Erin Fath, Assistant Director DPI School Financial Services October 3, 2013.

Erin Fath, Assistant Director

DPI School Financial Services

October 3, 2013

Review of Underlying Principles of Equalization Aid / General Aid

Discuss Aid Adjustments, including “Special Adjustment” (aka “Hold Harmless”) Aid

Walk-Thru the Equalization Aid Worksheet

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Equalization Aid: based on Membership, Shared Costs, Equalized Values – “ability to pay” determines position in formula

Inter-District Aid: based on eligible costs / pupils (only 23 districts)

Intra-District Aid: based on eligible pupils / equalization aid (only 4 districts)

Special Adjustment Aid: if district’s combined Equalization/Inter-/Intra- Aids are less than 85% of

prior year’s General Aid eligibility

All 4 aid types are “General Aid” & are included in line 12A of the Revenue Limit Worksheet.

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# of Districts Receiv-ing Aid*

13-14 Aid [July 1st Est.](Prior to Choice/Charter deductions)

% of General Aid

Appropriation

Equalization 404 $4,246,601,708 97.8%

Special Adjustment 77 $26,038,485 0.6%

Inter-District 23 $23,209,898 0.5%

Intra-District 4 $45,742,020 1.1%

Total General Aid 422 $4,341,592,111 100.0%

No General Aid 2

Aid types are not mutually exclusive, so numbers will not add to the 424 total districts in Wisconsin.

In the July 1st Aid estimate: 345 districts received Equalization Aid but no Special Adjustment Aid; 18 districts received Special Adjustment Aid only; and 59 districts received both. All districts that receive Inter- and Intra-District aid also received Equalization Aid.

All four aid types are used for the Revenue Limit computation(though most districts receive only Equalization Aid)

Why do you need to know how to calculate Equalization Aid when DPI

calculates it???

Because you will be asked by your board members, constituents and the media

So you can better understand AND explain why your district’s aid has changed

Because you may want to do your own analysis and run “what if” scenarios

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Under Article 10 of WI State Constitution the State Legislature is responsible for establishing school districts, which are

to be:

“as uniform as practicable … ”

“free and without charge to tuition to all children”

How does the State of Wisconsin achieve this?

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The State provides financial assistance, in the form of Equalization/General Aid, to school districts in order to:

1.To reduce the reliance upon the local property tax as a source of revenue for educational programs.

2.To guarantee that a basic educational opportunity is available to all pupils regardless of the local fiscal capacity of the district in which the reside.

A student should not be unfairly disadvantaged as a result of where he or she

lives

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One of the primary funding mechanisms for public K-12

education in Wisconsin is the local property tax, but ….

Property values vary greatly from district to district

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51% of districts w/ Equal. Value / Member <$500k

2013 Certified Values, DOR

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Because property values vary so greatly across the state, the resources districts can raise from just their tax base

also vary.

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Districts with less property value per member are aided at a higher proportion than districts with higher values per

member.

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The fundamental purpose of the Equalization Aid formula is to

“level the playing field” by providing assistance (distributing aid) to poorer districts (those with lower property value per member)

to make up for what they can’t get from their property tax base.

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State “shares” in district cost

Aid is based on a district’s ability to pay, as measured by its property wealth per member

The formula operates under the principle of equal tax rate for equal per pupil expenditures

Equalization Aid is intended to level the playing field by aiding districts with fewer resources at a higher level than those districts with more resources.

District Factors- Shared Costs- Equalized Property Value- Membership

State Factors- Cost Ceilings- Guaranteed Valuations Per Member- Total Amount Of Funding Available For Distribution

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What factors affect my district’s Equalization Aid?

DISTRICT FACTORS1. Membership (Pupils)2. Shared Cost (Aidable Costs)3. Property Value/ Member (“wealth”)

* * *All Prior-Year Data

(2012-13 data is used for 2013-14 aid.)

* * *

This is a cost-reimbursement formula.

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FTE = Full Time Equivalent2 halftime (.50) K students = 1 F.T.E.

Summer School = 48,600 minutes = 1 F.T.E.

