January 12, 2018

January Consensus Revenue Estimating Conference Results

The official FY2018-19 school budget season began yesterday with the January Consensus Revenue Estimating Conference (CREC). We saw an uptick in revenues, and compared to the General Fund/General Purpose (GF/GP) fund, schools received pretty decent news yesterday. However, we know that the funding level in the School Aid Fund (SAF) is only one part of the formula, the funding level in the GF/GP and how the funding is distributed can make all the difference between pretty decent and not so decent!

The Details
Representatives from the House Fiscal Agency (HFA), Senate Fiscal Agency (SFA) and the Administration met to agree on state funding estimates for GF/GP and the SAF. The Administration shared their estimate at the meeting and the SFA and HFA preliminary numbers were released in the days and weeks leading up to the meeting. The final January numbers confirmed that the May 2017 CREC estimates were slightly conservative and an overall increase is in order. Although GF/GP revenues were adjusted downward, SAF revenues were increased, resulting in a net increase overall. We have posted documents on our webpage dedicated to the CREC.

The full implications of the FY2018-19 School Aid Budget won’t be known for some time, but as of today, it is certain that the overall revenue estimate we saw at the May 2017 CREC has improved and remains on track.

In the final CREC agreement for January 2018, the GF/GP estimate from May 2017 was decreased $100.9 million for FY2017-18 and was decreased by $149.9 million for FY2018-19. Revenue for the FY2019-20 was unveiled showing a 0.7 percent growth or $73.9 million above the estimated FY2018-19 level.

The May 2017 SAF estimate for FY2017-18 was increased by $114.0 million, totaling a $399.4 million increase over prior year revenues. FY2018-19 estimate was increased $133.5 million, totaling $379.5 million over FY2017-18, and FY2019-20 is slated to increase $358.7 million above the FY2018-19 level. The increases year after year represent growth at 3.1%, 2.9% and 2.7% for the three fiscal years, respectively.

The question becomes whether the increase is enough to provide a foundation allowance increase or will it be used to increase categorical funding including those that are currently being prorated? The pressure on the GF/GP could also be an issue as that fund shows a slight reduction in estimated revenues from the May 2017 consensus, especially as we see the first look at FY2019-20 GF/GP estimates. The interaction between the two funds is certainly something we watch closely as the transfer of revenue from the GF/GP to the SAF has been a significant source of ongoing support for SAF programming.

The change in the revenue forecast was caused by several factors including increased sales tax revenues and lower than expected income tax revenues.

Income tax refunds have increased but if you recall from last year’s discussion, income tax refunds are fully absorbed by the GF/GP because it is the gross income tax revenues that are split between the GF/GP and SAF. This was a hot button issue for the Governor and Legislature last session and there were concerns that the SAF dedicated gross income tax revenue calculation would be changed to “net” income tax revenue, after refunds were paid. The estimated loss of revenue for the SAF would be in excess of $400 million if that change was enacted. Although the idea fell short of gaining enough support last session, legislative leaders indicated that the issue may be taken up again.

Balance Sheet
The HFA estimated balance sheet shows the impact of the revenue agreement on the funds available for school aid. Some key areas to note include:

  • The GF/GP transfer to school aid is reduced for FY2018-19 by $70 million, leaving a transfer in of $145.0 million. The HFA balance sheet includes a slight increase in revenue of $8.8 million for funds coming from the MPSERS retirement obligation reform reserve fund, which grows by $31.9 million for 2018-19.
  • The one-time $200 million MPSERS UAAL payment (for the “early out” provision of 2010) in Section 147c2 was removed but additional funds for the decrease in the MPSERS assumed rate of return to 7.5% were added for 2018-19 ($49 million added in 2017-18 and a similar amount for 2018-19).
  • The ongoing baseline expenditures include all categorical payments and foundation allowances as we know them today. There has been no projection for increases, just simply moving forward current law with adjustments for student projections. Overall expenditures are expected to decline $132.1 million for FY2018-19.
  • FY2016-17 leaves $377.4 million in the coffers to carryover to FY2017-18. Although positive, there is still a current year structural deficit of $146.9 million.
  • The estimate for FY2018-19 shows a structural surplus of $333.1 million, leaving a final ending balance of $563.6 million at the end of FY2018-19.

The balance sheet represents the best high-level estimate of revenues and ending balances based on the consensus agreement. Depending on policy decisions, it appears that there are funds available to increase foundation allowances or possibly increase other categorical funding in FY2018-19. Caution is needed because spending more than $333.1 million of the $563.6 million projected ending balance will create a structural problem for FY2019-20.

