Delayed payments balances books, but burden schools

Gov. Dayton and Republican legislative leaders may resort to delaying more payments to Minnesota's public schools as a way to close a $5 billion projected budget gap. That's one tactic that both sides have floated as part of the budget solution. It saves costs to the state, but adds more burden to the school districts.

It's not the first time lawmakers have turned to a payment shift to balance the state's books.

Earlier this month, a $15 million deposit was made into a bank account for the Rosemount-Apple Valley-Eagan school district in the south metro.

The funds are a loan from a private lending agency, and is the first time the Rosemount district has ever needed a loan for cash flow. State payment shifts are a big reason why.

The loan will help the district meet payroll and make other payments through the summer, said Jeff Solomon, business manager for Rosemount-Apple Valley-Eagan. Interest on the loan is less than half of one percent, and will cost an accrued amount about $44,000, the annual pay for one teacher.

"That's money that we'll never get back," Solomon said. "And that ultimately is what that whole aid delay is: it's just a shifting of cost of borrowing from the state to local governments."

The shift transfers money that schools are supposed to get this year into next year. That lets the state keep that money off its books, so everything appears balanced.

Typically, the state shifts 10 percent of aid payments. Schools rarely have trouble dealing with that amount.

But these aren't normal times for Minnesota schools. For the fiscal year that ended on June 30, lawmakers had already increased the shift to 30 percent.

Now, budget negotiations in the state Capitol appear to be heading towards an even larger shift. The governor and Republican legislative leaders have been talking about a transfer of 40 percent.

Dayton indicated Tuesday that it could still be part of a final budget deal.

"It's far from ideal, but my ideal is an anathema to them and their ideal is an anathema to me, so we're going to have to find some alternatives that are less-than-desireable but that are the only ones we can agree on."

It's a move that would save the state $700 million on the books for the next two years. But it would force even more districts like Rosemount to borrow money to meet cash needs.

A survey earlier this year estimated that shifting the current amount of 30 percent would force metro-area districts to spend more than $5 million on interest and other costs related to borrowing.

The amounts vary depending on the reserve each district carries. Inver Grove Heights estimates only spending a few thousand dollars. White Bear Lake and St. Paul both anticipate more than $500,000.

That's why the discussion between Dayton and GOP leaders included adding to the per-pupil funding formula as a way to offset those borrowing costs. When ths plan first surfaced on June 30, the deal was for $50 more per pupil. For Rosemount, that would mean an additional $1.3 million, far more than the $44,000 in interest.

Scott Croonquist, who heads the association that conducted that survey, says borrowing costs aren't the worst part of the proposal.

"Quite frankly, our bigger concern about that whole proposal would be that we're, once again, kicking the can down the road and really not solving the budget shortfall," said Croonquist.

Another report this spring indicates the state's charter schools had budgeted $1 million for borrowing costs. Charters don't have the same access to low-interest loans that traditional school districts do, and often must borrow at higher interest rates.

Eugene Piccolo, who lobbies on behalf of charter schools, worries that schools have become the primary solution for the state's budget problems.

"If they shift another $700 million to next biennium, there's already a $5 billion hole next biennium, Piccolo said. "So what does that mean for education two years from now? Where's the tipping point, that you're never going to be able to pay it back?"

Ironically, as the shutdown continues, schools will get larger general state payments than they've seen the past two years. That's because without a new budget in place, the formula reverts back to the default shift of 10 percent.

Your support matters.

You make MPR News possible. Individual donations are behind the clarity in coverage from our reporters across the state, stories that connect us, and conversations that provide perspectives. Help ensure MPR remains a resource that brings Minnesotans together.