75% of Rural MN School Districts Lose Compensatory Revenue
Despite a $10 million one-time infusion for Compensatory Revenue, the 2026 statewide distribution of these funds systemically redistributes revenue away from 75% of rural school districts. The $867 million in total Compensatory Revenue for FY27 is a 2.7% reduction from the previous fiscal year.
The Legislature appropriated a modest $10 million one-time infusion for Compensatory Revenue during the 2026 legislative session to be distributed as follows:
- Current law for FY27 is the default
- Building minimum for FY27 = CR FY26 X Ratio of (Oct 1, 2025 pupils/Oct 1, 2024 pupils)
- Maximum ratio =1
- Minimum ratio =0.659771
The state-wide big picture in Compensatory Revenue were these changes from FY26 to FY27
- $867,470,401 CR total for FY27
- Down $24,470,401 from FY26
- 235 Districts see less revenue
- 92 Districts see more revenue
The state-wide big picture, which includes Charters, Intermediates and Cooperatives, masks for school districts the effects of the redistribution of revenue in the current law based solely on direct certification. When looking only at school districts, nearly $62 million Compensatory Revenue was lost in 235 school districts. 75% of rural school districts lost revenue. The redistribution effect raised $21 m for 92 districts. 44% of metro districts saw an increase in revenue while only 25% of rural districts saw an increase. As a result, rural districts took 62% of the net statewide district hit (losses minus gains) in school districts’ compensatory revenue.
The History of MREA Involvement and the Story of One Rural School District
Vernae Hasbargen, retired MREA Executive Director and Lobbyist, recalls that up to 1997, Compensatory Revenue was a smaller metro revenues stream as it was based on Aid to Families with Dependent Children (AFDC). Vernae recalls that Sally Toby, who was SW/WC Finance Director and MREA analyst, brought to Vernae the data that using Free and Reduced lunch counts as the basis for Compensatory Revenue would do a better job of distributing this revenue state-wide including rural school districts.
Vernae can’t recall when she shared this with Sen. Larry Pogemiller, Chair of the Senate Education Finance Committee. What she does clearly remember is that while attending a hearing in the Capitol late at night during the ’97 session, Sen. Pogemiller asked her to join him outside. He meant outside the Capitol, under the north portico in the bitter cold. While she froze, he was jumping around as he explained the potential of using Free and Reduced lunch to expand Compensatory Revenue to rural MN and benefit Minneapolis as well.
Vernae recalled, “Senator Pogemiller was honest in dealing [with me]. He had a big target that year and was willing to share the pie, because he needed rural Senators’ votes.”
MREA through Vernae supported the effort to get this expansion of Compensatory Revenue, which included an additional $50 m in the first year and targeted Compensatory Revenue to individual school sites, passed and signed into law. Sadly, Sally Toby died that February and never saw the results of her research and insight.
Fred Nolan, MREA’s current Interim Executive Director, was Superintendent of Eden Valley-Watkins in Central MN at that time. He vividly remembers that surge in funding as well. AFDC produced maybe $10,000 annually. Free and Reduced lunch produced close to $100,000. He remembers advising the board that this is a once in a lifetime opportunity to improve education of the children of the district, to put the increase of funds in a reserve for year and appoint a study committee to research the most effective uses of these funds and make recommendations to the board.
The study committee, led by teachers, reported that next winter that best uses were to fund all-day-every-day kindergarten and add a secondary reading teacher who would teach a semester of reading in 7th and 8th grades and support struggling readers grades 9-12. The Board implemented the recommendations, and it made a big difference by increasing test scores and lowering the number of Title I eligible students.
Now 29 years later, Eden Valley-Watkins will lose an estimated ($59,529) which is -16.8%, very close to the median statewide loss of -16.5%, of its Compensatory Revenue.
Question: With direct certification only are we headed back to a metro centric Compensatory Revenue distribution after nearly 30 years of state-wide distribution?
Action Requested: Rural school leaders, school board members and parents need to share this information with their legislative candidates. The negative effects limiting educational support for rural students resulting from the direct certification process, without any paper forms, will be an item of interest to them. Rural legislators may have an inkling about this emerging dynamic and funding shift, but it’s our collective job to help convey the impact of this situation, including the reality that some parents are reluctant or unwilling to sign up for public assistance programs even though their children could generate additional funding for their educations. These children are the youngest constituents of their legislative district.
Maps on Compensatory Revenue as of May 19, 2026
FY27 Projected Compensatory Revenue per District | View Interactive Map | View District Run
Projected Change in Compensatory Revenue from FY26 to FY27 | View Interactive Map
Projected Percent Change in Compensatory Revenue FY26 to FY27 | View Interactive Map
