For the 2012-13 school year, the Madison Metropolitan School District received $58.5 million in general state aid. DPI informed us on July 1 that we’re in line to receive $49.6 million in aid for the 2013-14 school year, a drop of 15%.
Overall, the state is doling out a bit more in general state aid this year compared to last — $4.22 billion rather than $4.17 billion. So, tempting as it is, we can’t really blame Governor Walker for the decrease.
Instead, the decrease is kind of a boomerang effect from the increase in state aid we received last year. At this time last year, we expected to receive about $42 million in state aid and we passed a preliminary budget that was projected to result in a 4.95% increase in the property tax levy. This preliminary budget called for levying $8.2 million less in property taxes than our revenue limits would allow.
Much to everyone’s surprise, we learned last October that we would actually receive $16 million more in state aid than had been estimated in July – a total of $58 million.
We couldn’t simply sock this windfall away. The amount we receive in state aid is added to our property tax levy for purposes of determining whether we are likely to exceed our revenue limits. Our preliminary budget had left us with $8.2 million of underlevy authority. So we could spend $8.2 million of the unexpected $16 million, which would bring us right up to the revenue limit.
We were required to use the remaining $8 million or so to offset a decrease in our property tax levy in an equal amount. This left us in the happy situation of both increasing spending and reducing the property tax levy. As a bonus, last year the state made available an extra $50 per student in general state aid – about $1.3 million for us – to school districts that spent up to their revenue limit maximum.
Last October, the Board considered what to do with our extra millions. The goal was to use the unexpected resources primarily on one-time expenses that would not lock us into additional spending in the years to come.
We earmarked more for spending on maintenance and technology needs and on the recently-approved achievement gap plan. We approved spending more than $2 million on the new Mondo elementary school literacy curriculum. We also approved some new positions that did commit us to continuing spending obligations in coming years. We also approved spending several million of our accumulated surplus that had reached a level that exceeded our target surplus amount.
When all was said and done, our spending for revenue limit purposes had increased dramatically – from $275 million during the 2011-12 school year to $304 million last year. But due primarily to our increase in state aid and use of fund equity, our property tax levy went up a relatively modest $4 million, or 1.7%.
Our increased spending last year spelled trouble for our state aid this year. An explanation of how the general state aid formula works can be found here. For present purposes, the relevant point is that the formula punishes school districts like Madison that have higher-than-average property values and that spend more than the state average per student.
This year, as a result of our relatively high property value per student, DPI projects that we will lose about 48 cents in state aid for every additional dollar we spend. For revenue limit purposes, we spent almost $30 million more this year than last. This additional spending cuts our state aid by about $14.4 million.
And in fact, the state funding formula spits out about $12.4 million less in state aid this year compared to last (we have more students this year than last, which offset some of the decrease attributable to higher spending). The state funding formula provides that a school district’s general state aid cannot decrease more than 15% from one year to the next. That explains why we’re projected to receive about $49 million in state aid rather than the $46 million that the straight-ahead application of the formula would have yielded.
So, where does that leave us for this year’s budget? Our initial draft budget for the year assumed expenditures up to our revenue limit. It also accurately assumed that we would sustain the maximum 15% loss in our state aid, which would have to be made up through the property tax levy. This budget ended up hiking the property tax levy by more than 7%. Close to a consensus quickly emerged that this would be too much of an increase.
We have since managed to bring the levy increase down somewhat. The legislature added $75 per student in categorical aid to the state budget, and this brings us about $2 million in additional state aid that we could use to offset the tax levy. We ran an operational surplus during the 2012-13 school year and we earmarked $1.2 million of that surplus to pay off long-term leases early and otherwise reduce our 2013-14 expenditures funded through the levy. Superintendent Jen Cheatham and her staff identified a number of administrative and other positions that could go unfilled, saving us nearly $2 million. Some other savings were identified as well. As a result, we are now looking at a property tax increase of just under 5%, which is almost exactly where we were a year ago.
It would be good if we could end up with an increase in the property tax levy that is less than 4%. We will next consider the budget at a July 15 meeting of our Operations Work Group (the successor to our Operational Support Committee). By then the superintendent is likely to have presented us with some recommendations or at least possibilities for reducing the levy further.
We have already discussed a couple of possible adjustments to the budget. The first is a $1 million reduction in spending on maintenance of our facilities, which would bring the budgeted amount down to where we were in the 2011-12 school year. Second, our current budget assumes a 1.5% across the board increase in teacher and staff salaries (in addition to the standard step and lane increases). The Board could reduce the budgeted increase to 1%, which would save us about $600,000, or about one quarter of one percent of property tax levy increase. Additional possibilities for reductions may emerge between now and July 15.
We are unlikely to see a jump in our state aid from the July 1 estimate to the October calculation, as we did last year. This is primarily attributable to our spending up to our revenue limit this year. There should not be significant changes in the District’s variables that are taken into account in the state funding formula (number of students, district spending per student and district property value per student) and so there shouldn’t be a significant change from our projected to our actual state aid calculation for 2013-14. In addition, the state funding formula would have to generate a revised state aid figure in October that is at least $3 million more than the preliminary estimate just to get us above the floor of the maximum 15% cut from last year. That appears highly unlikely at this point.
This has been a year of transition in the school district and our 2013-14 budget reflects that. The preliminary budget was prepared before Jen Cheatham assumed the reins of the district in April and so it understandably does not reflect any significant policy changes. Fortunately, it also does not call for the kinds of cuts in programs, like fourth grade strings, that have been controversial in the past.
Superintendent Cheatham and new Assistant Superintendent for Business Services Mike Barry (recently arrived from the Oconomowoc school district to replace Erik Kass) promise a zero-based approach to budgeting for the 2014-15 school year, so the budgeting process promises to be more lively next year.
A final thought – again this year the state funding formula illustrates how sensitive our state aid calculation is to changes in student enrollment. Overall, our general state aid works out to about $1800 per student. However, if we had one more student than our official count of 27,427, the formula would have generated an additional $16,500 in state aid for us. Similarly, if we had counted one fewer student, the formula would have reduced our aid by a similar amount.
This means that, from a state aid perspective, any program or initiative that increases our student count stands a good chance of paying for itself in additional state aid. For example, our summer school program allowed us to increase our student count by the equivalent of 550 students. These 550 students meant more than $9 million in additional state aid. As I have urged for a while, we should not hesitate to expand our summer school and increasing the number and appeal of enrichment classes we offer in the summer would be one good way to do so.