During recent school board meetings, Big Lake School Board Business Manager Angie Manuel informed the board that the state legislature approved a change to compensatory funding for school districts. After crunching the numbers, Manuel determined this change would result in a loss of approximately $150,000 in revenue provided by the state, although this is not the official number provided by the Minnesota Department of Education (MDE), which could differ. 

Manuel said this figure is not terribly drastic, as she knows of some of her peers in other districts facing a loss of over a million dollars. 

Manuel agreed to sit with this reporter and explain the change in the formula that could leave some districts around the state losing a lot of money. 

What is Compensatory Funding?

Compensatory funding is designed to directly help disadvantaged students. Each year there are students who qualify for free and reduced lunch based on their family’s economic circumstances. 

There are two different ways that a student may qualify for free and reduced lunch. The first way is through direct certification, which is when the MDE and the Minnesota Department of Human Resources grant the status to families who are known to be disadvantaged. This could be determined by families that qualify for Medicaid (state health insurance), foster families, or other reasons. 

The second way is for families to fill out an application for free and reduced lunch, which may or may not be approved based on their economic status. 

There are many ways the school district can use the funding they receive from the state, though all have to be shown to impact the disadvantaged students. This could include offering services to students who are learning English as a second language, providing additional classes to students falling behind, providing additional staff to help serve the needs to special education students or to reduce class sizes, and other services. 

How Did Compensatory Funding Change?

During the COVID-19 pandemic, school districts across the state were “held harmless” in regards to their compensatory funding, meaning that they could not be given less than they were previously given, though in special circumstances a district could be given more. For this school year and the 2023-2024 school year, Big Lake Schools received $1.8 million in revenue through compensatory funding. 

For the upcoming 2025-2026 school year, the law is set to change so rather than districts being held harmless, the state as a whole is held harmless. Which means they intend to spend the same amount of money on compensatory funding, but the division of the resources among Minnesota’s schools could change. 

The main change the schools will see is that now only students who qualify for free and reduced lunch under direct certification will be counted in the formula to provide compensatory funding to the school. Those who qualify through submitting an application will no longer count towards this fund (though those families will still receive free and reduced lunch, the school just will no longer receive additional funding to provide other services).

Manuel says the districts that are seeing the greatest impact are those that heavily encouraged families to fill out the applications for free and reduced lunch, as those districts are now faced with losing hundreds of thousands of dollars in revenue over previous years. 

All of this does not impact the taxes being paid by private residents around the state, as the Minnesota Legislature has already agreed to spend the same amount of money on compensatory funding, but it does impact certain districts significantly. 

How Does this Impact Local Districts?

Manuel said that Big Lake Schools should only lose about eight percent of their compensatory funding, around $150,000 if her calculations are correct. Other districts in the county were in a similar situation. However, the real number could differ, as the state has yet to release the actual numbers to any districts. As districts begin to prepare their budgets for the upcoming school year, they are left wondering exactly how much money they will be receiving from the state, but they must move forward with their budget processes regardless. 

As this is a budget year with the state legislature, the new formula may end up being overturned before it goes into effect, or it may not be. It is impossible for anyone to anticipate the outcome at this point.

The MDE is encouraging districts to reach out to their legislators and share their concerns. Manuel says private citizens who are concerned are also encouraged to reach out to their local legislators. 

Manuel says the change is not too drastic for Big Lake Schools, but her job is “Hard in budget years, because we have to go in [to our budget preparations] with so many estimates, where a city, township, or county will know their income,” as those entities receive funding directly through a tax levy and the school district may receive only a part of their funding through local taxes. 

Still, the school is in good financial standing and should be able to weather the change for a while, but will only see issues if the law does not change again in the future.