The New K-12 Compensatory Revenue Task Force's final report--Part 1

Part 1 of a series on the K-12 Compensatory Revenue Task Force's final report

In October 2026, the Compensatory Revenue Task Force sent its final report to the Legislature. Compensatory revenue is the state's principal funding stream for students who arrive at school underprepared to learn, so how it works matters a great deal. This first post explains what compensatory revenue is, how it works, and what the task force recommended. Later posts will take up the policy questions the report raises, and in some cases leaves open.

What is compensatory revenue?

Compensatory revenue is a component of Minnesota's general education revenue. Its statutory purpose is to meet the educational needs of students who enroll underprepared to learn and whose progress toward state or local standards is below the level appropriate for their age. The theory is simple. Some students need more instructional time, more individual attention, and more support than the basic per-pupil allowance can buy, so the state provides additional dollars where those students are enrolled.

Minnesota has never tried to measure "underpreparedness" directly. It uses poverty as a proxy. For decades, the proxy was eligibility for free or reduced-price school meals.

How the money is generated

Compensatory revenue is calculated school building by school building, not district-wide. Each site's revenue depends on two things: how many of its students qualify, and what share of its total enrollment those students represent.

The second factor is the concentration feature, and it is central to the formula's design. A school where 80 percent of the students are in poverty generates more per qualifying student than a school where 20 percent are. The premise, well supported in the research, is that concentrated poverty compounds educational need. A low-income child surrounded by classmates facing the same disadvantages needs more support than a low-income child in a more advantaged school.

Through fiscal year 2026, the formula limited that concentration effect in two ways. A building's weighting stopped rising once 80 percent of its students qualified. The result was then multiplied by 0.60. Even at the highest-poverty schools, a qualifying student generated only about half of the basic per-pupil formula allowance in additional funding.

Beginning in fiscal year 2027, a formula enacted in 2023 took effect, and it works very differently (Minn. Stat. § 126C.10, subd. 3). It has three pieces:

• A building's "compensatory pupils" equal its free-meal students plus one-half of its reduced-price students.
• Its "concentration factor" is simply the ratio of compensatory pupils to total enrollment.
• Its revenue equals compensatory pupils times the concentration factor times a statewide compensatory allowance of $6,936 for FY2027.

There is no longer an 80 percent ceiling or a 0.60 multiplier. Per-pupil funding rises in a straight line all the way from 0 to 100 percent concentration.

Researchers commonly express the additional funding for a disadvantaged student as a "weight" relative to the basic per-pupil allowance. A weight of 1.0 means the student generates an extra amount equal to the basic allowance, so twice the base in total. Under the current formula, each building's weight depends entirely on its concentration. Measured against the FY2027 basic formula allowance of $7,683, the results look like this:

Building concentration	Additional revenue per compensatory pupil	As a weight of the basic formula
100%	$6,936	about 0.90
88%	$6,104	about 0.79
60%	$4,162	about 0.54
40%	$2,774	about 0.36
20%	$1,387	about 0.18

Sources: Minn. Stat. § 126C.10, subds. 3, 3a, 3c; Minnesota Department of Education, FY2027 formula allowance memo (Feb. 11, 2026).

These figures are before any adjustment under the statewide funding floor. State law requires that compensatory revenue total at least $857.2 million statewide. If the formula adds up to less than that, the remaining money is distributed to every building in proportion to its formula amount. In that case, each building receives somewhat more than the figures shown in the table, and the formula determines only how the $857.2 million is divided.

The formula pays the most to schools with the highest concentrations of poverty, and it pays them considerably more than the old formula did. A low-income student in a school where few classmates are poor generates only a small fraction of the basic allowance. Because a building's total revenue grows with the square of its concentration, the money is heavily concentrated in a relatively small number of buildings.

How students are counted

The method of counting students has been unstable, and that instability is part of what led to the task force.

Originally, students were counted through paper applications for educational benefits, the familiar free and reduced-price lunch forms. Starting in 2008–09, students were also identified automatically through "direct certification," a match against enrollment in SNAP, MFIP, and foster care. Medicaid was added in 2022–23.

When Minnesota adopted universal free school meals in 2023, families had little reason to fill out the paper forms. The Legislature removed the forms from the compensatory count and moved to direct certification only. Student counts, and district revenue projections, became volatile. The Legislature responded with a series of temporary fixes:

• hold-harmless provisions for fiscal years 2025 and 2026;
• a statewide funding floor;
• a one-time FY2027 cushion for buildings that would lose revenue under the new formula.

How the money must be spent

Compensatory revenue is restricted to specified uses, including:

• remedial instruction;
• additional teachers and aides;
• extended day and summer programs;
• counseling and social work;
• programs for English learners;
• early childhood programs;
• certain professional development.

Because the money is generated by particular schools, the law has historically required districts to send at least 80 percent of each building's compensatory revenue back to that building. The school board could reallocate the other 20 percent. For fiscal years 2026 through 2028, the Legislature temporarily loosened that rule, allowing districts to reallocate up to 40 percent. At present, then, only 60 percent of the money generated by a high-poverty school is guaranteed to be spent there.

