School Funding Challenges - How Will The Housing Market Complicate Matters?

The Lake Minnetonka area has been very active with school funding topics lately. Minnetonka and Westonka both passed levy referendums in November, and the Hopkins school district recently exited statutory operating debt status just as Westonka announced that they had entered it. Statutory operating debt, in simple terms, occurs when the general operating fund balance falls below a certain threshold.

A question I haven't heard explored much recently is what impact, if any, the deteriorating housing market has on school funding going forward. Roughly 67% of school funds come from the State, while 18% comes from local property taxes. The remainder comes from school fee revenues and federal funds.

The 67% of State revenue is paid on a per-student basis, so it is fixed from the local school district's standpoint. There may be a budget crunch at the state level as they attempt to fulfill this obligation, but the localities can count on the money assuming they have accurately forecasted enrollment trends.

The levies that are paid from local property taxes come directly from a portion everyone's yearly tax bill. On your property tax statement, you can see what portion of your payment goes toward school funding.

The question isn't what the funding picture looks like in 2008 -- I think it is pretty well established. The concern is what assumptions have been made about property tax appreciation going forward? Are districts operating under an assumption that property taxes will continue to increase at a high clip, only to have actual revenue falls short of estimates? I understand there is still some room for tax valuations to grow based on actual market value and limited taxable market value, but there is less room to grow than there may have been in 5-year estimates done in 2006 or early 2007.

Does Minnetonka 2010 school district funding, for example, assume conservative or flat property tax revenue increases, or are the estimates based on the abnormally high rate of increase experienced in the 1st half of this decade?

With all of the financial specialists and auditors reviewing school finances, I'm sure this question has been actively explored. If anyone has insight into this, I'd appreciate the dialogue.