled $1,445 in 2017 — has been advocating for another change in the special-education formula. He wants state lawmakers to further reduce how much of the special-education tab resident districts must pick up for students who open-enroll in public schools outside of the district.
This component of a district’s cross-subsidy is known as tuition billing.
State lawmakers passed a modest reform this year that will reduce the rate paid by a resident district for students who open enroll and receive special-education services in another public school from 90 percent to 85 percent of the unfunded costs in 2020, and down to 80 percent in 2021. The state will offset the financial impact that this change has on charter schools.
“For us, a big component of the [special education] underfunding is tuition billing. In fact, Minneapolis Public Schools would be at right about the statewide average for cross-subsidy per-pupil if tuition billing were factored out,” he said, noting over $600 of the per-pupil cross-subsidy amount the district covers can be attributed to special-education services provided at charter schools and other school districts.
“It’s about $24 million a year we pay for just charters and other districts,” he said, noting that number excludes what they pay to intermediate districts as well.
In recent years, the bulk of that growth can be attributed to rising special-education costs that Minneapolis students receive at charter schools, he said. That bill rose from just over $7 million for the 2013-14 school year to nearly $15 million for the 2016-17 school year.
A similar trend has driven up the Duluth Public School district’s cross-subsidy.
In 2016, tuition billing from area charter schools to cover the costs of unfunded special-education services being provided to the Duluth students they serve soared. The district responded by making cuts in its own special-education programming and other areas to counter this growing tab.
“Our attempts to do that have been countered by increases by charter school spending — two steps forward, one step back,” Gronseth said.
He says his district spends about $11,000 per student for special-education services. That number more than doubles for students who open enroll in an area charter, where the district has no say in how those special-education services are provided.
In many cases, he says, charter schools are assigning more one-to-one paraprofessional support for students qualifying for special-education support. And on a more frequent basis, two or even three paraprofessionals are being hired at charters to serve a single student.
“We, unless it’s absolutely necessary for a student’s success, don’t provide that,” Gronseth said. “For one, we want to increase a student’s independence. Also, we believe that are paraprofessional can provide service to more than one student at a time — so they may be assigned to two or three [students] in a classroom and spend time with each as needed.”
St. Cloud is also in a position to benefit from the new changes to the special-education tuition billing formula.
“Because we have a large open-enrollment out — particularly to charter schools — we’re going to see an increase of roughly $100,000 per year, in terms of money back into our budget,” Skaalerud said. “So that’s another win for us with the Legislative session.”