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SCHOOL FINANCE ESSENTIALS. WASDA NEW ADMINISTRATORS WORKSHOP Deb Brown & Erin Fath School Finance Team – DPI November 13, 2012. Agenda – today we will review:. Equalization Aid/General Aid Revenue Limits Explaining the Tax Levy Referenda Community Service Fund WUFAR

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SCHOOL FINANCE ESSENTIALS

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School finance essentials

SCHOOL FINANCE ESSENTIALS

WASDA NEW ADMINISTRATORS WORKSHOPDeb Brown & Erin Fath

School Finance Team – DPI

November 13, 2012


Agenda today we will review

Agenda – today we will review:

  • Equalization Aid/General Aid

  • Revenue Limits

  • Explaining the Tax Levy

  • Referenda

  • Community Service Fund

  • WUFAR

  • Getting Started on Your Budget


Equalization aid

Equalization Aid

Review of Underlying Principles of Equalization Aid

Discuss Aid Adjustments, including “Special Adjustment” (aka “Hold Harmless”) Aid

3


Equalization aid review

Equalization Aid Review

Why do you need to know how to calculate aid when DPI calculates it for you?

  • Because you will be asked by your board members, constituents and the media.

  • So you can figure out why your aid has changed AND explain why.

  • Because you may want to do estimates and run “what if” scenarios …

4


Equalization aid review1

Equalization Aid Review

  • State “shares” in district cost

  • Aid is based on a district’s ability to pay, as measured by its property wealth per member

  • The formula operates under the principle of equal tax rate for equal per pupil expenditures

Basic premise:

The more property wealth per member a district has, the lower the proportion of shared costs that will be aided by the state through the equalization aid formula.

5


Property value per member

Property Value per Member

The local Property Tax is one of the primary source of K-12 funding and property values vary greatly across the state:

2011-2012 data (“May 2012” values, based on assessments as of January 1, 2011, DOR)


Property value per member1

Property Value per Member

Because property values vary so greatly across the state, the resources districts can raise from just their tax base also vary:


Property value per member2

Property Value Per Member

  • Districts with less property value per member are aided at a higher proportion than wealthier districts.

Red: Local Portion (Property Tax)

Blue = State Portion (Equalization Aid)


How does the state share in costs

How Does the State Share in Costs?

State Guaranteed Value Per Member

District Value Per Member

Compare, then

Compute equalization aid


Equalization aid review2

Equalization Aid Review

What determines where a district is in the formula?

District Factors

- shared cost

- equalized property value

- membership

State Factors

- cost ceilings

- guaranteed valuations per member

- total amount of funding available for distribution


Equalization aid review3

Equalization Aid Review

DISTRICT FACTORS

1. Pupils (“Membership”)

2. Costs (“Shared Cost”)

3. “Wealth” (Property Tax Base)

* * *

All Prior-Year Data

(2011-12 data is used for 2012-13 aid.)

* * *

This is a cost-reimbursement formula.


Equalization aid review4

Equalization Aid Review

DISTRICT FACTOR #1: Pupils

F.T.E. = full-time equivalent

2 halftime (.50) K students = 1 F.T.E.

Summer School = 48,600 minutes = 1 F.T.E.

Average of

September 3rd Friday F.T.E.

January 2nd Friday F.T.E.

plus (+) Summer School F.T.E.