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AVERAGE of:3rd Friday in September count (FTE)

2nd Friday in January count (FTE)

PLUS (+) Summer School count (FTE)

Remember: summer school “starts” the school year for aid membership purposes

2013-14 aid will use Summer 2012, September 2012, January 2013 & Summer 2012 numbers

DISTRICT FACTOR #1: Membership

Total General Fund (Fund 10) Expenditures

plus (+)

Total Debt Service Funds (Funds 38 & 39) Expenditures

minus (-)

All local non-property tax revenue (e.g., gate receipts), grant revenue (federal/state) and

categorical aid.

equals (=)

SHARED COSTS

(the costs in which the state shares, aka “Aidable Costs”)

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DISTRICT FACTOR #2: Shared Costs

Property tax base & membership are used to measure the local ability to support

district expenditures:

Uses Equalized Valuation (Fair Market Value) NOT Assessed Value

Values provided by WI Department of Revenue

“May 2013 Values” (final January 2012 values) will be used for 2013-14 aid 18

DISTRICT FACTOR #3: Property Value/Member

Measured as Value per Member (Total Equalized Value ÷ Membership)

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District A: $400,000,000 ÷ 800 = 500,000/member

District B: $400,000,000 ÷ 1,000 = 400,000/member

DISTRICT FACTOR #3: Property Value/Member

District B will have a greater proportion of its costs (per member) aided by the state, even

though they have the same total property value base.

STATE FACTORS1. Cost Ceilings (Primary & Secondary)2. Guarantee Values (Primary, Secondary & Tertiary)3. Total Aid Appropriation

* * *Equalization Aid is calculated at three levels: Primary,

Secondary & Tertiary

* * *

Aid calculation is driven by each districts’ factors relative to the cost ceilings & guarantees

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The lines separating the three levels of state aid are the “cost ceilings” – per member amounts:

PRIMARY Cost Ceiling = $1,000. The first $1,000 of shared cost per member are aided in the Primary level. Set in statute.

SECONDARY Cost Ceiling = 90% of the state-wide shared costs average. July 1st estimate for 2013-14 General Aid = $9,261. Costs between $1,000 and the Secondary Cost Ceiling are aided in the Secondary level. Formula is set in statute.

Shared costs above the Secondary Cost Ceiling are aided in the Tertiary level (per statute)

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STATE FACTOR #1: “Cost Ceilings”

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$10,000 Shared Cost

STATE FACTOR #1: “Cost Ceilings”

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Within each level, the share of state vs. local costs is based on the district’s wealth – equalized value per member – compared to state determined levels:

PRIMARY Guaranteed Value = $1,930,000 (for K-12 districts). Set in statute.

SECONDARY Guaranteed Value = “floating value” calculated by DPI to fully expend the general aid appropriation (as required by statute). July 1st estimate for 2013-14 General Aid = $1,049,683 (for K-12 districts)

TERTIARY Guaranteed Value = the state-wide average of property value per member. July 1st estimate for 2013-14 General Aid = $536,510 (for K-12 districts). Formula set in statute.

STATE FACTOR #2: “Guaranteed Values”

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The amount of dollars appropriated by the State Legislature and approved by the Governor for use as general aids to schools.

This amount is determined as part of the State Biennial Budget process.

Appropriations for 2013-14 and 2014-15 were decided as part of the 2013-15 State Budget.

STATE FACTOR #3: Appropriation

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General Aid Appropriation Over Time

Aid YearAid Year General AidGeneral Aid(Billions)(Billions)

% Change from % Change from Prior YearPrior Year

2002-03 $4.201

2003-04 $4.273 1.7%

2004-05 $4.318 1.0%

2005-06 $4.614 6.9%

2006-07 $4.723 2.4%

2007-08 $4.723 0.0%

2008-09 $4.800 1.6%

2009-10 $4.653 -3.1%

2010-11 $4.653 0.0%

2011-12 $4.262 -8.4%

2012-13 $4.294 0.7%

2013-14 $4.341 1.1%

2014-15 $4.416 1.7%

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The change in the State’s appropriation for General Aid DOES NOT = the change in your district’s general aid payment. Rather, your district’s general aid amount will depend on:1. Your district’s prior-year Shared Costs per Member,

and how those costs break out into the Secondary and Tertiary level costs.

2. Your district’s Equalized Value per Member, and how it compares to the Primary, Secondary and Tertiary Guarantee Values.

3. Other Factors: Special Adjustment and Integration Aids eligibility; reductions for the Independent Charter schools; prior year adjustments.

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Regardless of what is happening at the state level with funding, your district’s general aid is a function of:

Your district’s “factors”

The relationship between your district’s factors and the statewide averages, which are affected by ….

Every other districts’ factors

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How does the formula work?

Example District:Shared Costs per Member = $10,000Value per Member = $500,000Cost Ceilings and Guarantee Values = July 1st aid estimate values

LEVELDist Val / Member

Guar Val / Member

Dist Share

State Share

Cost Ceiling

Aid / Member

PRIMARY $500,000 $1,930,000 25.91% 74.09% $1,000 $741

SECONDARY $500,000 $1,049,683 47.63% 52.37% $8,261 $4,326

TERTIARY $500,000 $536,510 93.19% 6.81% $739 $50

TOTAL AID PER MEMBER 51.17% $10,000 $5,117

Example District: Shared Costs per Member = $10,000

$1,000 (Primary Cost Ceiling)

$9,261 (Secondary Cost Ceiling)

Local (prop tax)

State (Equal Aid)

TOTAL

We will walk through the Equalization Aid worksheet section by section … AFTER we review three more key concepts:

Negative Aid

Special Adjustment Aid

Adjustments to gross aid eligibility

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What happens when a district’s value/member exceeds the guaranteed value per member?

