MREA Map: Compensatory Changes – Impact and Projections
MREA has been digging into how districts are affected by the changes to compensatory from the 2023 Legislative Session. There are many variables that play into FY26 and beyond:
- Conversion to reporting only Direct Certification student numbers in FY26,
- hold harmless on pupil units is going away,
- federal Direct Certification criteria has changed,
- 80% site allocation vs. 50% site allocation in the past, and
- the state formula for Compensatory changed.
These are significant changes to a major revenue stream for many districts.
Determining accurate numbers is difficult for a variety of reasons, but one of them is that FY25 compensatory numbers are typically based on FY23 student Free and Reduced / Direct Certification counts. However, with the hold harmless clause, they were based off FY22 student counts for many districts. Now, when we look at FY26 projected data it will be based off October 1, 2024, Direct Certification counts. This is data that is two years later and is based off a different formula and different type of student count (Direct Certification only).
MREA’s spreadsheet shows FY25, FY26 and FY27 compensatory revenue data by district. FY25 revenue numbers are based on known student counts. FY26 and FY27 are projections of compensatory revenue.
View the MREA spreadsheet.
The following maps show the projected percentage revenue increase or decrease from FY25 to FY26 and the same for FY26 to FY27. It is important to know how this will affect your district now because FY26 compensatory revenue uses data from October 1, 2024 student numbers to calculate the revenue. This data is only meant to show how districts are projected to do in the next biennium with all the changes that are taking place with compensatory.
View the MREA map.
From FY25 to FY26, the projection is that around half of the districts (163) will see a decrease in revenue. There is a wide range in the percent increases or decreases between districts. Statewide, districts are projected to lose around $24M in compensatory revenue from FY25 to FY26, a 2.75% decrease during this period.
View the MREA map.
In FY27, the projected compensatory revenue rebounds significantly so statewide district revenue is only around $4.5M below what it was in FY25. There is less volatility than on the previous map. From FY26 to FY27, there are only 85 districts that will be losing compensatory revenue. Most districts in the state fell within the 10% increase or decrease range. This rebound is most likely due to projected increases in the Basic Formula Allowance and district’s projected ADM numbers increasing in FY27 compared to FY26.
MREA advocates to continue the hold harmless into FY26 until there is a clearer picture of the impact of the changes to the formula that compensatory has on districts. At this point, there is a limited data sampling that MDE School Finance can draw from when trying to make accurate compensatory revenue estimates. MDE School Finance encourages districts to ensure they are properly coding Direct Certification numbers in the appropriate place in the MARSS reporting system. It can make a significant financial difference for districts.
