Catch up Day. I apologize for not blogging for a bit. Things got backed up with a few trips out to districts and a couple of night hearings (hard to believe for February, but yes) and I couldn't get back to the blog. Anyway, it's been a hectic few weeks and there is a lot to report on so without further adieu, here we go.
Budget Forecast Looks Healthy. The February, 2013, Budget Forecast was released last Thursday and it contained good news for both the rest of the current fiscal year (FY 13) and for the next biennium (FY 14 and FY 15). The revenue forecast showed an increase of $295 million for the remainder of this fiscal year. All of this revenue will go toward repaying the school aids payment shift, cutting the remaining portion remaining to paid back to Minnesota school districts by over one-third and setting the aid payment schedule at 86.5%/13.5%. The upward tick in the revenue forecast was not sufficient to reduce the property tax early recognition shift, which remains at $551 million.
The change in the forecast comes from both less-than-expected spending ($63 million), a reduction in the stadium reserve ($15 million), and higher-than-expected revenue collections ($217 million). The forecast contends that the economic performance projections aren't slated to change considerably, which means that the increase in revenue is likely due to an increase in income tax collections due to individuals collecting capital gains on investments prior to the higher capital gains taxes that were enacted as a result of the fiscal cliff negotiations in early January.
The news for the next biennium was a bit more surprising. Given the fiscal cliff negotiations and the likelihood that the expected change in the capital gains tax rate would generate more short-term revenue in Minnesota, the current year shortfall was expected to shrink. Most of the scuttlebutt around the Capitol is that the situation for the next biennium would worsen, but instead the budget situation improved by $463 million. Of this $463 million, $323 million is projected to come in higher tax collections and $117 million being saved through lower-than-expected expenditures. Again, the stadium reserve (which I don't totally understand) would be reduced, resulting in $39 million in savings to the state.
This is obviously good news all the way around. The payment shift gets better and the billion dollar plus projected shortfall in the next biennium is cut by over 40%. Part of the Governor's proposed $3.5 billion in tax increases is intended to close a $1.090 billion revenue gap and this relieves the pressure to increase taxes to that level. The size of Governor Dayton's tax proposal has sent a shiver through the majority caucuses and this should make things much easier.
Here is a link to the forecast documents at Minnesota Management and Budget. There is a wide range of information available, from a short summary to a more detailed document.
Equalization Hearings. Last Wednesday (February 27) increased equalization bills were heard in both the House and Senate. The House Education Finance Committee heard HF 248 (Runbeck) and HF 579 (Hortman). These bills are similar. HF 579 sets the equalizing factors for the referendum and debt service equalization programs at 150% of the state average property value (referendum market value for the referendum equalization program and adjusted net tax capacity for the debt service equalization program). HF 248 increases the equalizing factors by an unspecified amount. Both of these bills index the equalizing factors to the average statewide property values, which is a very important move. Many districts have seen the favorable mix of aid-to-levy ratio that was present when a levy question was passed dissipate dramatically as their property wealth has grown and the equalizing factor has remained static. Indexing the equalizing factor will help districts "make good" on their promise to local taxpayers when promoting a levy question as considerable cuts in equalization aid should be avoided by making this change.
The Senate Tax Committee heard SF 177 (Skoe) and SF 569 (Hoffman). SF 569 is the Senate companion to HF 579. SF 177 doubles the equalizing factors for the referendum and debt service equalization programs to $952,000/PU of referendum market value and $6,098/PU of adjusted net tax capacity respectively. SF 177 also doubles the second-tier equalizing factor to $540,000 for per pupil referendum revenue above $700/PU.
SEE was well represented in the testimony in both the House and Senate. In the House, Rockford Superintendent Paul Durand, Rosemount-Apple Valley-Eagan Business Manager Jeff Solomon, Albert Lea school board member Bill Leland, and Anoka-Hennepin Superintendent Denny Carlson all spoke in favor of equalization. In the Senate, Waconia Superintendent (and SEE Legislative Chair) Nancy Rajanen along with Waconia school board members CathyThom and Naomi Erickson and New London-Spicer Superintendent Paul Carlson all testified in favor of increased equalization. I also testified in both the House and Senate.
I am optimistic that we will make some progress on this issue in 2013. Much will be determined by if (and how much) state taxes will be generated during the session in order to buy down property tax levies and the stronger-than-expected budget forecast makes that hill less steep. The Governor's plan to widen the sales tax base and drop the rate is running into a fair amount of resistance, but with the shortfall looking more manageable for the next biennium, there is less revenue needed to balance the budget, leaving more flexibility for funding greater equalization. The important thing for SEE members to do contact their legislators and urge them to use enhanced equalization as the method for delivering property tax relief in the year ahead.
StarTribune Article on Special Education. In an article that is certain to heat up discussion for the remainder of the legislative session, the StarTribune published a thorough critique of the state's special education system and how costs have spiraled over the past decade. The article provides a very good synopsis of the growth in certain disability categories and how the costs of accommodating the needs of some students has become extremely high.
Here is the link: http://www.startribune.com/local/194572221.html
In a related special education matter, the Offce of the Legislative Auditor will be releasing its study on special education on Wednesday, March 6.