04/11/231

E-12 Education FinanceE-12 Education FinanceShift DiscussionShift Discussion

Eric L. Nauman,Fiscal Analyst296-5539

04/11/232

Getting “Shifty”Getting “Shifty”

Pre Shift Environment

Aid Payment Schedule – No Shift

Shift History & Summary

Aid Payment Schedule – Pre & Post 2011 SessionAid Payment Schedule – After the 2011 Session

Accounting for the Shifts

Where to Get More Information

Aid Payment Shift

Property Tax Recognition Shift

How A Legislative PTRS WorksCurrent PTRS Under Unallotment

Basic Terms & Shifted E-12 Programs

Table of ContentsTable of Contents

04/11/233

Aid Payment ShiftAid Payment Shift

Current Payment

60/40

Auto-

Buyback

Final Payment

Entitlement

90/10

73/27

04/11/234

Basic TermsBasic Terms

The percentage of an entitlement that is paid in the fiscal year after the state aid is generated. Difference between prior year’s entitlement and that year’s current payment (MS127A.45, subd. 9).

The amount of state aid that the state pays to districts and charter schools in a given year. In most cases, an appropriation consists of a portion of an aid entitlement from the “current” fiscal year and a “final” payment from an aid entitlement from the prior fiscal year.

Appropriation (Education Context)

Final Payment

Aid Entitlement100 percent of the state aid a district or a charter school is eligible

to receive in a given fiscal year. Aid may actually be paid in a separate fiscal year

Current PaymentThe percentage of an entitlement that is paid in the fiscal year in

which the state aid is generated.

Payment ScheduleA schedule which expresses the amount of education aid entitlements

that are paid as a “current” payment and the amount that is paid as a “final” payment. Must add to 100%.

04/11/235

Basic TermsBasic Terms

An adjustment to the balance of current and final payment percentages which constitute the state aid appropriation made to schools.

In an “unshifted” environment, school aid payments are comprised of a combination of 90% of the current year’s entitlement added to 10% of the prior year’s entitlement.

Payment Shift

The appropriation is metered to schools in 23 payments throughout the year – roughly every two weeks

04/11/236

E-12 Programs on Payment ScheduleE-12 Programs on Payment Schedule

• General Education• Abatement Aid• Consolidation Transition Revenue• Nonpublic Pupil Aid• Nonpublic Pupil Transportation Aid• Charter School Building Lease Aid• Charter School Start-Up Aid• Integration Aid• Magnet School Start-Up Aid• Success for the Future• Tribal Contract Schools• Special Education – Regular• Special Education – Excess Cost• Travel for Home-Based Services• Transition Programs – Students with Disabilities• Health and Safety Aid

04/11/237

E-12 Approps on Payment ScheduleE-12 Approps on Payment Schedule

• Debt Service Equalization Aid• Alternative Facilities Bonding Aid• Deferred Maintenance• Basic Support Grants for Libraries• Multicounty, Multitype Library Systems• Regional Library Telecommunications Aid• School Readiness• Early Childhood Family Education Aid• Health and Developmental Screening Aid• Community Education• Adults with Disabilities Program Aid• School Age Care Aid• Adult Basic Education Aid

04/11/238

School Payment Shift School Payment Shift

Entitlements(amounts generated by

formula)

2010 2011 20122009$100

Current Payment $90

$100Appropriations

2013

Mechanics of Payment Schedule (Without Shift)

$100$100$100$100Fiscal Year

Payment Schedule

90%/10%

90%/10%

90%/10%

90%/10%

90%/10%

$90 $90$90$90

Final Payment + $10

FromFY 2008

+ $10 + $10+ $10 + $10

$100 $100 $100 $100

04/11/239

School Payment Shift School Payment Shift

Entitlements(amounts generated by

formula)

2010 2011 20122009$100

Current Payment $90

$100Appropriations

2013

Mechanics of Aid Payment Shift (2010-11 biennium & Feb 2011 Fcst law)

$100$100$100$100Fiscal Year

Payment Schedule

90%/10%

73%/27%

70%/30%

90%/10%

90%/10%

$73 $90$90$70

Final Payment + $10

FromFY 2008

+ $10 + $30+ $27 + $10

$ 83 $97 $120 $100

Entitlements: Under a payment shift, there is not adjustment to entitlements. A payment shift creates a delay of WHEN schools receive aid. It does not reduce the amount.

