School Facilities Financing Working Group

SCHOOL FACILITIES FINANCING REFORM

OPTION #1

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.
7. Funding for charter schools should be comparable to funding for district schools

Operating Capital Revenue

1. Consolidate the following revenues into a new Operating Capital 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. Maximum funding available to all districts without voter approval would be based on:
a. current operating capital revenue; plus
b. the current state average health and safety revenue per pupil unit ($58); plus
c. the current state average alternative facilities revenue per pupil unit for districts in the alternative facilities bonding program ($450); plus

d. the current maximums for the building lease levy ($162 for all districts plus $46 for intermediate district members for use at the intermediate).

2. Maximum revenue available to each district without voter approval under the new Operating Capital Revenue formula would be determined as follows:
a. For FY 2017, the maximum for each district would be:
b. $240 x Adjusted Pupil Units (APU), plus
c. $490 x Building Age Index x Adjusted Pupil Units.
d. (Current formula is $79 x APU + $109 x Building Age Index x APU + $31 x year-round pupil units. The allowance for year-round pupil units would be deleted to simplify the calculations.)
3. For FY 2018 and later, the rates would be indexed to the Consumer Price Index (CPI).
4. Districts would have flexibility 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 would have flexibility to use this revenue on a pay-as-you-go basis or issue long term debt. If long-term debt is issued, a portion of the revenue would be recognized in the debt service fund, and the required debt service levy would be proportionately reduced. Principal and interest on bonds issued under the program could not exceed a percentage of the district’s operating capital 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:
7. Two tiers of equalization would be used to minimize winners and losers in state aid shares of revenue, compared with current law:
a. Tier 1, first $400 / APU, equalized at 220% of state average ANTC / APU (currently estimated at $14,467 for FY 2015) – (similar to current $14,500 equalizing factor for operating capital revenue, but indexed)
b. Tier 2, remainder of revenue, equalized at 100% of state average ANTC / APU (currently estimated at $6,576 for FY 2015).
8. Operating capital revenue for charter schools would be set at the state average revenue per pupil unit for school districts excluding capital project referendum levies ($895/PU if all school districts opted for the maximum operating capital revenue). The charter school lease aid formula would be reduced to partially offset this increase, so that total charter school facilities revenue per pupil unit would be the same as the state average facilities revenue per pupil unit for school districts, excluding capital project referendum levies.
9. To manage the transition to the new formula:

a. Districts would be guaranteed to receive at least as much revenue as under old law for the above categories for FY 2017; guarantee amount would be adjusted in later years for changes in required debt service and capital leases for pre-existing district obligations.

b. Districts would be guaranteed to receive at least as much state aid as under old law for FY 2017; the additional aid provided by the guarantee would be phased out over several years as ANTC increases.

c. Revenue increases for districts currently receiving less than the new formula revenue would be phased in over time.

Voter Approval

1. Voter approval would be required for new projects that cannot be funded using the operating capital revenue outlined above (and for renewal of existing capital project levies).
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., capital projects referendum).

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% to 10% of ANTC;
b. Replace two-tiered debt equalization formula with single tier based on 100% percent of the state average ANTC / third year prior APU to ensure equity and stability over time.

c. The debt equalization formula would not apply to debt service on alternative facilities projects. Districts would annually transfer funds from the operating capital account to cover this debt service, and the debt service levy would be reduced by the amount of the required transfer.

d. Current requirements for bond schedules to qualify for equalization would continue (e.g., 20 year term).

Capital Projects Referendum Equalization

1. Continue the current capital projects levy revenue but base revenues approved in elections held in 2014 and later on a rate per pupil unit, and equalize the levy based on 100% of the state average ANTC per Adjusted Pupil Unit.

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:
2. New facilities to be used for regular K-12 education (e.g., elementaries. middle schools, high schools);
3. Major additions to existing regular K-12 facilities (e.g., > 20% of existing square footage);
4. Remodeling / capital improvements that go beyond maintaining / replacing existing facility components with like components;
5. Other locally-defined facilities and technology projects that require voter approval because they cannot be funded fully with facilities and equipment revenue.
6. 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).

Facilities Grants

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.

Other

1. No change in other miscellaneous funding provisions:

a. Lease levies for integration

b. Bonding for cities of the first class

c. Taconite funding