FACILITIES FUNDING REFORM
Some Preliminary Thoughts for Consideration by the Working Group
Principles for Facilities Funding Reform
1. Funding should be adequate, equitable and sustainable.
2. All districts should have access to comparable funding for comparable needs based on uniform procedures and eligibility criteria.
3. Local school districts should take the lead in determining facilities project needs, scope, and design.
4. Funding formulas and administrative procedures should be as simple as possible, so as to minimize administrative burdens / paperwork and maximize local control, while providing accountability.
5. Property tax levies for facilities should be equalized in a manner that minimizes variations in revenue per student for comparable tax effort regardless of variations in local tax base, and provides stability over time.
6. Special provisions should be made to ensure adequacy and equity for districts that have incurred facilities damage due to natural disasters.
Facilities and Equipment Revenue
1. Consolidate the following revenues into a new “Facilities and Equipment Revenue” program, as a component of General Education Revenue, beginning in FY 2017:
a. Operating Capital Revenue;
b. Health and Safety Revenue;
c. Alternative Facilities Revenue;
d. Deferred Maintenance Revenue; and
e. Building Lease Levy
1. Allocate the new revenue based on a rate per pupil unit plus a rate per pupil unit adjusted for average building age, similar to the current operating capital revenue formula, but at a significantly higher level.
2. Formula rates would be determined by summing the following:
a. The current operating capital rates;
b. the state average health and safety revenue per pupil unit, adjusted for variations in average building age if districts with older buildings have higher average costs;
c. the state average alternative facilities revenue per pupil unit for districts in the alternative facilities bonding program, adjusted for variations in building age if districts with older buildings have higher average costs; and
d. the current maximums for the building lease levy ($162 for all districts plus $46 for intermediate district members for use at the intermediate).
3. To manage the transition to the new formula:
a. Districts would be guaranteed to receive at least as much as under old law for the above categories for FY 2017; gradual phase out of guarantee on a schedule or as existing district debt levy goes down.
b. Revenue increases for districts currently receiving less than the new formula revenue would be phased in over time.
4. Districts would be authorized to use this revenue for any purpose for which operating capital, health and safety, alternative bonding, deferred maintenance, or building lease levy revenue can be used currently.
5. Districts could use this revenue on a pay-as-you-go basis or issue long term debt. If long-term debt is issued, districts would levy in the debt service fund, and general fund revenue would be reduced by an offsetting amount, similar to current facilities / equipment bonding programs. Principal and interest on bonds issued under the program could not exceed a percentage of the district’s facilities and equipment revenue for the fiscal year preceding the fiscal year of issuance.
6. The new revenue would be funded through an equalized levy, with levy equalization based on a percentage of state average ANTC per Adjusted Pupil Unit to maintain stability in state and local shares of revenue over time. This might be done in two tiers to minimize winners and losers in state aid shares of revenue, with the first tier equalized at a higher level than the second tier.
7. Voter approval would not be required to access this revenue.
Debt Service Equalization
1. Beginning in FY 2017, modify the current debt equalization formula as follows:
a. Lower the threshold for debt service equalization from 15.74% of ANTC to a significantly lower level (e.g., 10% of ANTC);
b. Replace two-tiered debt equalization formula with single tier based on a percentage of the state average ANTC / PU to ensure equity and stability over time.
c. The debt equalization formula would apply both to voter-approved and non-voter approved debt levies meeting current requirements for levy equalization (e.g., 20 year term).
d. For bonds issued under the new facilities and equipment revenue program and pre-existing alternative facility bonds, facilities and equipment aid and levy would be reduced dollar for dollar to offset the aid and levy received for this purpose in the debt service fund.
Facilities and Equipment Referendum Equalization
1. Rename the Capital Projects Referendum the “Facilities and Equipment Referendum”.
2. Equalize the levy based on a percentage of the state average ANTC / PU to ensure equity and stability over time.
1. Voter approval would be required for projects than cannot be funded using the facilities and equipment revenue outlined above.
2. Voter approval could be for the issuance of long term debt (e.g., bond issue), or for an ongoing source of revenue for up to 10 years for projects to be funded on a pay-as-you-go basis (e.g., facilities and equipment referendum).
Review and Comment
1. Review and comment would be required for projects exceeding $2 million in cost per site that also meet one or more of the following criteria:
a. New facilities to be used for regular K-12 education (e.g., elementaries. middle schools, high schools);
b. Major additions to existing regular K-12 facilities (e.g., > 20% of existing square footage);
c. Remodeling / capital improvements that go beyond maintaining / replacing existing facility components with like components;
d. Other locally-defined facilities and technology projects that require voter approval because they cannot be funded fully with facilities and equipment revenue.
2. Information to be required to be submitted for review and comment would vary depending on the type of project (e.g., construction of new schools requires more/ different information than remodeling or technology purchases).
1. Rename the Cooperative Facilities Grant Program the “Facility Grant Program”.
2. Strengthen eligibility criteria by eliminating cooperation / consolidation as a factor and limiting eligibility to:
a. For projects receiving a positive review and comment, project costs exceeding the amount that would require the district to levy a debt service tax rate exceeding __% of ANTC (e.g., 30%) after factoring in debt service equalization, assuming a 20 year bond schedule.
b. Notwithstanding paragraph (a), districts that have had property damage in a natural disaster are eligible for revenue based on approved project costs for building replacement or remodeling necessitated by the disaster that are not funded with insurance proceeds or FEMA.
3. Other procedures would be consistent with current program, including requirement for specific legislative approval and requirement for local referendum to cover local share of project costs.
1. No change in other miscellaneous funding provisions:
a. Lease levies for integration
b. Bonding for cities of the first class
c. Taconite funding