How Much is Enough?

Our new report looks at the implications school district labor cost trends have for state education finance

Although the state exercises significant control over school revenues, it has little influence over how over 300 independent school districts across Minnesota manage their largest cost: labor.  Total compensation comprises nearly 80% of school district general fund spending.  Labor costs and trends do not just determine how far state financing goes in paying for districts’ educational programs; they are a major player with respect to the sustainability of the system itself.

Our report examines the relationship between school districts’ labor costs and state education aid with a primary focus on the basic per pupil education formula — the workhorse of state education finance.  It also examines how district-level employment costs and trends affect the purchasing power of the new basic education formula aid the state provided in 2015.

Although the state provides the same amount of basic formula aid per pupil to every school district, our study finds that trends in individual districts' staffing and compensation on a per pupil basis vary significantly:

  • Annual growth in districts’ total compensation costs on a per student basis has varied tremendously across the state in recent years.  From 2007 (the first year for which data is available) to 2014, district growth in compensation costs has ranged from a high of 12.2% per pupil to a decline of -3.7% per pupil.
  • While increases or decreases in pupil counts generally reflect the direction of staff counts within districts, nearly 20% of the state’s traditional public school students attend a school district with the reverse relationship – declining staff counts with rising pupil counts or rising staff counts accompanying declining pupil counts.
  • The purchasing power of the increase in per pupil basic education aid provided by the 2015 Legislature varies significantly from district to district.  In nearly three-quarters of the state’s school districts, the projected growth in compensation costs through FY 2017 (based on continuation of each district’s historical trends) will exceed the increase in basic formula aid that the state enacted in 2015.  The median “shortfall” in those districts is $225 per pupil.  In the remaining quarter of Minnesota school districts new basic formula aid exceeds projected growth in district compensation by an average of $95 per pupil.
  • If expenditure trends and existing total staff to student ratios continue in the future, general fund spending on staff compensation for all public school employees in Minnesota is projected to be $1.3 billion higher by 2019 and $4.2 billion higher by 2029.  If the state were to finance 100% of this cost through new basic formula aid this translates into a 4.1% average growth in the basic aid formula allowance per year through 2029.  

Our study concludes district-specific practices, decision-making, and environmental conditions hugely impact education inflation.  Because of this, answering the question, ‘how much is enough’ is extremely difficult.  What can be concluded is that regularly increasing basic formula aid at approximately twice the rate of that provided last session presents a daunting task to policymakers — especially in light of future demographic trends.

We recommend a review and refinement of supplemental general education aid programs, pursuit of compensation system redesign, and transparency investments to address this challenge.

Executive Summary (pdf)

Full Report:  “How Much is Enough?   The Implications of School District Labor Cost Trends for State Education Aid” (pdf)