SF4368

Purpose

Explain and set new rules for how compensatory education funding is calculated and distributed in Minnesota for the coming years, including 2027 and 2028, and to provide funding through a specific appropriation.

Main Provisions

• Compensatory revenue calculation changes

  • For fiscal years 2024, 2025, and 2026: a district building’s compensatory revenue is calculated as the building’s formula allowance minus 839 times the building’s compensatory revenue pupil units (per the bill’s terms), with revenue paid to the district and distributed according to existing rules.
  • For fiscal year 2027 and later: the compensatory revenue for each building equals its compensatory pupils multiplied by the building compensatory allowance.

• Special cases affecting where revenue goes

  • If a district contracts with an alternative program (under section 124D.69) and changes before the school year starts, the compensatory revenue generated by pupils in the program goes to the district contracting with the alternative program for the current year (not the prior year).
  • If the area learning center’s fiscal agent district changes, the compensatory revenue goes to the current-year fiscal agent district (not the prior one).

• Minimum funding floors and proportional increases

  • If the sum of certain calculated amounts in 2027-2028 would be below specific statewide targets, the commissioner must proportionately increase revenue so the total meets the target:
  • If 2026 figures (paragraphs c and b) total less than 838,947,000, increase proportionally to reach that amount.
  • If 2027-2028 totals (paragraphs c) fall short of 857,152,000, increase proportionally to reach that amount.

• Building minimum amount and 2027 adjustments

  • For fiscal year 2027, the compensatory revenue for each building must be at least the greater of:
  • the amount calculated under the standard (paragraphs c and g), or
  • the building minimum amount (defined by the bill).
  • The building minimum amount is based on the building’s 2026 compensatory revenue and enrollment changes, specifically tied to the ratio of pupil enrollment on October 1, 2025 to October 1, 2024 (with an accompanying coefficient referenced in the bill).

• Building allocation rules (how money is distributed)

  • At least 80 percent of compensatory revenue must be allocated to each school building where the generating students are served.
  • Up to 20 percent may be allocated to school sites according to a plan adopted by the school board (and may be used for any grade, including pre-K programs).
  • The term “building” means an education site.
  • Revenue generated by students in a cooperative unit goes to the cooperative unit (not the district).

• Flexibility to reflect changes and reporting

  • Districts or cooperatives with openings/closings, attendance area changes, or other program/demographic changes may reallocate compensatory revenue among sites to reflect those changes.
  • Districts must report adjustments to the Department of Education, and the department will use the adjustments in its required annual report.

• Additional flexibility in 2026-2028

  • For fiscal years 2026, 2027, and 2028 only, districts may allocate up to 40 percent of compensatory revenue to school sites, instead of the usual 80/20 split, as long as it aligns with the purposes in the statute.

• Appropriation

  • In fiscal year 2027, there is an appropriation from the General Fund to the Commissioner of Education for additional general education aid.

Significant Changes to Existing Law

• Revisions to how compensatory education revenue is calculated and distributed, with a shift from the 2024-2026 formula to a new 2027-and-beyond framework.
• Introduction of floor funding levels (statewide minimums) to ensure a baseline level of compensatory funding, with automatic proportional increases if actual totals fall short.
• New building-level minimums and a potential higher flexibility in allocating funds to school sites during 2026-2028 (up to 40% to school sites).
• Explicit rules about revenue flow when students are served by alternative programs or area learning centers, and about reallocation in response to district changes.
• Requirement for districts to report reallocations to the Department of Education, with the department incorporating these changes into its reporting.

Targeted Terms to Understand

• compensatory education revenue
• compensatory revenue pupil units
• compensatory pupils
• building compensatory allowance
• formula allowance
• building allocation
• school building
• school sites
• cooperative unit / cooperative
• area learning center
• fiscal agent district
• alternative program (section 124D.69)
• enrollment ratio (October 1, 2025 vs October 1, 2024)
• 80 percent / 20 percent allocation
• 40 percent allocation (2026-2028)
• general fund appropriation
• commissioner of education

Relevant Terms - compensatory education revenue - compensatory revenue pupil units - building compensatory allowance - formula allowance - district - cooperative unit - area learning center - alternative program - fiscal agent district - school building - school sites - enrollment ratio - October 1, 2025 - October 1, 2024 - allocation percentages (80%, 20%, up to 40%) - statewide minimums (838,947,000 and 857,152,000) - general fund appropriation - commissioner of education