Minnesota’s school investment keeps falling

By fiscal year (FY) 2011, real per pupil state aid to Minnesota school districts is projected to be over 14 percent less than it was in FY 2003; this translates to a cut of over $1,400 per pupil in constant FY 2009 dollars.  Furthermore, the decline in state aid to schools over this period would have been much worse if not for a large infusion of federal recovery dollars.

State aid to Minnesota school districts peaked in FY 2003 with the state takeover of general education funding and the elimination of the general education property tax.  While the state had the resources to fund the takeover in 2003, it lacked the dollars to maintain this commitment in future years.  The result: a steady decline in real (i.e., inflation-adjusted) state aid to Minnesota schools.  From FY 2003 to FY 2009, state aid to Minnesota school districts is projected to fall by $1,286 per pupil (13.3 percent) in constant FY 2009 dollars.*

The graph below shows the dollar and percent change in per pupil state aid to Minnesota school districts from a base year of FY 2003.  FY 2010 and FY 2011 amounts do not take into account the governor’s $1.8 billion school funding shift.  Essentially, the governor is delaying payment of a portion of state aid to school districts until the next biennium (FY 2012-13) in order to balance the state’s budget within the current biennium (FY 2010-11).  At a minimum, this shift will impose additional expenses on school districts through short-term borrowing costs and foregone interest earnings.  These additional costs are not reflected in the graph.

The sharpest decline in state aid to schools occurred in FY 2004 and 2005.  From FY 2003 to FY 2005, real per pupil state aid to Minnesota public schools declined by 9.0 percent.  The rate of decline slowed over the next four years, but in each year from FY 2004 to FY 2009 real per pupil state aid to schools was less than in the preceding year.

Actual state aid to Minnesota school districts drops by just over $700 per pupil (8.5 percent) in constant dollars from FY 2009 to FY 2010 due to a one-time half billion dollar cut in general education aid.  However, pursuant to 2009 Session Laws, chapter 29, article 1, section 21, the one-time cut is being replaced with federal dollars from the American Recovery and Reinvestment Act of 2009.  The dashed line shows state aid in FY 2010 taking into account the one-time $500 million infusion of federal recovery dollars that is being using to replace the state aid cut.  After including these federal dollars, the drop in state aid from FY 2009 to FY 2010 is just over $100 per pupil (1.2 percent).

While Governor Pawlenty is running around the county complaining about President Obama and federal recovery spending, he is gleefully accepting federal dollars to shore up public finances in Minnesota, left in disarray after the national economic crisis and six years of declining revenue.  Without federal dollars to shore up the state budget, Pawlenty would have been compelled to make even deeper cuts in state aid to schools and other public investments or rely even more heavily on shifts and other accounting gimmicks.  Whether Pawlenty admits it or not, the federal recovery dollars have made a horrendous state budget situation more manageable.

Under current law, the one-time $500 million cut in state general education funding is restored in FY 2011.  However, even after restoration of this cut, state aid to Minnesota public schools is projected to be $1,414 per pupil (14.6 percent) less in FY 2011 than in FY 2003.

The sharp decline in state aid to Minnesota school districts has had two effects.  First, school property taxes have increased dramatically since FY 2003; this growth in school property taxes is projected to continue through FY 2011.  In constant dollars, total growth in school property taxes from FY 2003 to FY 2011 is expected to be $1,146 per pupil (73.1 percent).  Property taxes are regressive, meaning that a disproportionate share of these taxes fall on low and moderate income families.

Second, the decline in state aid means that real per pupil funding for Minnesota public schools has fallen.  The real per pupil growth in property taxes has not been sufficient to replace the real per pupil decline in state aid; consequently, total funding for Minnesota public schools is projected to fall by just over $200 per pupil (1.6 percent) from FY 2003 to FY 2011.  This decline in funding is occurring at the same time that more rigorous testing mandates are being imposed on schools and the concentration of special need students is increasing.

Over his tenure as governor, Pawlenty has solved the state’s recurring budget problems through disproportionately large cuts in state aid to local governments, including school districts.  This policy has translated into large school property tax increases at the same time that real funding for public schools has declined.  In terms of public education, property taxpayers are literally paying more and getting less.

While state aid to school districts is projected to continue to fall in the current biennium relative to the previous biennium, the situation would have been much worse if not for federal recovery dollars.  What will happen in the next biennium when federal largess might not be available?  This topic will be addressed in part 2 of this series.

*Inflation adjustments in this article are based on the implicit price deflator for state and local government purchases, which is the appropriate measure of inflation for state and local governments.  All dollar amounts are expressed in constant FY 2009 dollars.