Thursday, May 16, 2013

How Much?! Minnesota’s Education Funding Formula and Its Implications

One of Minnesota’s largest expenditures is K-12 education—in FY 2010-2011 it accounted for 22.8% of total expenditures and the greatest expenditure of general fund dollars, at 37.1%. However, understanding how much is spent per student on average, let alone the calculation for funding the education of each particular student is a far more difficult answer to ascertain.

Funds and Weights and Levies, Oh My!
Education funding formulas are tricky.  Large committees, expensive consultants, the blood, sweat, and tears of countless legislative aides and months worth of time—in some cases, years—are devoted to constructing and perfecting the formula. Yet, very often, they remain far from perfect.

Historically, education has been funded by property taxes assessed at the local level with proximity being one of the primary rationales.  Schools are a critical element of any community and highly visible institutions, so it made sense that one’s property taxes funded one’s schools. However, given the wide variation between large property tax bases (which can include commercial, industrial, and natural resource producers in addition to residential) and the income and wealth of residents, the fact that funding formulas rely on property taxes can lead to significant fiscal inequities. In an effort to reduce these inequities, Minnesota, not unlike many states, has shifted the bulk of funding for K-12 education to the state, which funds K-12 education through the use of a funding formula.

There is 116 pages devoted to explaining the formula to the Minnesota legislature, but suffice to say, when all is said and done, funding per student in Minnesota looks like this:

Chart I: Breakdown of Minnesota Per Pupil Expenditures
State Total
Total PK-12 Operating
Expenditures per Pupil *

Total PK-12 Charter Operating
Expenditures per Pupil
*Excludes charter schools

Or, depending on who is asked and when, the average (mean) could also look like this:

Chart II: Alternate Accountings of Minnesota Per Pupil Expenditures
Amount (Year)
$11,533 (2009)
$11,073 (2010)
$11,034 (2010)
$10,685 (2013)
**Sources do not indicate whether charter schools are included.

So how are we doing compared to other states?
According to the Annie E. Casey, Minnesota ranks 27th nationally and comes in below the average spending in the United States ($11,824), spending $11,034 per student:

A second ranking provided by the Education Law Center and Rutgers University ranks Minnesota 16th, spending $11,533 per student, but fourth for funding distribution, based on the progressive distribution of its funding and the best in the north central region:

So we’re mostly good, right?

Not exactly.

According to the Association of Metropolitan School Districts, there are five key education funding facts that indicate our funding formula is in need of overhaul:

-      Education funding has not kept pace with inflation over the past decade
-      School payment shifts have forced districts to borrow money to pay expenses
-      The State is not paying for its share of mandated special education costs
-      The State mandated increase in the employer contribution to the Teachers Retirement Association has further strained school budgets
-      Schools must education students who have far more challenges than ever before—including increases in number of students in poverty, with limited English proficiency and eligible for special education services

Additionally, Schools for Equity in Education (SEE) questions whether the estimated expenditure in recent recommendations by the Minnesota Education Finance Working Group reflects “the true cost of educating a student in today’s world”.

Two working group reports later (one and two), Minnesota is remains more progressive than most states in regards to its education funding, but it also leads the nation in poor outcomes for students of color and who are “high-need”. Given that it is one of the largest expenditures of the state, the outcomes of the expense are not what they should be and in some cases appear to be a misuse/waste of funds. Although Minnesota is not alone in its challenge to ensure that its school finance formula is adequate, equitable, sustainable, and transparent, it must get serious about changing the way in which it allocates expenditures to ensure that all students have

Wednesday, May 15, 2013

The Minnesota Historic Preservation Tax Credit

On April 2, 2010, the Minnesota Credit for Historic Structure Rehabilitation (MHTC) was signed into law by Governor Tim Pawlenty, breathing life into a multitude of redevelopment efforts and preservation projects throughout the state. Since its adoption, 16 projects (11 in the Twin Cities) have been approved tax credit funding in Minnesota. The MHTC matches the Federal Historic Preservation Tax Credit, which is a 20% income tax credit managed by the National Park Service.This post will serve as an analysis of the MHTC, which is based on the framework for expenditure analysis presented in class. 
The price elasticity of the historic preservation of buildings has a large influence on the demand for the MHTC. Even in a development context, the preservation of a historic building is a pricy endeavor. It often costs more to purchase and renovate an older building than to construct a new building.  Because of this fact, the historic preservation construction is considered to have an elastic demand. Also associated with the high costs of redevelopment, historic preservation would be considered a superior good; one that sees its demand increase with an increase in income.

A tax credit is not a traditional expenditure in terms of government spending, such as programs like Medicare and Social Security, where money is given from the government budget to qualifying parties. For all practical purposes, the tax credit is just money withheld from the government; reducing tax revenue, as opposed to increasing expenditures. Since the money is withheld by the approved applicant, rather than collected and redistributed, the MHTC is efficient to implement.

 There are some nuances to the tax credit, apart from meeting the criteria explained above. It should be noted that the MHTC has a sunset in Fiscal Year 2015 and that the program is an uncapped appropriation.  The purpose of leaving it uncapped is to ensure, “that a project meeting the criteria for award of a tax credit / grant is eligible to receive the full incentive available to them under the federal and state programs regardless of the number of applications received in a single year.” The credit may also be received as a “cash grant option,” which means that the developer can elect to take $.90 in a cash grant instead of $1.00 in credit.

The effects from the program have been fairly positive since the adoption of the credit.  One report estimates that for every one dollar of credit received from this program, the economy sees about $9 of investment from the private market. In order to accurately measure the effects of the credit, the MHTC program is being closely monitored by the University of Minnesota (in partnership with the MN Historical Society).

The state of Wisconsin has two separate tax credits available for historic preservation.  The first is for “income-producing historic buildings,” and features an additional five percent kicker to the Federal program  and is automatically qualified for if the project meets federal standards. Due to the low amount of matching funds set forth by the state of Wisconsin, the program is less adequate than Minnesota’s program. The second Wisconsin program was established to aid historic homeowners, which drastically improves the equity of the Wisconsin program.  Considering the differing conditions of the two programs, the effects of the MHTC will be much more apparent and impactful, both from an investment perspective and from a physical structures perspective.  Because there is no cap on the program, large historic buildings can be saved much more easily, which preserves downtown landscapes and promotes investment.  

Thus far, the MHTC is considered by national observers, local developers, and local media to be a success. .  However, the program sunset in the year 2015 looms in the future, which may spell trouble for the future of historic preservation funding in Minnesota.