What new reports show about school enrollments, funding and the state budget

What new reports show about school enrollments, funding and the state budget

Every November, state officials release a Consensus Revenue Estimate – the best guess about how much tax revenue will be available to spend in the State General Fund. The Governor and Legislature use that estimate to make budget adjustments in the current fiscal year, which ends June 30, and plan for the next year. The final budget is usually adopted after another CRE released in April.

As part of the process, experts also prepare a consensus school finance estimate – basically, what it is expected to cost to fund the current school finance system with the latest enrollment numbers and other factors. Here is an overview of school funding in the state budget for this year and beyond.

The state budget forecast has improved, but projected deficits will cause close examination of all state spending, including K-12 education

In recent months, the state budget picture has improved significantly. The November Consensus Revenue Estimate increased projected state general fund receipts by $477 million for the current fiscal year. Combined with the Governor’s budget allotments in June, the state general fund is projected to have a positive ending balance of $363 million on June 30, 2021.

However, because a portion of the higher revenues this year were actually tax payments from the previous year delayed by the COVID pandemic, SGF revenues for NEXT year, FY 2022, are projected to be $224.1 million LOWER than 2021. This decrease in revenues, combined with additional school funding for the Gannon school finance case, higher human service caseloads, and replacing one-time allotment savings in the current year, result in a projected deficit of $152 million in state general fund next year. The deficit would be even greater if the state were not starting with beginning balance of $363.5 million. That indicates additional budget challenges in 2023 unless state revenues start growing more quickly. The final scheduled base aid increase under Gannon is also in 2023.

Therefore, the Legislature can be expected to carefully review all state spending, including K-12 state aid, during the upcoming session. Governor Laura Kelly has been a strong supporter of the Gannon funding and is expected to recommend it in her budget. That funding passed with strong bi-partisan support, but there are number of new Legislators who will have little experience with how the school finance system works, or its recent history. School leaders will need to be part of that learning process.

Kansas is in the middle of a six-year plan to ensure constitutionally suitable funding

In a series of decisions concerning the Gannon school finance case, the Kansas Supreme Court ruled that the school funding formula had become unconstitutional based on both equity and adequacy.

Equity: The Legislature had failed to maintain funding for state equalization aid in locally funded school programs, resulting in widening tax differences because of different local wealth. The Legislature corrected this by fully funding those aid formulas.

Adequacy: The Legislature reduced funding and failed to adjust for inflation in base state aid per pupil and school district general funds, which are fully determined by the state. As a result, funding fell hundreds of millions of dollars below levels previous legislative studies had determined were adequate to meet state educational goals. The Legislature ultimately adopted a plan to raise base state aid to a level approximately equal to 2009, adjusted for inflation, and passed a law increasing base state aid from 2018 to 2023.

The Supreme Court approved that plan, but has retained jurisdiction of the case, meaning the court can quickly respond if the Legislature fails to comply. The new school finance estimates project changes in enrollment and other factors that determine the cost of the system to the state, and what school districts will receive.

Regular USD “unweighted” enrollment declines 3.7%; will not change current budget

Based on preliminary school districts legal maximum budget documents, regular unweighted full-time equivalent enrollment on Sept. 20, 2020 was about 17,000 students lower than last year, a decline of 3.7 percent. A number of districts had double-digit declines and a small number actually had enrollment growth. A significant decline was expected because of the COVID pandemic, with some families not wanting their children in school because of health risks, and others not wanting their students in remote or hybrid learning.

It is not yet clear where those students are currently attending. Some may have transferred to private schools or are being schooled at home. Some have transferred to public school virtual programs, which did increase in enrollment. Others may return to the same district after the count date. Enrollment data for accredited private schools has not yet been reported by KSDE. Non-accredited private schools and home schools do not report enrollment to the state. See below for information on public virtual programs.

With the base state aid per pupil at $4,569 this year, a reduction of 17,000 students would equal about $78 million. However, under the current school finance law, regular FTE enrollment for school funding is based on the higher of the prior year’s budget, or the second prior year. As a result, districts use a previous year’s enrollment for this portion of the budget, and the base amount for those students will increase from $4,436 to $4,569, $133 or 3 percent.

Weighted enrollment is declining; will reduce funding

However, under the school finance system, most weighting factors are counted for funding in the current year, not the prior year. Preliminary district budgets indicate that the weighted student count will be down about 4,900, or 3.1 percent, a little less than the decline in “regular” students. That means school districts will receive about $22 million less in the current year based on weightings.

(Note: weightings are used to provide additional funding for costs that are higher than the “regular” education program. Weighted students are counted in different ways. For example, students eligible for free meals are counted once as a regular student, but then are also counted as an additional 0.484 student. The additional funds are for programs to assist students who are demonstrating challenges that make them “at risk” of failing in school. Additional “weighting factors” are also applied for students receiving bilingual education and vocational or career technical education services, and for students in smaller districts where per pupil costs are higher. In other cases, districts receive funding under formulas, such as the cost of transporting students who live more than 2.5 miles from school. In that case, the amount of formula funding is divided by base state aid per pupil, and the result is added to the “weighted” enrollment count.)

