School districts have nearly $1 billion in reserve

Northeast Middle School
Northeast Middle School. Lawmakers are proposing to delay payments to schools as a measure to help the state solve its budget crisis.
MPR Photo/Brandt Williams

Gov. Tim Pawlenty and House Democrats want to delay payments to school districts as part of their budget plans. Lawmakers have used the accounting shift before to help balance the books.

Holding back some of the promised funding until the second year of the two-year budget cycle comes at a cost.

Some school districts would be forced to take out loans to pay their bills. But some lawmakers say many districts could handle the shift by tapping into budget reserves.

View a map of the state's school districts and their budget reserves.

"Looking back for the last three years, school districts do have a fair amount of money available, on average, where we felt that they could handle a shift," said Rep. Lyndon Carlson, DFL-Crystal.

Carlson, who chairs the House Finance Committee, said when talk of another payment shift came up this session, he starting looking at financial reports from the Minnesota Department of Education. Carlson said the reports show total reserves are steadily growing, from $743 million in 2006 to $932 million last year.

"And I want to make it clear, I'm not challenging the fact that school districts have reserves," he said. "I think it's important for school districts and our college campuses and local units of government to have reserves. The question was, whether they could handle a shift in payments or a delayed payment. And it would appear that most school districts do have enough reserves on hand to handle a shift."

Carlson said the House plan sets aside $40 million to help the districts with little or no savings, and the 13 districts and five charter schools struggling with debt.

Still, education groups are pushing back. Scott Croonquist of the Association of Metropolitan School Districts said every public school system will feel some pain from a payment shift. He estimates the loss at about $30 per student.

Croonquist said even districts with money in the bank will lose interest income if they tap their reserves.

"Those districts are really going to be penalized for having been in good financial shape," he said. "And then on the other hand, those districts that weren't able to set money aside, because they've already been making budget cuts over the years, are now going to have to go out and short term borrow."

There are no state guidelines for school district reserves, and every district has unique budget issues. Minneapolis, the state's third largest school district, had the biggest reserve last year at $80 million. That was 22 percent of the district's general fund expenditures for the year. The state average is just over 13 percent.

Some of the healthiest rainy day funds were found in the smallest school districts. Browerville, Lanesboro and Nett Lake had reserves that topped 100 percent of expenses.

Lee Warne, executive director of the Minnesota Rural Education Association, said he understands why reserves are coming under scrutiny. But he said local school leaders must decide their own financial strategy and try to prepare for the unexpected, such as a delayed payment from the state.

"Some superintendents and boards will say, look, we're a business," he said, "and we need to operate like any other business, and we have to have enough to keep going for a period of time. So they may in policy decide that they need two months or three months or whatever of reserve on hand for events exactly like what we're talking about."

The chair of the House K-12 Education Finance Division said she's concerned about the size of district reserves. But Rep. Mindy Greiling, DFL- Roseville, said her concern is the rainy day funds are too low, not too high.

Greiling said state education funding hasn't kept pace with inflation for 15 years, so she's not surprised that school leaders are trying to build up their reserves.

"The school must go on. Students must learn no matter what we're doing at the state and federal level," she said. "And I think they have learned that they have some cushion on hand in order to do that for students, because they can't count on us."

Democrats in the Minnesota Senate are not proposing a shift in school payments, but they've called for across the board cuts in spending, including education. The House plan keeps funding flat and the governor includes a slight increase for schools.

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