(2012-13 aid uses September 2011, January 2012,

and Summer 2011 numbers – summer starts the school year for aid / revenue limit purposes)


Equalization aid review5

Equalization Aid Review

DISTRICT FACTOR #2: Shared Costs

Total General Fund (Fund 10) Expenditures

plus (+)

Total Debt Service Funds (Funds 38 & 39) Expenditures

minus (-)

all local misc. revenue, grant revenue,and categorical aid.

equals (=)

Shared Cost (the costs the state shares in)


Equalization aid review6

Equalization Aid Review

DISTRICT FACTOR #3: Wealth

Property Tax base is used to

determine wealth and ability to

support district expenditures

Uses Equalized Valuation

(Fair Market Value)

NOT Assessed Value

Values provided by WI Department of Revenue


Equalization aid review7

Equalization Aid Review

DISTRICT FACTOR #3: Wealth

Measured as Equalized Value per Member

(Total Equalized Value ÷ Membership)

$400,000,000 ÷ 800 = 500,000/member

$400,000,000 ÷ 1,000 = 400,000/member

Equalization Aid as a proportion of shared costs will be higher for the second district.


Equalization aid review8

Equalization Aid Review

STATE FACTOR #1: “Cost Ceilings”

Equalization Aid is calculated in three parts – Primary Aid, Secondary Aid and Tertiary Aid. The lines separating the levels are the “cost ceilings”:

  • PRIMARY Cost Ceiling = $1,000. The first $1,000 of shared cost per pupil are aided in the Primary level. Set in statute.

  • SECONDARY Cost Ceiling = 90% of the state-wide shared costs average. For 2012-13, it is $9,005 (Oct 15th Aid Cert). Costs between $1,000 and the Secondary Cost Ceiling are aided in the Secondary level.

  • Shared costs above the Secondary Cost Ceiling are aided in the Tertiary level.


Equalization aid review9

Equalization Aid Review

STATE FACTOR #1: “Cost Ceilings”

$1,000 (tertiary costs)

$8,005 (secondary costs)

$1,000 (primary costs)


Equalization aid review10

Equalization Aid Review

STATE FACTOR #1: “Cost Ceilings”

$7,653

$10,230

$20,598


Equalization aid review11

Equalization Aid Review

STATE FACTOR #2: “Guaranteed Values”

Equalization Aid is calculated in three parts – Primary Aid, Secondary Aid and Tertiary Aid. Within each level, the share of state vs. local costs is based on the district’s wealth compared to state determined levels:

  • PRIMARY Guaranteed Value = $1,930,000. This is written in statute.

  • SECONDARY Guaranteed Value is a floating number calculated by DPI to expend the full appropriation. For 2012-13: $1,105,090 (Oct 15th Aid Cert)

  • TERTIARY Guaranteed Value = the state-wide average property value per member. For 2012-13: $555,356 (Oct 15th Aid Cert)


Equalization aid review12

Equalization Aid Review

STATE FACTOR #2: “Guaranteed Values”

  • District Wealth is then compared to the Guaranteed Values. This determines the level of support that will come from the state.

    • Fairly Normal School District:

      • $500,000 Property Value/Member

      • $10,000 Shared Cost/Member


Equalization aid review13

Equalization Aid Review

STATE FACTOR #2: “Guaranteed Values”

  • Fairly Normal School District:

  • $500,000 Property Value/Member

  • $10,000 Shared Cost/Member


School finance essentials

Equalization Aid Review

What happens when a district’s value/member exceeds the guaranteed value per member?

NEGATIVE AID

  • 166 districts are negatively aided at the tertiary level because their property value/member is greater than the tertiary guarantee. Of these districts:

    • 41 Districts received just Primary Aid; and

    • 20 districts receive no Equalization Aid (i.e., do not qualify for even Primary Aid). [All but 2 qualify for Special Adjustment Aid – more in later slide].


Equalization aid review14

Equalization Aid Review

NEGATIVE AID

  • Fairly Normal School District:

  • $750,000 Property Value/Member

  • $10,000 Shared Cost/Member


Equalization aid review15

Equalization Aid Review

NEGATIVE AID – Primary Aid Guarantee

  • Fairly Normal School District:

  • $1,250,000 Property Value/Member

  • $10,000 Shared Cost/Member


Equalization aid review16

Equalization Aid Review

NEGATIVE AID – No Equalization Aid

  • Fairly Normal School District:

  • $2,000,000 Property Value/Member

  • $10,000 Shared Cost/Member


School finance essentials

Equalization Aid Review

NEGATIVE AID

It is important to know where your district is in the formula to understand how the formula impacts your district, vis-à-vis changes in shared costs.

