Minn. education panel warned of compensatory funding drop as state moves from paper applications to direct certification

The House Ways and Means education committee reviewed how changes in identification methods for free-and-reduced-price meal eligibility are expected to reshape compensatory revenue for school districts, and members heard repeated warnings from committee members and staff that some districts could lose funding when paper applications are no longer counted starting in fiscal 2026.

The committee’s fiscal analyst, Mr. Strom, told members that the state will rely on direct certification — a data match with Human Services programs — rather than combining direct certification and paper applications for the compensatory count used to distribute compensatory revenue. “In 2022, that count was the first count to include matching on medical assistance as well,” Strom said. He added that the change sharply increased compensatory revenue already, and the removal of paper applications will alter district counts going forward.

Why it matters: compensatory revenue is a concentration formula that provides additional general education funding for districts with larger shares of students identified as eligible for free and reduced-price meals; it is one of the larger components of general education revenue after the basic formula allowance. Committee members and attendees said that the shift in counting methodology — combined with prior changes such as including medical assistance in direct certification and the state’s universal school meals policy — has created uncertainty and uneven effects across districts.

During the hearing, Representative Quam and Representative Bickburg asked for clarity about how different student options (postsecondary enrollment options, online programs) interact with counts, and how the direct-certification-only approach will affect districts that previously relied on paper applications to identify eligible students. Mr. Strom said paper applications can represent up to 15% of identifications in some districts and that those paper forms will not be included under current law for the 25–26 school year. "The paper application amounts differed, substantially among school districts," Strom said, adding that the committee will see updated fall 2024 counts soon and that printouts will show district-level effects.

Members pressed staff for potential downstream consequences. Representative Bickburg and others noted that some districts use free-and-reduced eligibility for fee waivers (for extracurricular fees and after-school programs) and that changes in identification could affect participation and classification (for example, school-sports classification handled by the state’s high school league). Mr. Strom said the High School League would be the right body to confirm how eligibility counts feed classification and that he could provide district-level printouts.

Committee direction and next steps: Chair Kreesha and several members urged districts to bring local school leaders to the committee’s next meeting to explain local impacts. Mr. Strom said he would prepare printouts showing how compensatory revenue appears on the general education revenue sheets and would provide updated fall 2024 counts when available. Representative Bickburg and other members signaled this will be a priority topic for upcoming hearings.

Opening evidence and who spoke: the compensatory-count discussion and the direct-certification versus paper-application change were addressed primarily by Mr. Strom (fiscal analyst) and Ms. Bekkel (staff preparing printouts), and raised by Representatives Quam, Bickburg, Baker, Bennett, and others during the question period.

Ending note: committee members scheduled additional briefings and asked members to invite local school officials to testify so lawmakers can see district-level impacts before drafting or voting on changes affecting compensatory revenue.