NEGATIVE AID

July 1st Aid Estimate: 184 districts are negatively aided at the tertiary level because their property value/member is greater than the tertiary guarantee. Of these districts:

43 Districts received just Primary Aid; and 20 districts receive no Equalization Aid (i.e., do not

qualify for even Primary Aid). All but 2 of those districts qualify for Special Adjustment Aid (more in later slide).

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NEGATIVE TERTIARY AID

• Occurs when:

District has costs at the Tertiary Level

District has Equalized Value/Member > TGV

Negative aid reduces the district’s aid at the secondary level

But the district’s Equalization Aid can not go below the amount of Primary Aid generated by the formula – this is the “Primary Guarantee”

• District’s value per member is greater than the Tertiary Guarantee

• District has costs at the tertiary level

Negative Tertiary Aid reduces the amount of aid at the Secondary Level

District Value per Member: 750,000

LEVELGuar

Val/MemDist Share State Share Cost Ceiling Total Aid

PRIMARY $1,930,000 38.86% 61.14% $1,000 $611

SECONDARY $1,049,683 71.45% 28.55% $8,261 $2,359

TERTIARY $536,510 139.79% -39.79% $739 -$294

TOTAL EQUALIZATION AID: 26.76% $10,000 $2,676

Example District: Shared Costs per Member = $10,000

$1,000 (Primary Cost Ceiling)

$9,261 (Secondary Cost Ceiling)

Local (prop tax)

State (Equal Aid)

TOTAL

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KNOW YOUR DISTRICT’S POSITION IN THE AID FORMULA

If a districts is positively aided at the Tertiary Level, an increase in shared costs will increase aid at the tertiary level – more shared costs to be aided*

If a district is negatively aided a the Tertiary Level, an increase in shared costs will decrease aid at the tertiary level – more shared costs to be negatively aided*

*Relative to the aid it otherwise would have received (i.e., all other things being equal).

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  Equalized Value Per Pupil (July 1st, 2013 Estimate)

Cost Ceilings (July 1st, 2013 est)

Up to $536,510 per pupil

Above $555,348 up to $1,049,683

Above $1,049,683 up to $1,930,000

Above $1,930,000 per pupil

Primary Level: Up to $1,000 per Pupil

Positive Aid Positive Aid Positive Aid Zero Aid*

Secondary Level: Above $1,000 up

to $9,261 per PupilPositive Aid Positive Aid Negative Aid Negative Aid

Tertiary Level: Over $9,261 per

PupilPositive Aid Negative Aid Negative Aid Negative Aid

*May be eligible for special adjustment aid if any general aid was received in prior year.

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To ensure that districts don’t see a dramatic drop in aid amounts from year to year, the aid formula includes “Special Adjustment Aid.”

Sometimes called “hold harmless aid”

Equal to 85% of the gross general aid (equalization + special adjustment + Inter/Intra District aids) for which the district was eligible in the previous year*

Acts as a parachute for districts with declining aid (often result of rapidly declining enrollment).

Very property wealthy districts may be “out of the aid formula” but continue to receive Special Adjustment Aid for years.

*Less any prior year Revenue Limit Penalty (because that amount was deducted from the district’s prior year general aid payment)

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Reductions/adjustments to general aid eligibility:1.Independent (“2r”) Charter Schools: cost is spread over all districts via an equal % reduction to gross general aid (equalization/special adjust/inter/intra aids)

July 1st aid estimate for 2013-14 aid: -1.479% May change in the October 15th aid certification

(small change)

2.Prior Year (“October to June”) adjustment: the difference in general aid amounts calculated between the October 15th aid certification and the final aid run of the prior year (+ or – value)

3.Parental Choice Program: reduction in aid to partially offset the cost of the program – but affects Milwaukee only

1. One pot of money is split over 424 school districts based on district membership, shared costs and values; changes in individual district data affect every other district’s aid.

2. Aid Membership = average of September + January FTE, plus 100% of Summer FTE. This is different from Revenue Limit Membership.

3. Depending on district value per member, some districts increase their aid by increasing expenses, while others decrease their aid by increasing expenses (negative vs. positive tertiary aid).

4. Special Adjustment Aid ensures that districts receive at least 85% of the prior year [gross] general aid eligibility.

5. Reductions for the Independent Charter schools & prior year aid adjustments impact the actual aid payment.

6. Be aware of what is happening to your district over time …

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Line C8 = Fund 10 portion of shared costs, i.e., those cost that are funded by general aids and property taxes.

