This message is primarily for the one-third of our members who are receiving dollars from one of the three transition grants (that's the new lingo for what we used to call a hold harmless). As a reminder, those transition grants are as follows:
- Formula Transition A: Funding per ADA that provides a 3% increase in total M&O revenue per ADA above what the funding would have been in the 2019-20 school year under old law; limited to 128% of the statewide average per ADA based on what the old law would have provided in 2019-20. It is recalculated in 2020-2021, and fiscal years 2021 and 2023 will be based on the greater of what old law would have provided in 2020-2021 or 2019-2020. This funding will expire after the 2023-24 school year.
- Formula Transition D-1: If the 128% ceiling on the previous formula grant would cause a district to therefore receive less funding, then the district is entitled to 100% of what would have been available to that district under the old law, except not everything used for the calculation of funding under the old law is included (specifically, the Ch. 41 hold harmless is excluded); this funding will expire after the 2020-21 school year.
- Equalized Wealth Transition Grant: The amount a district received under this 92-93 hold harmless during the 2018-19 school year is phased-out over five years, with the district receiving 20% less each year. 100% of the 2018-19 amount is received in 2020, and by 2024, districts will only receive 20% of the amount before the funding expires completely.
Under previous iterations of hold harmless provisions, those provisions A) went on for as long as needed to prevent a loss of funding and B) additional sources of funding that became available (new money through new programs or grants or additional tax effort) were added on top of the entitlement from the hold harmless. Additional State Aid for Tax Reduction (ASATR) was designed so that as a district's WADA counts increased, so did the funding. It was also originally designed without an expiration date, though legislators added an expiration date in 2011, when money was tight. The lesson learned by legislators is that it is more affordable (for the state) to have an expiration date on transitional/hold harmless provisions, even if that does set up a potential funding cliff.
To help mitigate the funding cliff, the state designed the 20% step-down into the Equalized Wealth Transition Grant. They designed the other two transitions so that any additional money a district may receive serves to reduce the amount of the transition grant. Consequently, if you are a district receiving formula transition grade dollars under A or D-1 described above and you receive additional funding for one of the innovative programs/grants in HB 3 (let's say CCMR or Teacher Incentives) that may come with strings attached for how you can spend that money, then you will see your formula transition grant dollars (which do not have spending requirements of any kind) reduced proportionately. If you are receiving Transition Grant A or D-1 dollars and you increase your tax rate in the next school year, you can expect to see your transition grant dollars reduced by the amount that your additional tax effort brings in.
Due to the off-set transition grant districts will see, those districts may want to be strategic about what other sources of new revenue they pursue, and the timing in which they pursue them. On one hand, a district may want to avoid asking local taxpayers to pay more or pursuing funding that has too many spending requirements and limitations for use if those actions simply reduce a source of funding from the state. On the other hand, transition grant districts are the very districts that need to have a two or five-year plan for how to access the revenue they will need to replace once the transition grant funding expires so the district does not face a funding cliff.
Please let us know if you have any questions on how this may specifically impact your district.