04/11/2310

School Payment Shift School Payment Shift

Entitlements(amounts generated by

formula)

2010 2011 20122009$100

Current Payment $90

$100Appropriations

2013

Where We’re At Today (2011 E-12 Education Bill)

$100$100$100$100Fiscal Year

Payment Schedule

90%/10%

73%/27%

70%/30%

60%/40%

60%/40%

$73 $60$60$70

Final Payment + $10

FromFY 2008

+ $10 + $30+ $27 + $40

$ 83 $97 $90 $100

FY 2010-11 Biennium

FY 2012-13 Biennium

Confusing Comparison: The shift percentage in FY 2012 is 10 percentage points lower than the prior year, BUT is 30 percentage points lower than the Feb Fcst for FY 2012.

04/11/2311

Property Tax Recognition Shift Property Tax Recognition Shift (PTRS)(PTRS)

Levy Recognition

H.F.2323

UFARS

Final Payment

Unallotment

Aid Cut

Recognition Percentage

04/11/2312

Basic TermsBasic Terms

Property Tax Recognition Shift (PTRS)

A PTRS is an accounting entry that takes a portion of a district’s property tax revenue and moves it back one year. (ie. PT revenue that would otherwise be revenue in FY 2012 is shifted into FY 2011)

The second step is to reduce state aid in an amount equal to the property taxes shifted forward. This generates one-time savings.

The current PTRS was enacted by the legislature in 2010. The amount shifted will grow over time as property taxes grow.

04/11/2313

Property Tax Recognition ShiftCalendar Year 2011

Oct Jan ‘11 May July 1

Property taxes paid

FY 2011

FY 2012

Dec

Property taxes paid

Property tax revenue recognized by districts

Property tax revenue recognized by districts

School property taxes currently paid in two separate years, BUT prior to FY 2011 both May and October payments were “recognized” by districts as revenue in the later fiscal year.

Prior to Change

Rules governing recognition dates based on statute and UFARS.

04/11/2314

Property Tax Recognition ShiftCalendar Year 2011

Oct Jan ‘11 May July 1

Property taxes paid

FY 2011

FY 2012

Dec

Property taxes paid

Property tax revenue recognized by districts

Property tax revenue recognized by districts

Prior to ChangeLegislative Change – Creating a Shift

Step #1 –Change Levy Recognition

Step #2 – GenEd Appropriation

Reduction

Aid cut in FY 11 by

$515 million*

Increase Levy Revenue by

$515 million * in FY 11

*Based on Feb. 11 Fcst

04/11/2315

Accounting for the ShiftAccounting for the Shift

Levy Recognition

MS 16A.152

Budget

Balance

Fund Balance

Forecasts

Automatic

Buybacks

One-time

04/11/2316

Shift AccountingShift Accounting

Aid Payment Shift (73%, 70% & 90%)

(60% in FY12 & later)

Shift Savings

Budget Balance & the Shifts (Dollars in 000s, Relative to Feb 11 Fcst)

($1,382,368) * $1,382,368

FY 2010-11 FY 2012-13

($1,897,382) $1,316,124

Property Tax Recog Shift

($515,014) ($66,244)

*Aid shift numbers include tax credits.

FY 2012-13 Enacted BudgetFebruary 2011 Forecast FY 2012-13

Difference

($831,351) ($2,213,719)

($79,917) ($13,673)

($911,268) ($2,227,392)

04/11/2317

Contingent Shift Buy-BackContingent Shift Buy-Back

Because shifts have historically been used as a defacto “budget reserve” a system was created in 2004 to pay them back automatically. This law remains in effect today.

Shifts are paid back when the Commissioner of MMB “determines that there will be a positive unrestricted budgetary general fund balance at the close of the biennium.”

In order of precedence: (1) Cash flow account, (2) budget reserve, (3) payment shift,(4) property tax recognition shift and two other small payments.

This process used once already. Shifts from 2002 & 2003 sessions were paid back in two years.

04/11/2318

Contingent Shift Buy-BackContingent Shift Buy-BackMS.16A.152 Budget Reserve and Cash Flow AccountsIf on the basis of a forecast of general fund revenues and expenditures, the commissioner of

management and budget determines that there will be a positive unrestricted budgetary general fund balance at the close of the biennium, the commissioner of management and budget must allocate money to the following accounts and purposes in priority order:

(1) the cash flow account established in subdivision 1 until that account reaches $350,000,000;(2) the budget reserve account established in subdivision 1a until that account reaches $653,000,000;(3) the amount necessary to increase the aid payment schedule for school district aids and credits payments in section 127A.45 to not more than 90 percent rounded to the nearest tenth of a percent without exceeding the amount available and with any remaining funds deposited n the budget reserve;(4) the amount necessary to restore all or a portion of the net aid reductions under section 127A.441 and to reduce the property tax revenue recognition shift under section 123B.75, subdivision 5, by the same amount………..

