Minnesota school districts are warning that a seemingly technical tweak to how the state counts low-income students could strip away millions in compensatory funding and force cuts to counselors, tutors, and other supports for students in poverty. District leaders say a move toward relying on government benefits matches instead of family application forms will lower the headcount used to calculate building-level compensatory aid for fiscal year 2027. Columbia Heights and South St. Paul are among the districts already penciling in seven-figure shortfalls as lawmakers weigh whether to extend a temporary hold-harmless shield.
What the rule change does
Under current law, the Department of Education’s planned FY2027 calculation will count only students identified through direct certification, meaning eligibility matches from programs such as SNAP and Medicaid, instead of the prior mix of direct certification and paper education-benefits applications. The department’s technical briefing explains that this shift can reduce eligible counts at some sites and change the concentration calculations that determine per-building allocations. Those materials also note that the legislature used hold-harmless protections for FY2025 and FY2026, but the new calculation is scheduled to kick in for FY2027, which could produce site-level drops in aid. According to the Minnesota Department of Education, districts should expect adjustments, and further statutory changes could still alter final payments.
Which districts are sounding the alarm
Columbia Heights Public Schools estimates the change would create about a $3.6 million shortfall and warns the loss would force borrowing and deeper program cuts, according to the district’s 2026 legislative priorities. South St. Paul Superintendent Dr. Brian Zambreno told KSTP his district faces roughly a $1.5 million decrease, and metro superintendents say lost compensatory dollars typically pay for academic interventionists, social workers, and extended-time supports. District officials add that even modest per-student drops, a few hundred or a thousand dollars, add up quickly and would hit high-need programs first.
How big could the statewide impact be
Compensatory revenue is the state’s primary tool for steering extra resources to schools with larger shares of students living in poverty, and the math behind building allocations is highly sensitive to which students are counted. House fiscal documents show that shifting to direct-certification-only counts changes site-level revenue calculations and could lower compensatory totals at many buildings across Minnesota. The governor’s revised education budget recommends money to extend a hold-harmless provision into FY2026 and funding to convene a working group to study compensatory revenue calculations. See the analysis in the governor’s budget overview for more details.
What lawmakers have proposed so far
A Senate bill would formally establish a Compensatory Revenue Task Force to analyze the formula, potential proxies and distribution issues and to recommend changes to the Legislature. The bill text also lays out timing and reporting requirements for that group. The task force language and technical fixes have been discussed in education finance committees as legislators consider temporary hold-harmless language to blunt abrupt drops while a longer-term solution is developed. See the legislative text for the Compensatory Revenue Task Force (SF2002) for the bill details and membership.
What comes next and why the clock matters
District leaders and advocates say lawmakers must act quickly to preserve services through the 2026 fiscal year, noting that the window for passing a hold-harmless fix is narrow late in the session, according to local reporting. The Department of Education has also signaled that adjustments to statutory minimums and final technical calculations could be completed before the first FY2027 payments are made, with some administrative steps expected by June 30. If lawmakers do not approve a temporary hold or other mitigation, superintendents warn schools will have to choose between cutting staff, reducing programs that support struggling students, or borrowing to cover payroll and operations.
For the department’s technical memo and district-level projections, see the Minnesota Department of Education and local district materials referenced above; for local reporting and district quotes see KSTP and the reporting referenced in legislative and budget documents.
