The Legislature failed in 2007 to make any improvements in the equalizing factors for the referendum and debt service programs making the system increasingly less fair to taxpayers in low property wealth school districts.

• In recent years, the state has increased the referendum cap to a staggering value of 26% of the state basic formula which equals $1345 per pupil. Levy authority of this magnitude indicates the state’s acknowledgement that basic components of education need to be funded by local operating referendums. With the heavy reliance of local referendum to compensate for inadequate state funding, all districts must have equal access to levy dollars. This is not the case.

• The state has provided state aid to taxpayers in districts that struggle to generate levy dollars because of the excessive cost by “equalizing” the levy dollar. When the current referendum equalization program was established in 1993 for taxes payable in 1995, the highest referendum market value per pupil unit in the state was less than the $476,000 per pupil unit equalizing factor. For taxes payable in 2008, the highest referendum market value per pupil unit will be more than 280% of the equalizing factor. A taxpayer in a district with referendum market value at or below $476,000 per pupil unit will pay almost 3 times as much for the same dollar in referendum revenue as the district with the highest value. This is simply unfair.

• Because of this disparity, school districts differ in their ability to raise local property taxes to fund educational programs and services. This results in less programs and services for students for an identical property tax effort. Low property tax districts that have difficulty passing operating referenda will have higher class sizes, fewer advanced classes, fewer remedial courses, and less technology available for students.

• For the second consecutive year, the gap in per pupil funding between at the 5th percentile and the 95th percentile of funding grew markedly. Over these two years, the gap has grown from $982 per pupil unit to $1,280 per pupil unit. The rise in this gap is directly attributable to the increase in the referendum cap from 18.6% of the general education formula to 26% of the general education formula—and the additional authority of $200 per pupil unit for the “grandfathered” districts—enacted in 2005. To increase the cap without increasing the equalization factor for the referendum is clearly a step toward bringing greater inequity into the education funding system. ¹

• The debt service program, which provides tax fairness for school districts with construction and facilities maintenance needs, is in even greater disrepair. The equalizing factor is well below the state average adjusted net tax capacity. The tax effects of bond levies on agricultural property make passage extremely difficult in many Greater Minnesota school districts. All students must have access to quality school facilities that are safe, environmentally sound and provide access to new technologies. Requiring taxpayers owning property at a particular market value in low property wealth school districts to pay substantially more to contruct the same school building than taxpayers in identical property in higher wealth school districts is, again, unfair.

• When the referendum and debt service equalization programs were established in the early 1990s, all Minnesota school districts were eligible to receive referendum equalization revenue and 86% were eligible to receive debt service equalization. For Pay 2008, 57 districts are no longer eligible for referendum equalization and over 90% of districts no longer qualify for debt service equalization. ²

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¹ MDE
² Ehlers and Associates

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