04/11/2319

Shift AccountingShift Accounting

3,623 3,727 3,808 3,895

SCRFA, ELNauman

04/11/2320

History of E-12 ShiftsHistory of E-12 Shifts

Payment Shift

Unallotments

UFARS

Recognition Percentage

Contingent

Buyback

PTRS

04/11/2321

Education BudgetEducation BudgetEducation Shift Savings – A History of Legislative Changes

Fiscal Year

2003 Payment 83/17 ( $437.5 M) Nov. 2005 Fcst

Type Level Amount When

Enacted (if known)

Year PaidBack

2004** Payment 80/20 ($185.3 M) Nov. 2005 Fcst

2004** PTRS 48.6 ( $230.3 M ) Feb. 2006 Fcst

1983 PTRS 32% ($240.7 M) Partially in ’85, ’96-’99

1985 PTRS 24% shift reduced

1988 PTRS 27% shift expanded 1996-1999

1990 PTRS 31% shift expanded 1996-1999

1992 PTRS 37% shift expanded 1996-1999 1993* PTRS 50% shift expanded Partially in ‘94

1994 PTRS 37.4% shift reduced

1996 PTRS 18.1% shift reduced

1997 PTRS 7% shift reduced

1997 Payment 90/10 shift reduced

1999 PTRS 0% PTRS eliminated

*Previous shift high point in FY 1993, $688 million owed to schools.

**2004 the Legislature passed the contingent shift buyback language.

04/11/2322

Education BudgetEducation BudgetEducation Shift Changes – A History of Legislative Changes

Fiscal Year Type Level

Amount When Enacted

(if known)

Year PaidBack

2005 Payment 81.9/18.1 $116.3 M Nov. 2004 Fcst

2005 Payment 84.3/15.7 $143.7 M Feb. 2005 Fcst

2006 Payment 84.3/15.7 $355.0 M Nov. 2005 Fcst

2006 PTRS 10.8% $265.9 M Nov. 2005 Fcst

2006 PTRS 0% $72.9M Feb. 2006 Fcst

2011* PTRS 48.6% ($561.5M ) Based on pos fcst

2010* Payment 73%/27% ( $1,160.4M) Based on pos fcst

* Shifts initially created by Gubernatorial unallotment process and subsequently codified into law.

2011 Payment 70%30% ($207.7M) Based on pos fcst

2012 Payment 60%/40% ($739.2M ) Based on pos fcst

04/11/2323

Briefing SummaryBriefing Summary

There are two kinds of Education shifts -- Aid Payment Shifts-- Property Tax Recognition Shift

Neither type makes any changes in the revenue that districts have to spend

Shifts have a lengthy history in Minnesota budgeting-- Frequently used as a budget reserve

Current law requires shifts to be paid back once MN forecasts positive budget balances in the general fund-- Reasonable assumptions project over $3.6 billion in contingent spending (based on current law)-- This spending will occur prior to having any resources available for other budget purposes

04/11/2324

Where to Get More InformationWhere to Get More Information

Department of Education; PTRS Shift Explanation Letterhttp://www.education.state.mn.us/mdeprod/groups/Communications/documents/

Announcement/014480.pdf

Senate Counsel, Research and Fiscal Analysis,This briefing will be archived at:http://www.senate.leg.state.mn.us/departments/scr/presentations/index.php#header

Senate Counsel, Research and Fiscal Analysis,2011 Final Education Act Aid Tracking:http://www.senate.mn/departments/fiscalpol/tracking/2011/Edu_AidSS.pdf

2011 Final Education Act Property Tax Tracking:http://www.senate.mn/departments/fiscalpol/tracking/2011/Edu_PropTaxSS.pdf

House Research School Finance Guide For Legislatorshttp://www.house.leg.state.mn.us/hrd/pubs/mnschfin.pdf

04/11/2325

Minnesota Senate E-12 Education StaffMinnesota Senate E-12 Education Staff

Nonpartisan Staff

Shelby McQuay, Research Analyst 651/296-5259

Eric L. Nauman, Fiscal Analyst 651/296-5539

Ann Marie Butler Yunker, Counsel 651/296-5301

Caucus Staff

Greg Marcus, Education Committee

Administrator 651/296-5312

Ed Cook, Republican Research 651/296-0129 Danna Elling, DFL Research 651/296-7089