What the task force recommended

The 2025 Legislature created the 14-member task force and charged it with examining the formula's purpose, revenue levels, distribution, uses, and evaluation. It met 13 times between September 2025 and October 2026. Its principal recommendations are these.

Target and proxy. Students underprepared to learn should remain the intended beneficiaries, and poverty should remain the proxy for identifying them. The task force acknowledged that the proxy is imperfect but found a strong correlation between poverty and learning readiness.

Counting students. Count as many eligible students as possible. That means combining direct certification (now including FDPIR, migrant, homeless and runaway youth, and Medicaid), restoring the educational benefits forms, and adding SUN Bucks applications. Over the longer term, the state should add income tax data, as New Mexico has done, to reduce dependence on federal program enrollment.

Equal weighting. Count free-meal and reduced-price students equally. The task force concluded that both income levels reflect substantial hardship and that the current half-weight for reduced-price students reflects budget considerations rather than real differences in need. This is among the largest, and most expensive, of the task force's recommendations.

Stability. Beginning in fiscal year 2028, use a four-year rolling average of student counts to reduce volatility.

Concentration. Keep the concentration formula, with per-pupil funding increasing continuously from 0 to 100 percent concentration. This retains the structure of current law. The task force first proposed reinstating a cap at 80 percent, then reversed itself after reviewing fiscal modeling.

Site allocation. Require at least 70 percent of a building's compensatory revenue to stay at that building. Over the longer term, give districts below median enrollment more flexibility, with documentation and public reporting.

Extended time and uses. Make no changes.

Effectiveness. Do not attempt to measure outcomes directly. Instead, require districts to describe their compensatory spending in their Comprehensive Achievement and Civic Readiness (CACR) reports, and have MDE compile an annual statewide report identifying promising practices.

Finally, the task force urged the Legislature to fund its recommendations fully. It warned against across-the-board proration, which it found would shortchange the highest-need schools. If full funding is not possible, it proposed an order for scaling back:

1. Phase in the equal weighting for reduced-price students.
2. Adjust the averaging period.
3. Adjust concentration floors or caps.
4. Only as a last resort, prorate the formula along a non-linear curve that protects the highest-need schools.

What would it cost?

The report does not say. That is a striking omission in a document that asks the Legislature to fully fund its recommendations. The report acknowledges that MDE's modeling showed the recommendations increase spending, both by identifying more students and by raising concentration percentages. It never puts a number on the increase.

According to one task force member, the full package would add nearly $500 million a year. Measured against the current statewide floor of about $857 million, that is an increase of more than 50 percent. Whatever one thinks of the merits, that figure belongs in front of legislators and the public. It is also the reason the task force spent so much effort on what should happen if the Legislature does not provide it.

The same task force member acknowledges that leaving the full price out of the report is a fair criticism, and offers an explanation. MDE plans to produce official cost estimates after the November forecast, when it will have a clearer picture of enrollment and of the number of students who qualify. The recommendations themselves make forecasting harder at first: averaging student counts, which the task force recommends for the first time, complicates long-range projections. The task force is expected to present its work to the House and Senate education finance committees this spring, where the cost question will have to be answered with better data than exists today. I will report MDE's figures when they are released.

The policy issues ahead

The report is a serious effort to repair a formula destabilized by the shift to universal meals and direct certification. It also leaves several important questions unresolved.

1. How much is enough? The report never asks whether the amount of compensatory funding is adequate to meet the needs of low-income students. The research literature has addressed that question directly. Under the current formula, only students in the very highest-poverty buildings approach a weight of 1.0. A low-income student in a building at 40 percent concentration generates a weight of about 0.36, and at 20 percent concentration, under 0.2. Whether those amounts are adequate is a question the task force did not take up.
2. Who pays if the Legislature doesn't? With a price tag that may approach half a billion dollars, and no official estimate until after the November forecast, partial funding is a real possibility. The task force's own analysis shows that partial implementation can harm the highest-need schools.
3. Redistribution. Several recommendations, especially restoring the forms and equalizing reduced-price weighting, add students mainly in low- and moderate-poverty schools. The report itself notes that high-concentration schools gain less from these changes. If the total does not grow enough, money shifts away from the schools with the greatest need.
4. English learners. The report treats English learners only as background. It does not examine whether direct certification and tax data undercount immigrant and EL families, or how compensatory revenue interacts with the state's separate EL funding.
5. Does the money reach the students who generate it? The current formula concentrates revenue heavily in the highest-poverty buildings, so the rules on where the money is actually spent matter more than ever. Under current law, districts may move up to 40 percent of it elsewhere. Even the 80, 70, or 60 percent site rule may matter less than it appears. As one task force member candidly put it, districts can offset compensatory dollars by reducing a building's general-fund allocation. The report does not consider a comparability or supplement-not-supplant requirement.
6. Accountability. The task force's effectiveness recommendation is a narrative disclosure. It largely duplicates best-practice reporting duties already in statute, and it attaches no consequences to spending that shows no results.

In the next post, I will take up several of these issues, beginning with the question the task force set aside: how much additional funding Minnesota's low-income students actually need, and how close the compensatory formula comes to providing it.