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Line D11 = Debt Service portion of shared costs, i.e., those cost that are funded by general aids and property taxes.

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FOR 13-14 EQUALIZATION AID District Specific Data

July 1 Estimate of 2013-2014 Equalization Aid Worksheet:

October 15 Certified 2013-14 Equalization Aid Worksheet will be available on October 15

2013-2014 Blank Executable Equalization Worksheet

Percentage Method Aid Computationhttp://dpi.wi.gov/sfs/buddev_eq

Algebraic Formula Bar Graphs Positioning on the Equalization Aid Graph

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How can I explain changes in my district’s aid?

10-Year Longitudinal Analysis of General and Equalization Aid Formula

Components

http://www.dpi.wi.gov/sfs/buddev_eq.html

“Longitudinal Data – Equalization Aid”See “Explaining General Aid (including

Equalization Aid) Changes”

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• Bob Soldner, Director 266-6968 • Erin Fath, Assistant Director 267-9209• Brad Adams, Consultant 267-3752 • Bruce Anderson, Consultant 267-9707• Dan Bush, Consultant 267-9212

(State Spec Ed Categorical Aid, State Tuition)• Gene Fornecker, Auditor 267-7882• Brian Kahl, Auditor 266-3464• Michele Tessner, Auditor 267-9218

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Simplified Algebraic Method

DPV: District Equalized Property Value Per Member1GV: Primary Guarantee Value = $1.93 Million (in statue)2GV: Secondary Guarantee Value (floating, set to distribute all aid)3GV: Tertiary Guarantee Value = statewide average of equalized

property values

Primary Aid = (1 - ) X Primary Costs

Can be $0, but not negative [NO EQUALIZATION AID]

Secondary Aid = (1 - ) X Secondary Costs

Can be negative, but cannot reduce primary aid [PRIMARY AID GUARANTEE]

Tertiary Aid = (1 - ) X Tertiary Costs

Can be negative & can reduce Secondary Aid, but cannot reduce primary aid [PRIMARY AID GUARANTEE]

DPV2GV

DPV 1.93M

DPV 3GV

District’s value per member is greater than the Tertiary Guarantee

District has costs at the tertiary level

A district is always eligible for at least the Primary Aid generated by the formula

District Value per Member: 1,035,000

LEVELGuar

Val/MemDist Share State Share Cost Ceiling Total Aid

PRIMARY $1,930,000 53.63% 46.37% $1,000 $464

SECONDARY $1,049,683 98.60% 1.40% $8,261 $116

TERTIARY $536,510 192.91% -92.91% $739 -$687

Sum of aid at each level -$107

TOTAL EQUALIZATION AID: 4.56% $10,000 $464

BACK

Example District: Shared Costs per Member = $10,000

$1,000 (Primary Cost Ceiling)

$9,261 (Secondary Cost Ceiling)

Local (prop tax)

State (Equal Aid)

TOTAL

BACK

District’s value per member is greater than the Secondary Guarantee

District has costs at the tertiary level

A district is always eligible for at least the Primary Aid generated by the formula

District Value per Member: 1,500,000      

LEVELGuar

Val/MemDist Share State Share Cost Ceiling Total Aid

PRIMARY $1,930,000 77.72% 22.28% $1,000 $223SECONDARY $1,049,683 142.90% -42.90% $8,261 -$3,544

TERTIARY $536,510 279.58% -179.58% $739 -$1,327

Sum of aid at each level -$4,648

TOTAL EQUALIZATION AID: 2.23% $10,000 $223

BACK

Example District: Shared Costs per Member = $10,000

$1,000 (Primary Cost Ceiling)

$9,261 (Secondary Cost Ceiling)

Local (prop tax)

State (Equal Aid)

TOTAL

BACK

District’s value per member is greater than the Secondary Guarantee

District has NO costs at the tertiary level:Shared Cost/Member = $9,000

A district is always eligible for at least the Primary Aid generated by the formula

District Value per Member: 1,500,000      

LEVELGuar

Val/MemDist Share State Share Cost Ceiling Total Aid

PRIMARY $1,930,000 77.72% 22.28% $1,000 $223SECONDARY $1,049,683 142.90% -42.90% $8,000 -$3,432

TERTIARY $536,510 279.58% -179.58% $0 -$0

Sum of aid at each level -$3,209

TOTAL EQUALIZATION AID: 2.23% $9,000 $223

BACK

Example District: Shared Costs per Member = $9,000

$1,000 (Primary Cost Ceiling)

$9,261 (Secondary Cost Ceiling)

Local (prop tax)

State (Equal Aid)

TOTAL

BACK