Operating Levy and Local Optional Revenue – What’s the Difference?

The Key Takeaway

SoWashCo Schools already receives the maximum $724 per pupil available through board-authorized Local Optional Revenue.

The district also receives approximately $2,098 per pupil through its voter-approved Operating Referendum.

Available state data suggests SoWashCo’s Operating Referendum remains approximately $200 to $250 per pupil below the state limit. At the district’s current enrollment, reaching that limit could generate roughly $4.0 million to $5.1 million in additional annual revenue.

That is meaningful, but it would require voter approval and would cover only part of the district’s projected long-term operating gap.

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What Is an Operating Levy?

An operating levy allows a school district to raise additional General Fund revenue beyond the funding provided through Minnesota’s basic education formula.

The revenue can support regular school operations, including:

Teachers and other staff
Academic programs
Student support services
Class sizes
Transportation
Athletics and activities
Other recurring General Fund expenses

This makes an operating levy different from a bond referendum or capital projects levy.

A bond referendum finances construction and other long-term facility investments. A capital projects levy supports eligible technology and capital expenses. Neither can be freely redirected to pay regular operating costs.

Operating levy revenue is comparatively flexible, which makes it particularly relevant when a district faces an ongoing General Fund deficit.

Two Sources of Local Operating Revenue

Minnesota school districts can receive additional operating revenue through two closely related programs:

Local Optional Revenue, approved by the School Board within limits established by state law
Operating Referendum Revenue, approved by district voters

Both programs generate revenue per adjusted pupil unit. Both may be divided between state aid and a local property tax levy.

However, the approval requirements and maximum amounts are different.

Local Optional Revenue

SoWashCo receives the maximum $724 per adjusted pupil unit available through Local Optional Revenue.

The $724 allowance is divided into two tiers:

Tier 1: $300 per pupil
Tier 2: $424 per pupil

The School Board may choose to receive less than the maximum, but it cannot increase Local Optional Revenue above $724 without a change in state law.

SoWashCo’s 2026–27 budget indicates that state equalization provides approximately $536,982 of aid toward the district’s Local Optional Revenue. The remainder is collected through local property taxes called the Local Optional Levy.

This means SoWashCo has already used all operating-revenue authority available through a School Board decision alone under current Minnesota law.

Operating Referendum Revenue

In 2021, SoWashCo voters approved replacing the district’s existing operating levies with a new referendum authorization.

The ballot proposal combined the district’s prior authority with an additional $350 per pupil:

2021 operating referendum	Amount
Existing authority replaced	$1,536.60 per pupil
Additional authority approved	$350.00 per pupil
Initial total authorization	$1,886.60 per pupil

The district estimated that the additional $350 per pupil would initially generate approximately $6.9 million per year.

The authorization:

Began with the 2022–23 school year
Applies for ten years
Increases annually with inflation
Is scheduled to continue through 2031 unless revoked or reduced

The inflation provision increases the amount of revenue generated per student. It does not apply an automatic inflation percentage directly to an individual property’s tax bill.

Current Revenue Per Pupil

The Minnesota Department of Education’s February 2025 comparison projected the following amounts for SoWashCo in fiscal year 2026–27:

General education component	Revenue per adjusted pupil unit
Basic formula	$7,636
Operating referendum	$2,098
Local Optional Revenue	$724
Equity revenue	$79
Combined revenue	$10,537

The basic-formula projection was later superseded by SoWashCo’s official $7,683 budget assumption. However, the MDE report remains the clearest publicly available source found for the district’s operating-referendum allowance until corrected sources are available.

Using MDE’s projected 20,254 adjusted pupil units, the $2,098 Operating Referendum allowance would generate approximately:

20,254 x $2,098 = ~$42.5 million

The $724 Local Optional Revenue allowance would generate another:

20,254 x $724 = ~$14.7 million

These are total formula revenues before each program is divided between state aid and local property taxes. However, because of SoWashCo’s property tax base, most or potentially all of its Operating Referendum Revenue may be funded through local property taxes.

Minnesota Limits Operating Referendum Revenue

The Minnesota Department of Education finalized the Operating Referendum standard cap at $2,211 per pupil for fiscal year 2024–25. The cap continues to rise with inflation in later years. A few districts have alternative limits based on older voter-approved authority. Districts qualifying for certain sparsity revenue are exempt from the standard cap. SoWashCo does not appear to qualify for the sparsity exception. The school district cannot levy Operating Referendum Revenue beyond the state imposed caps regardless of budget shortfalls or voter support.

How Close Is SoWashCo to the Cap?

SoWashCo’s projected operating-referendum allowance is $2,098 per pupil for 2026–27.

Based on the statutory formula and available inflation estimates, the applicable state cap for that year appears to be approximately $2,300 to $2,350 per pupil.

That suggests SoWashCo has approximately $200 to $250 of unused Operating Referendum authority per adjusted pupil unit.

Applied to approximately 20,000 adjusted pupil units, that could generate roughly: $4.0-$5.1 million per year

The exact amount depends on the final state cap, the district’s adjusted pupil units, the requested referendum amount, and the applicable state-aid and levy calculations.

Editor’s Note: The district’s 2026–27 budget references its complete Payable 2026 Levy Limitation and Certification Report, but that report does not appear to be publicly linked or indexed. Our estimated remaining capacity will therefore be updated if the district’s final referendum cap can be confirmed through official sources.

Is SoWashCo Already at the Maximum?

The answer depends on which maximum is being discussed.

Question	Answer
Is SoWashCo receiving the maximum Local Optional Revenue?	Yes
Is SoWashCo collecting its full voter-approved referendum authorization?	Yes, based on available documents
Is its voter-approved authority at the state referendum cap?	No
Can the School Board increase the referendum without voters?	No
Could voters approve an increase up to the applicable cap?	Yes

This means the district is not leaving existing voter-approved revenue uncollected. It is receiving the authority voters approved in 2021, adjusted for inflation.

The remaining capacity exists between the current voter-approved amount and the state’s maximum allowable amount. Using that capacity would require another referendum election.

Bottom Line

SoWashCo already uses all $724 per pupil available through board-authorized Local Optional Revenue. It also receives the full amount approved by voters in 2021, now projected at approximately $2,098 per pupil after inflation adjustments.

However, the amount approved by voters does not yet reach Minnesota’s Operating Referendum cap. Available information suggests voters could authorize approximately another $200 to $250 per pupil, producing roughly $4.0 million to $5.1 million annually.

That could materially reduce the district’s required budget adjustments. It would not eliminate the entire near-term deficit or resolve the larger long-term financial problem.

An operating referendum could therefore be part of a five-year financial plan, but it would need to be presented alongside the remaining expenditure reductions, enrollment assumptions, fund-balance projections, and long-term consequences.

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