A foundation aid program to provide financial assistance to local school districts has been in effect in North Dakota since 1959 when the legislature enacted a uniform 21-mill county levy and provided a supplemental state appropriation to ensure that school districts would receive 60 percent of the cost of education from non-local sources. The legislature recognized that property valuations, demographics and educational needs varied from school district to school district, and incorporated the policy objective that some higher-cost school districts must continue to operate regardless of future school district reorganization plans. The system provided payments that favored districts with lower enrollment and higher costs. Through legislative action and mandates related to lawsuits over equity, the formula has been amended multiple times since its creation. The current per-pupil payment is $10,036.
Funding is also provided in North Dakota by the Common Schools Trust Fund. The fund derives income from land granted to the state through the Enabling Act of 1889, which granted sections 16 and 36 of every township to be used “for the support of the common schools. In North Dakota, this grant totaled more than 2.5 million acres. Article X of the North Dakota Constitution entrusted the management of these lands to the “Board of University and School Lands” (the Land Board). The fund earns cash rents from leases of individuals using the lands for production agriculture, sales of the land, leasing of mineral rights, royalties and bonus payments from the production of minerals, and 10% of oil extraction taxes collected by the state. Due primarily to income from oil taxes, the fund has grown to about $4 billion, and earnings allowed for distribution during the 2019-2021 biennium have grown to $366.8 million.
School districts in the oil-producing counties also receive an allocation of funds through the gross production tax distribution formula. Likewise, districts in coal-producing counties receive income from the state’s coal conversion and coal severance taxes. Revenue from the taxes is considered to be a replacement for property tax revenue that oil- and coal-producing companies would otherwise pay. However, it is not treated as a source of local revenue. An amount equal to 75 percent of what the school districts receive from the mineral taxes is imputed (deducted) from the district’s foundation aid payment. To assist growing districts struggling to come up with money to build new schools, the 2019 Legislature approved a provision that allows districts to keep 100% of their “in lieu of” revenue if it is used for school construction or debt repayment purposes.
Many school districts are said to be “off the formula,” because they receive a per pupil payment that is more or less than the formula amount. This dates back to revisions made by the 2013 Legislature, which provided transition minimum and maximum payments to minimize the impact of the formula change. The 2019 Legislature approved a seven-year phase-out plan for the transition minimum and maximum payments that began in the current school year.
Many inequities remain in the funding formula, some small and some large, so legislators are constantly examining ways to improve its fairness. An Education Funding Formula Review Committee met during the 2019-20 interim to examine areas that could be improved. The committee included a number of school administrators who served as “ex officio” members to provide legislators background details and immediate feedback on proposed changes. The committee approved just two bill drafts:
21.0033.02000 - Relating to school district transportation aid payments; and to amend and reenact section 15.1-05 of the North Dakota Century Code, relating to the transportation of open enrollment students
21.0116.01000 - Relating to the ability of a school district to temporarily transfer excess funds accruing as a result of the COVID-19 pandemic between the general fund and the building fund of the school district
Issue Updates1/22/21 - School Bond Passage Made Easier: Bill Would Drop Vote Requirement to 55%
12/11/20 - Williston/Williams County Schools Merge
12/4/20 - K-12 Per-Pupil Funding to Hold Steady
11/27/20 - Williston School Re-Organization Vote Set for Dec. 8
Resources and References
- History of the Education Funding Formula
- Overview of the Common Schools Trust Fund
- Oil and Gas Tax Distribution Chart
- Coal Tax Distribution provided in NDCC 57-62-02