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Local school officials celebrate state law that fills funding 'doughnut hole'

Gov. Mark Dayton on Friday, March 21, signed into law a bill that expands additional state funding to every school district in the state.

Until Friday, 97 school districts, including Pequot Lakes and Pine River-Backus (PR-B), fell within what was known as the “doughnut hole.” These were wedged between districts with fewer than 1,000 pupils, which are eligible for Small Schools Revenue (SSR), and districts with 2,000 or more pupils, which were eligible for Location Equity Revenue (now called Local Optional Revenue with the new law’s passage).

SSR is direct state aid, while Local Optional Revenue (LOR) is funding that is a mixture of local property taxes and state aid equaling $424 per pupil. In districts without levies, LOR will act as additional revenue, while in districts with board- or voter-approved levies, the new funding could change what percentage of aid the state kicks in.

Thirty-five other school districts with 600-999 students will benefit financially from receiving LOR in addition to SSR, according to the Minnesota Rural Education Association (MREA), of which both local districts are members.

MREA reports that all 132 “doughnut hole” districts, representing 147,000 students, are located in greater Minnesota.

Pequot Lakes Superintendent Chris Lindholm said he was ecstatic to hear about the expansion of the funding, particularly given the district is currently in the process of establishing its budget for next year.

“This is a day to celebrate,” he said. “It’s coming at a really good time. I’m pleased that the Legislature didn’t wait until June to make this decision.”

Lindholm said this legislation will particularly benefit Pequot Lakes because the district spends less per student than the vast majority of districts in the state. The current voter-approved levy allocates only $1 per student.

This additional funding coupled with a law passed last year that allows school boards to approve levies without voter approval for up to $300 per pupil means that Pequot Lakes could potentially secure $724 per pupil in additional revenue for fiscal year 2016.

The ball is back in the school board’s court, Lindholm said, and it will be up to board members to decide by August of this year if they will accept the new LOR. He will present numbers to the board some time in the next couple of months that will further explain how this additional funding would affect the local tax base.

“We ask our taxpayers to do far less than pretty much all of Minnesota,” he said. “Still, we’re going to have to struggle with being sensitive to our local taxpayers.”

Pine River-Backus School District business manager Jolene Bengston said she believes the additional revenue offers a great opportunity for all districts.

PR-B’s school board used its authorization to approve a $300 per pupil levy in December 2013, but it remains to be seen if or how the LOR will affect this levy. PR-B will also have until August to decide on acceptance.

The rationale for the 2011 legislation that allocated $16 million per year in SSR funding, according to the MREA, is because these small, rural schools are geographically isolated and, because of their size, face a higher per pupil cost.

In 2013, districts in the metro area lobbied the Legislature for additional funding based on different factors for increased cost per pupil, including the higher cost of living and the necessity to pay their teachers higher salaries because of this.

Previously, LOR allocated $424 per pupil for large metro districts and $212 per pupil for large outstate districts. The new law expands the funding of $424 per pupil to all districts.

Lindholm said he doesn’t believe the Legislature intentionally left out the “doughnut hole” districts when it passed these two funding bills in 2011 and 2013.

“I think it was one of those by-accident type things,” he said.

Chelsey Perkins can be reached at Follow her at and on Twitter @PEJ_Chelsey.

Denton (Denny) Newman Jr.
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