Virtual school enrollment increases

While regular and weighted enrollments are down from last year, enrollment in virtual programs in public schools is up. Full time enrollment in virtual programs is reported up 4,200 students, or 74 percent; part-time enrollment is up 560, or 43 percent.  Virtual credits for students 20 and older are expected to be up slightly.

Funding for students in school district virtual programs is based on a flat amount of $5,000 per full-time student and $1,700 per part-time student, without weightings, and is counted in the current year. As a result, virtual funding is expected to increase by $21.7 million.

(Note: virtual school enrollment counts only students in approved virtual programs, which are typically separate from “regular” school programs. These programs are different from “remote” learning environments many schools are using during the COVID pandemic. Although provided virtually, remote learning generally uses the same teachers and curriculum and often a similar schedule as regular onsite learning. Students in remote learning are counted the same as regular and weighted students.)

Overall school general funding continues to rise

The combination of increased base state per pupil, using prior year unweighted enrollment, lower weighted enrollment and higher virtual enrollment and funding results in an increase of overall general fund school district budgets by about $90 million, according to preliminary budgets, which are likely to be adjusted slightly by audits and other factors. This continues funding on the schedule adopted by the Legislature to resolve the Gannon school finance case, which was approved by the Kansas Supreme Court.

However, because the state officials expected weighted enrollment to increase this year, rather than decease, the cost of the general state aid is projected to be nearly $19 million less than what the Legislature approved last session for the current year.

There are several other components of the school finance system which are also expected to increase over last year.

Special education state aid is to increase about $7.5 million for each year of the Gannon agreement. However, special education costs have been rising faster than this increase, as more students are identified and need more expensive services. As a result, the percentage of “excess” special education costs covered by state special education continues to fall, and districts must shift more money away from general education programs to cover these costs.

(Note: special education excess cost is the total cost of serving students receiving these services, minus the average cost of “regular” education for these students, and further subtracting federal aid. Under state law, state special education aid is supposed to cover 92 percent of this cost, but the state has not been funding at that level. In the current year, state aid is expected to cover just 72 percent of excess cost.)

Local Option Budget state aid is projected to increase about $10 million. Because general fund budgets are increasing, school districts can raise their LOB (which is a percentage of the general fund) by a proportional amount, which requires additional state aid.

Capital improvement state aid, which provides funding to help districts with lower property wealth pay the annual cost of construction bonds, is projected to increase $1.6 million. (However, this is $8 million lower than what was projected.)

Capital outlay state aid, which provides matching aid to lower wealth districts to help pay for building and equipment costs funded by an annual mill levy, rather than construction bonds, is projected to increase $3.5 million.

Finally, contributions to the Kansas Public Employees Retirement System, which the state pays on behalf of school districts, are expected to be about $6.9 million lower than previously projected, due to lower total school district payrolls.

As a result, although school funding will increase, the amount will be almost $36 million less than previously expected.

The Governor’s allotments further reduced state costs this year, but costs increase next year when those savings are replaced

Last June, facing an estimated $700 billion deficit in the state general fund in the current year, Gov. Laura Kelly presented a plan to address that gap. She could make some of those adjustments, called allotments, on her own authority. Two of those steps effected K-12 funding.

First, the Governor ordered that $79 million from the final state payment to school districts in June be delayed until July, after the end of the state fiscal year. This was in addition to $180 million already planned to be delayed.

(Note: Since 2003, the Legislature and Governor have used a system that delays a portion of each year’s state aid from June of one fiscal year to July of the next, although schools are required to account for the money as though it had been received in June. In effect, school districts are floating the state a zero-interest loan for a few days, which they can cover because of their cash reserves. It means that “on paper,” the state has reduced spending in a fiscal year without cutting school funding.)

Second, the Governor ordered a one-year moratorium on contributions to the KPERS Death and Disability Fund, reducing contributions on behalf of school districts by about $30 million.

These two steps “saved” the state general fund approximately $110 million in school spending for the current year without cutting school operating budgets (other than a short delay). However, both of those steps are “one time” savings that must be added back to the Fiscal Year 2022 budget.

As a result, although school district general fund budgets will increase about $90 million this year and other programs about $20 million, state “spending” will be almost unchanged. Next year, the newest estimates indicate that school district general funds paid by the state will increase $110 million; special education aid will increase $7.5 million; LOB aid $10 million and Capital Improvement and Capital Outlay aid about $5 million – a total of about $133 million. However, total state aid is projected to increase $263 million due to the delayed $79 million shifted to next year and restoring the KPERS death and disability payment.