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Legislative Fiscal Bureau
Public Instruction -- General School Aids and Revenue Limits (Paper #598)
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Legislative Fiscal Bureau
One East Main, Suite 301 Madison, WI 53703 (608) 266-3847 Fax: (608) 267-6873





May 25, 2005
Joint Committee on Finance
Paper #598


Revenue Limit Enrollment Average
(DPI -- General School Aids and Revenue Limits)

[LFB 2005-07 Budget Summary: Page 398, #4]




CURRENT LAW

Under revenue limits, the annual increase in a school district's per pupil revenue derived
from general school aids, computer aid, and property taxes is restricted. Actual general aids,
computer aid, and property tax revenues received in the prior school year are used to establish the
base year amount in order to compute the allowable revenue increase for the current school year. A
per pupil revenue limit increase, which is adjusted annually for inflation, is added to the base
revenue per pupil for the current school year. In 2004-05, this per pupil increase is $241.01. There
are several adjustments that are made to the standard revenue limit calculation, such as the declining
enrollment adjustment, carryover of unused revenue authority, and the transfer of service
adjustment. These adjustments generally increase a district's limit, providing the district with more
revenue authority within the calculated limit. A school district can also exceed its revenue limit
by receiving voter approval at a referendum.

A three-year rolling average of a school district's pupil enrollment is used to determine
the allowable revenue increase under the limit. Specifically, the number of pupils is based on the
average of a school district's membership count taken on the third Friday in September for the
current and two preceding school years. For example, for 2004-05 revenue limits, the average of
the 2001, 2002, and 2003 September memberships was used to calculate the 2003-04 base year
revenues per pupil. Then, the average of the 2002, 2003, and 2004 September memberships was
used to determine the allowable revenue increase in 2004-05. School districts can also count
40% of the full-time equivalent (FTE) summer school enrollment in classes taught by licensed
teachers in the membership counts in each year of the three-year average.

Under the declining enrollment adjustment, if a school district's current year three-year
rolling average pupil enrollment is less than the prior year three-year rolling average, the district Page 2
Public Instruction -- General School Aids and Revenue Limits (Paper #598)
receives a one-year nonrecurring adjustment to its revenue limit in a dollar amount equal to 75%
of what the decline in the three-year rolling average memberships would have generated.
GOVERNOR


Provide that a school district's revenue limit would be the greater of: (a) the revenue limit
calculated for the district using the current law three-year rolling average of pupil enrollment; or
(b) the revenue limit calculated for the district using a new five-year rolling average of pupil
enrollment. Specify that this proposed option for a five-year rolling average would begin with
revenue limits for the 2006-07 school year.
DISCUSSION POINTS
1.
Revenue limits were first imposed on school districts in 1993-94. The three-year
rolling average of pupil enrollment has been used in the revenue limit calculation since that year.
The declining enrollment adjustment was first effective for revenue limits calculated in 1998-99.
2.
Using three-year rolling averages, rather than a shorter time frame such as a one-
year change, to calculate revenue limits helps to lessen the impact on school district budgeting that a
relatively large annual change could cause. For the 2004-05 revenue limit calculations, for
example, 90% of the districts in the state had between a 3.1% increase to a 4.3% decrease between
the prior year and the current year three-year rolling averages. The one year change in the revenue
limit enrollment count between 2003 and 2004 for 90% of districts varied more, ranging from a
4.8% increase to a 5.6% decrease.
3.
Under AB 100, the revenue limit for a particular school district would be the greater
of the limits calculated using a three-year or a five-year rolling average. A five-year rolling average
would generally further lessen the impact on school district budgeting of relatively large annual
changes in enrollment and allow school districts even more time to plan and react to changing
enrollments. Using the revenue limit enrollment counts that applied in the given years, 90% of the
districts in the state had between a 3.0% increase to a 3.8% decrease between the prior year and the
current year five-year rolling averages.
4.
The Governor's Task Force on Educational Excellence recommended providing
additional relief to declining enrollment school districts. The Task Force's report noted that
declining enrollment is a serious problem facing many districts across the state, making it difficult
for those districts to maintain core educational programs and staff. The report also asserted that the
current three-year rolling average does not accurately reflect the marginal cost associated with
losing a student, and that, while the current 75% declining enrollment adjustment provides some
temporary assistance each year, it is arguably not enough.
5.
Assuming the other changes to current law revenue limits proposed under AB 100,
an estimated 255 school districts would have a higher revenue limit in 2006-07 using a five-year Public Instruction -- General School Aids and Revenue Limits (Paper #598)
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rolling average as compared to a three-year rolling average. If all districts fully utilized the
additional authority generated by the five-year average as compared to the three-year average, they
would collectively raise additional estimated revenue of $24.4 million in 2006-07.
6.
If used by school districts, the additional revenue limit authority would be funded by
a combination of general school aids, computer aid, and property taxes. Under AB 100, an
additional $415 million in 2006-07 in general school aids funding would be provided.
7.
While giving school districts the choice between a three-year or a five-year rolling
average for the revenue limit calculation would generally provide additional revenue limit authority
to those districts now eligible for the 75% declining enrollment adjustment, it would not necessarily
help all declining enrollment districts.
8.
Had the bill provision been in effect for the calculation of revenue limits in 2004-05,
262 school districts would have had a higher revenue limit using the five-year average, 162 would
have had a higher limit with the three-year average, and two districts would have had the same limit
under either calculation. Of the 262 districts that would have had a higher limit using the five-year
average, 210 were eligible for the current law declining enrollment adjustment, while 52 were not.
Of the 162 districts that would have had a higher limit using the three-year average, 55 were eligible
for the current law declining enrollment adjustment, while 107 were not.
9.
Although some declining enrollment districts would not benefit from having the
option of using a five-year average for their revenue limit calculation, no district's revenue limit
would be reduced compared to current law.
10.
Arguably, if the current three-year rolling average does not accurately reflect the
marginal cost associated with losing a student for districts with declining enrollment, then it might
not reflect the marginal cost associated with gaining a student for districts with increasing
enrollment. In other words, the marginal cost difference of adding or subtracting one pupil may not
be the equivalent of the average per pupil revenue that is gained or lost under revenue limits.
11.
To address this, the Committee could choose to specify that revenue limits for all
districts be calculated using a five-year rolling average. Under this alternative, all districts would be
treated similarly, and the changes that both increasing and declining enrollment districts would need
to make within revenue limits would be smoothed out over a longer period of time. The estimated
$24.4 million revenue limit increase for the 255 districts that would benefit from a five-year
average in 2006-07 would be partially offset by an estimated $14.3 million revenue limit reduction
for the 170 districts that would be advantaged by the three-year average. In total, this alternative
would increase revenue limit authority statewide by an estimated $10.1 million in 2006-07.
12.
Rather than alter the revenue limit membership counts, the Committee could also
choose to modify the current law declining enrollment adjustment to provide additional revenue
limit authority to declining enrollment districts. One option would be to restructure the declining
enrollment adjustment to be a three-year adjustment. The current law 75% adjustment in the year Page 4
Public Instruction -- General School Aids and Revenue Limits (Paper #598)
that enrollment declines would be maintained. Under this option, in the year after the enrollment
decline, the district would receive an adjustment equal to 50% of the allowable revenues that the
initial enrollment decline would have generated. In the second year, the district would receive an
adjustment e