Pawlenty shifts mean schools need loans; charters especially worried

Bob Schneider speaks with a student in class
Teacher Bob Schneider speaks with 16-year-old sophomore Diante Trammell during a class at Edina High School. Edina estimates it will have to borrow $5-7 million to meet cash flow needs, after the governor announced payment shifts last week.
MPR Photo/Tom Weber

Public schools across Minnesota will have to take out loans to make up for the delays in state payments that Gov. Tim Pawlenty announced last week.

The shift amounts to more than $1 billion over the next two years -- and those shift might hit charter schools especially hard.

Minnesota Public Radio news contacted about two dozen school districts across the state to find out whether they're going to need to borrow money and, if so, how much.

At least eight schools say their reserves should keep them from needing loans: Elk River, Hutchingson, Orono, Pierz, Robbinsdale, Rosemont-Apple Valley-Eagan, St. Paul Conservatory for Performing Arts and Wayzata. However, they add, a lot of the finer details of the shifts aren't yet known, so they can't say for sure.

But at least 12 districts know they'll have to borrow money. Anoka-Hennepin estimates anywhere between $10-20 million; Minneapolis, at least $10 million; Moorhead, $6.5 to 7 million; and Renville County West, $1.5 million. Osseo has never had to short-term loan, but will this year.

Estimated loans needed, by district:

  • Anoka-Hennepin (Total budget: $490 million - loan needed: $10-20 million - interest: $250,000)

  • Edina (Total budget: $80 million - loan needed: $5-7 million - interest: $100,000)

  • Hopkins (Total budget: $81.5 million - loan needed: $0-10.2 million - interest: $0 - 204,000)

  • Mahtomedi (Total budget: $35 million - loan needed: $3 million - interest: $100,000)

  • Minneapolis (Total budget: $500 million - loan needed: at least $10 million - interest: $250,000)

  • Moorhead (Total budget: $50 million - loan needed: $6.5-7 million - interest: $160,000)

  • Nashwauk-Keewatin (Total budget: $6.5 million - loan needed: unknown - interest: $20-30,000)

  • Osseo (Total budget: $200 million - loan needed: unknown, but borrowing will be needed)

  • Perham-Dent (Total budget: $15 million - loan needed: $2.2 million - interest: $45,000)

  • Red Wing (Total budget: $30 million - loan needed: $1.6-2.5 million - interest: $50-60,000)

  • Renville County West (Total budget: $6 million - loan needed: $1.5 million - interest: $50,000)

  • Roseville (Total budget: $70 million - loan needed: $8 million - interest: $238,000)

  • Sauk Rapids-Rice (Total budget: $30 million - loan needed: $2 million - interest: $120,000)

Shifts have become a normal part of school finance and are usually at 90/10 -- but this year they'll be at 73/27. What that means is - to make up an example - if a district is budgeted 100 pennies, the shift means the state will only give that school 73 of them this fiscal year. The state keeps the other 27 so they show up on the state's books and balance the state's budget.

Many schools saw something like this coming and made cuts, like layoffs, this spring. But they didn't know that final number - 73 - until last week, so some might not have cut enough. That's where their reserves come in.

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Those who can't cover the shortfall with reserves will need to take out loans, which charge interest.

Gov. Pawlenty has said - and schools agree - that a shift or delay is way better than an actual cut. But schools are also trying to point out how a shift sometimes has the same effects as a cut.

Sauk Rapids-Rice, near St. Cloud, plans to spend $120,000 just on interest from its loan. Superintendent Greg Vandal said that money could pay for another kindergarten teacher -- but instead, Rice School will have just two teachers for 70 kindergartners.

"That's a very tangible thing for those folks," Vandal said. "They will notice the absence of a teacher. They absolutely will."

And there's more worry among supporters of charter schools that they'll be hit especially hard.

Kevin Byrne worked in the Bloomington district for 25 years before leaving seven years ago to start the Minnesota Internship Center High School. The 400 or so students fit every definition of the phrase 'at risk.'

Kate Barr
Kate Barr is executive director of the Nonprofits Assistance Fund in Minneapolis, which loans money to nonprofits -- including charter schools -- who would normally be considered a riskier loan for a traditional bank.
MPR Photo/Tom Weber

"We don't recruit kids from other schools at all," Byrne said. "We're recruiting from the basements, from living rooms, from homeless shelters.

"These are kids who are not going to school; that's who come to us."

Students include immigrants with limited English, and others who are teenage parents, juvenile criminals or dropouts. On average, students enter Byrne's high school at a fourth grade reading level.

The school actually has five sites because some teens won't go to certain areas where you'd have to cross through some rival gang's territory. Yet, more than 700 students have graduated in the past seven years.

Financially, Byrne says he was fine until last week, when the shift turned out to be higher than expected. The shift means Byrne will have to find another $750,000 - and he can't get it through loans, which means he might have to shut down.

Amy Libman, another administrator at the school, explains that the problem isn't the loan interest; it's getting the loan in the first place.

"Because charter schools can't own property and cannot levy taxes, we're a really bad loan risk," she said. "What's happened now is not only has it jeopardized us in the future, but it's jeopardized the loan agreement we already had set up because suddenly our budget doesn't look like it's going to work."

The Minnesota Association of Charter Schools has asked the governor to reduce the shift for charters, or at the very least make state-guaranteed loans available to them.

Charter schools can go some places, like the Nonprofits Assistance Fund. The fund says it doesn't expect widespread closures, but says the newest charters will have the roughest year because they're not established enough with banks.

Among all the Minnesota schools that end up borrowing, many say their goal is to keep it all on paper and not bring the shift into the classroom.

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