  • Negative Tertiary districts that increase shared cost see a decrease in state aid

  • Positive Tertiary districts that increase shared cost see an increase in state aid


Equalization aid review17

Equalization Aid Review

STATE FACTOR #3: Appropriation

Simply put: the amount of dollars appropriated by the State Legislature and approved by the Governor for use as general aids to schools.


Equalization aid1

Equalization Aid

General Aid Appropriation Over Time


General school aids

General School Aids

*Aid types are not mutually exclusive, so numbers will not add to the 424 total districts in Wisconsin. In the October 15th Aid Certification: 341 districts received Equalization Aid but no Special Adjustment Aid; 18 districts received Special Adjustment Aid but no Equalization Aid; and 63 districts received both. All districts that receive Inter- and Intra-District Integration Aid also received Equalization Aid. Two districts received no general aid at all.

All four General Aid types are used for the Revenue Limit computation (though most districts receive only Equalization Aid)


Special adjustment aid

Special Adjustment Aid

  • Sometimes called “hold harmless aid”

  • Part of the General Aid Allocation

  • Equal to 85% of the gross general aid (equalization + special adjustment + Inter/Intra District Integration Aids) for which the district was eligible in the previous year*

  • Acts as a parachute for districts with declining aid (often result of rapidly declining enrollment)

  • Very property wealthy districts may be “out of the aid formula” but continue to receive Special Adjustment Aid for years.

  • *Less any prior year Revenue Limit Penalty (because that amount was deducted from the district’s prior year general aid payment).


Adjustments to general aid

Adjustments to General Aid

Reductions/adjustments to general aid eligibility:

  • Independent (“2r”) Charter Schools: cost is spread over all districts via an equal % reduction to gross general aid (equalization/special adjust/inter/intra aids)

    • October 15th aid certification for 2012-13 aid: -1.394%

  • Prior Year (“October to June”) adjustment: the difference in general aid amounts calculated between the October 15th aid certification and the final aid run of the prior year (+ or – value)

  • Parental Choice Program: reduction in aid to partially offset the cost of the program – affects Milwaukee and Racine only


  • School finance essentials

    Equalization Aid Review

    Knowing where your district is in the formula will help you better explain how changes in local finances might affect your state aid.

    What if we under-spend our budget? How does that affect our aid?

    If we go to referendum, how will our aid change?


    Equalization aid takeaways

    Equalization Aid Takeaways

    One pot of money is split over 424 school districts based on district values, membership, and expenditures. Changes in individual district data affect every other district’s aid.

    Aid Membership = average of September + January FTE, plus 100% of Summer FTE. Different from Revenue Limit Membership.

    Depending on district value-per member, some districts increase their aid by increasing expenses, while others decrease their aid by increasing expenses. It’s important to know where your district is in the formula (Negative Aid vs. Positive Aid).

    There is a hold harmless provision called Special Adjustment Aid to ensure that districts receive at least 85% of the general aid awarded the previous year.

    Be aware of what is happening to your district over time.


    School finance essentials

    Resources on the DPI Website

    http://sfs.dpi.wi.gov/sfs_aid_worksheets

    October 15, 2012-13 General Aid Worksheets

    http://sfs.dpi.wi.gov/sfs_buddev_eq

    “Ten Year Longitudinal Analysis of General and Equalization Aid Formula Components ”

    View what’s happening to your district over time

    “October 15, 2012-13 Equalization Aid Computation – Percentage Method – Algebraic Format”

    Computed Aid at each cost level

    http://sfs.dpi.wi.gov/

    View Webcast on the General Aids Computation

    Choose “Webcast Presentations” under “General Information”

    (School Financial Services Team)


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