First Step in the Budget Process
We can’t stress enough that the January CREC is the first step in the budget process. The fact that revenues are being revised upward makes everyone feel a little better. Although things may look like they are generally getting better, there are other issues that may impact the SAF. The roads still need GF dollars. In fact, the state treasurer was quoted saying that the transportation funding package calls for $150 million to be spent on roads out of the General Fund in the FY2018-19, $325 million in the FY2019-20 and $600 million in the FY2020-21. The state budget director was also quoted as saying there is $2.8 billion in tax relief coming onto the books from FY2019-21, citing the phase out of the industrial portion of the personal property tax and the phase out of driver responsibility fees. These issues could impact policy decisions on revenues for the SAF moving forward. The Governor’s proposed budget plans, scheduled to be released February 8, will give us a better indication of how he and his team are planning to deal with these issues, and how this might affect the SAF and your local district. Increased funding for CTE, investing one-time budget dollars into the MPSERS underfunding, and a potential income tax reduction are all being discussed.

Pupil Estimates
Overall, the pupil estimates continue to decline annually.


  • Local district pupils were adjusted to 1,336,900 which is a 400 increase from May estimates
  • PSA pupils were adjusted to 146,600 which is a 3,400 student decrease from the May estimates
  • Compared to FY2016-17, local districts are down 6,400 students and PSA students are down 1,264
  • Grand total for all pupils is estimated to be 1,483,500


  • Local district pupils were adjusted to 1,331,900 which is a 1,900 increase from May estimates
  • PSA pupils were adjusted to 146,600 which is a 5,400 student decrease from the May estimates
  • Compared to FY2017-18, local districts are down 5,000 students and PSA students stayed the same
  • Grand total for all pupils is 1,478,500


  • Local district pupils are estimated to total 1,328,000
  • PSA pupils are estimated to total 147,000
  • Compared to FY2018-19, local districts are down 3,900 students and PSA students are up 400
  • Grand total for all pupils is 1,475,000

It’s important to remember that student numbers are still declining, but at a slightly slower rate.

Bottom Line and Other Considerations
The HFA Estimated Balance Sheet anticipates positive ending balances for both FY2017-18 and FY2018-19 of $230.5 million and $563.6 million respectively.

Revenue estimates for the current and coming years show slow, steady growth but there are a number of issues to cause us concern: 

  • Estimates by the SFA, HFA, and Department of Treasury were not adjusted to include the impacts from the 2017 Tax Cuts and Jobs Act. The May 2018 CREC is expected to include the impact, so we should be able to see how the economists predict the federal tax reform legislation will affect state revenues.
  • The risk of a tax policy change in the distribution of income tax revenues could have a significant impact on estimated revenues and therefore is something to watch for in the legislative session. Watch out for the legislature to suggest a phase-in approach that impacts multiple years!
  • Fewer student numbers are estimated for the next several years.
  • Legislative rumblings to reduce the State Income Tax rate.
  • GF/GP new funding commitments including roads, tax credits and other tax policy changes.
  • Federal fiscal and monetary policy uncertainties.
  • GF/GP pressures causing more funding commitment for community colleges and universities from the SAF.

Remember, this is the beginning of the process. These numbers are subject to change as more financial information comes in over the next few months. Given what we heard at the CREC, assuming a large foundation allowance increase might be premature. We’ll hear the Governor’s “State of the State” on January 17, as well as his budget proposal on February 8. That will give us a better indication of where his priorities are for FY2018-19 and will give us a lot more detail on the estimated local impact. Of course, the House and Senate will both have their chance to propose changes to the budget.

And don’t forget, there is the second Consensus Revenue Estimating Conference scheduled in May. It should include the full estimated impact of the federal tax reform. That estimate will hopefully bring all the variables together so that we can truly see the revenues available to the GF/GP and to the SAF.

In the meantime, districts will be juggling a lot of assumptions when preparing their FY2018-19 budgets, and will need to be conservative in budgeting and negotiating while the process unfolds. The closer we get to the Governor’s and Legislature’s self-imposed deadline to finalize the budget by June 1, the better the information.

We’ll have a detailed discussion about these revenue estimates and the impact on the SAF next week at the MSBO Financial Strategies Conference. There is still time to reserve your seat through our online registration process until midday Monday or as a walk-in when you arrive to the conference on Tuesday, and get the best information at the right time to start your district budget process.

Stay Tuned!

David and Bob

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