On Tuesday, Governor Tim Walz announced his proposal to use a portion of the state’s substantial $17.6 billion surplus for public education. Back-of-the-envelope calculations, explained below, estimate about $35 million in additional funding for Minneapolis Public Schools next year, increasing to around $39 million the next year, from this proposal.
The vast majority of this increase would come from Walz’s proposal to reduce the underfunding of special education services, called the special education cross-subsidy, by half.
While heralded as an unprecedented investment in schools, the Walz plan will maintain the current structure of the state K-12 funding system. That system leaves districts like Minneapolis Public Schools, who, disproportionately, educate students who need the most from public schools, chronically underfunded.
Continual State underfunding of special education and English learner services forces Minneapolis Public Schools to cover these costs.
The scale of the underfunded state mandates for Minneapolis Public Schools is hard to comprehend.
Last year, the special education cross-subsidy forced MPS to use $48 million of its State general education formula aid to cover the cost of special education services. The district used an additional $16 million dollars to cover its English Learners cross-subsidy.
Together, the cross-subsidies were around 10% of the district’s general operating budget in 2021-22.
Per student, both cross-subsidies cost the district approximately $2,168 last year. This was nearly a third of the $6,728 per student State general formula aid that is supposed to be used by districts for the basic functions of a school district, like classroom educators, bus service, and curriculum and supplies. Every student in MPS is impacted, because all students, including those receiving special education and English learner services, are general education students first.
Walz’s proposal would close half of the special education cross subsidy, and about 10% of the English learner cross-subsidy, sending around $25 million to MPS. This would still leave the district to cover the cost of $39 million in underfunded services each year and not address the rising cost of providing these services.
The magnitude of the financial challenges facing MPS in the coming years are significant. The district projects a budget deficit of $100 million in 2024-25, growing to nearly $174 million in 2027-28. The district has little chance of avoiding statutory operating debt without the DFL trifecta stepping up to fully fund special education and English learner services. Half measures, like Walz’s proposal, will continue to leave the district with an impending financial crisis.
It is unclear what the Walz proposals for mental health support funding and universal free meals would mean for MPS.
There were not enough specifics in the Walz proposal for funding mental health supports and universal school meals to estimate the impact on MPS. The total State-wide proposal for mental health supports is $158 million, some of which would not go directly to public schools.
The Walz proposal estimates, State-wide, spending $389 million on universal school meals in 2023-2025, with an additional $424 million in 2026-27. Although there isn’t enough information to estimate the impact of the universal free meals proposal on MPS finances, the Minneapolis Public Schools Board of Education passed a resolution in December 2022 to transfer $5 million from the district’s general fund to the food service fund to cover the increased cost of providing school meals. The State’s proposal might eliminate the need to make such a transfer of funds in the future.
It is also not clear from the proposal that was released how the provision of universal school meals would impact the state’s compensatory aid to school districts. Currently, compensatory aid is determined by the number of students qualifying for free and reduced price meals. In other words, if every student starts to receive free meals, how will compensatory aid be determined?
Walz’s proposal to add funding to the general formula and tie it to inflation increases aid to all districts by the same amount. This will maintain existing inequities in the ability of districts to meet student needs.
School districts have not been immune from economy-wide inflation in recent years. Increasing the formula aid in response to the rising costs faced by districts will certainly increase the real value of state aid to districts. And tying formula aid to inflation in the future will also benefit all districts.
Minneapolis Public Schools could expect an increase of around $8 million in general formula aid from the proposal’s 4% increase in fiscal year 2024, and an additional $12 million in general formula aid from the 2% increase in the following year. These amounts could be less if district enrollment declines as expected.
Walz’s proposals for the general formula aid do not include an increase in general education revenue outside of the formula. Districts where categorical aid, like compensatory revenue and English learner revenue, make up a larger portion of their total revenue are not helped as much, because these portions of their budget do not increase when only formula aid increases. Over time, the real value of compensatory revenue and English learner revenue declines relative to formula aid without a proportional increase in funding.
The differences across districts are significant. For example, in 2018, compensatory revenue made up less than 1% of the annual budget for Minnetonka Public Schools. In that same year, compensatory revenue made up nearly 10% of the budget for MPS.
Thus, Walz’s proposal to increase the formula aid, without a commensurate increase in other categories of aid, erodes the value of state funding to the students who need the most from their schools.
Overall, Walz’s proposal for K-12 education maintains the current structure of K-12 funding, and leaves Minneapolis Public Schools’ students, educators and families to keep picking up the tab for the State’s unfunded mandates.
