Special Education Update: Cross Subsidy Growth Cuts into General Fund Formula Increase

Yesterday, I began a discussion of the impact of the deficit in special education revenues as compared to total special education expenditures in Minnesota.  I pointed out that the total cost of special education in Minnesota has risen from $937 million in 1999 to $1.827 billion in 2011, essentially a doubling in 12 years time.    During that time, state and federal revenue provided to Minnesota school districts has increased from $584 million to $1.231 billion.  The total state shortfall between expenditures and revenues has thus grown from $353 million to $596 million. 

I presented a table showing the growth in special education cross subsidy for selected school districts.   Today, I want to emphasize that this growth in special education cross subsidy per student has a deleterious impact on the general fund revenue increases to school districts.  Commonly, when legislators tout their support for public education, they are inclined to tell us about the increase in the general education formula.  Now from 2004 to 2011, there were actually four years in which there was no general funding formula at all.   And so, school districts actually experienced a net loss in funding, when you net out the increase in cross subsidy against the funding formula.   But in those years that school districts do receive an increase in the general fund formula, the increasing cross subsidy subtracts substantially from the formula increase.

Now the cross subsidy represents the unreimbursed cost of special education divided by all students (not just special education students).   The cross subsidy comes out of the formula funding for all students, and so really, the net formula increase must be determined by subtracting the increase in cross subsidy from the general formula increase.

During the period 2004-2011, the general education formula increased 11 percent, whereas almost all of the selected school districts experienced substantially greater percentage increase in cross subsidy.  The formula increased from $4601 to $5124, an increase of $523 in that seven year time period.   But many school districts lost $300 to $400 as a result of increased cross subsidy.   After subtracting the net cross subsidy loss, for example, St. Louis Park experience an effective formula increase of only $115 dollars.   In other words, over that seven year period, St. Louis Park's effective total seven year formula increase, (after deducting the losses from special education cross subsidy increase,) was only 2 percent.  White Bear Lake's effective net formula increase was only $108.  St. Cloud's was $232 or a seven year total net formula increase of about 4.5% in seven years.  In short, these districts are receiving formula increases, (after deduction of cross subsidy), that is in the neighborhood of 1/2 percent per year or less, far below the rate of inflation.

Selected Districts	Cross	Subsidy		Net formula Inc
	2004	2011	Increase
St. Cloud 742	$569	$801	141%	$291
St. Louis Park 283	$540	$655	121%	$408
Minneapolis	$529	$905	171%	$147
Moorhead	$522	$682	131%	$363
St. Paul	$490	$837	171%	$176
White Bear Lake	$462	$877	190%	$108
Anoka	$446	$697	156%	$272
No St. Paul	$431	$743	172%	$211
Duluth	$422	$801	190%	$144
Sartell	$392	$428	109%	$487
Sauk Rapids	$390	$389	100%	$524
Rochester	$351	$518	148%	$356
Forest Lake	$344	$532	155%	$335
St  Michael	$308	$399	129%	$432
Cambridge-I	$265	$368	139%	$420
	$431	$642	148%	$312
Formula	$4,601	$5,124	111%