Tuesday, April 27, 2010

Bad News (Well, Maybe). Once upon a time, Congress passed a $25.5 billion appropriation that would have extended the enhanced federal matching funds for state Medicaid and child welfare that were part of the stimulus package passed last year. Minnesota is slated to receive approximately $400 million of this appropriation and this $400 million is absolutely crucial if Minnesota is to balance its state budget without cutting K-12 education.

Well, that was then and this is now (That was Then, This is Now has a rare place in American pop culture history as it's the title of both a bad song and a bad movie) and the $25.5 billion is all of a sudden in jeopardy as deficit hawks at the federal level (It's hard to believe that there are still some of those after watching the past nine years in Washington D.C.) are insisting that any new appropriations legislation--including the jobs bill--be revenue neutral. In other words, if there is new spending, existing spending has to be cut by the same amount.

If the enhanced matching funds for state Medicaid and child welfare under Title IV-E aren't forthcoming, we are in a heap of trouble. With only a little over two weeks left in the 2010 Legislative Session, it would be extremely difficult to put the session to bed with dreams of a balanced budget.

How do we avoid this impending mess? Call your U.S. Senator and your Congressman (or Congresswoman) and urge them to make certain that they extend the Medicaid match!

More Bad News. It's turn the clock back day (Sorry. I forgot to wear my paisley tie.). Joel Sutter from Ehlers and Associates sent out a memorandum this afternoon protending more problems. This time it's the debt service equalization appropriation.

The debt service equalization appropriation is not an open-and-standing appropriation. In other words, a specific dollar amount is approved by the Legislature and the aid is then forwarded to school districts by formula. If demand is higher than anticipated (and we'll get to the whys) in a minute, district amounts are pro-rated to make the appropriation fit the formula entitlement amount. If demand is lower than anticipated, the unexpended surplus is sent back to the state general fund.

Over the past few years, the fund has never expended the entire amount of the appropriation approved by the Legislature. This is largely because very few districts still qualify for debt service equalization and the property wealth levels in these districts rose so fast during the run-up in housing and agricultural land values that the levy-to-aid ratio also rose. Remember, equalization programs work on the straightforward principle that awards aid to low property wealth districts through a formula that creates a levy percentage by dividing a district's adjusted net tax capacity per pupil by the state equalizing factor (currently $3,200 per pupil unit).

We are now seeing the opposite happen. Land values--particularly housing values--have dropped dramatically over the past two years and the levy-to-aid ratio is dropping. Because of this, the state appropriation for debt service equalization will not provide enough aid to fully meet the amount that districts will now qualify to receive and those amounts will have to be pro-rated by an equal percentage among all eligible districts. This will, of course, raise property taxes above where they would ordinarily be if the appropriation were sufficient to meet the formula needs of the program. Legislators are aware of this problem and may be in a position to fix it in the remaining days of the 2010 Legislative Session. But, as stated in today's first blog item, given the new parameters of the budget debate and a possible funding gap of $400 million, correcting this relatively small problem may be a tall order.

Mark Up Tomorrow. The House K-12 Education Funding Division will be marking up its version of the omnibus funding bill tomorrow. Representative Carlos Mariani (DFL-St. Paul), Chair of the House K-12 Education Policy Committee, will be offering a comprehensive amendment dealing with the evaluation of teachers and principles. The text of the amendment is available at this link:

Mariani Amendment: http://http://www.house.leg.state.mn.us/comm/docs/H2431A8.pdf

The Senate will also be unveiling its version of the omnibus K-12 funding/policy bill tomorrow. I will provide a summary of the major provisions in that bill in the blog.


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