Short on cash, school districts will borrow to meet expenses

Reading in class
Jackson Preparatory Magnet School principal Yeu Vang reads with second grade students at Jackson in St. Paul, Minn. in March of 2011. School districts across the metro, including St. Paul's, will have to borrow money this year to make up for delayed payments from the state.
MPR File Photo/Jeffrey Thompson

A survey of more than two dozen metro-area school districts reports they will have to borrow money this year to meet cash flow needs — and this year's state budget is to blame.

The provision in the state budget to defer a larger payment to schools is draining the districts' cash on-hand, says the Association of Metropolitan School Districts, which conducted the survey.

North St. Paul-Maplewood-Oakdale is one district that is borrowing this year. Officials there will close on a financing plan today that essentially amounts to a $17 million loan, which is needed to ensure that all bills are paid and everyone gets a paycheck. Superintendent Patty Phillips estimates the district will have to spend around $80,000 in financing costs — the equivalent of about two teachers' salary. The district has avoided borrowing for several years.

"We've lived off our fund balance and we've been able to manage the cash flow, but once it's 40 percent, it's pretty tough," Phillips said.

The 40 percent she refers to is this year's payment deferment. The state budget that passed this summer following the state government shutdown included delaying 40 percent of payments to schools until the next fiscal year. It had been 30 percent and is historically much lower, but Phillips says the extra 10 percent this year dictated her district's need to borrow.

In all, 26 districts reported they'll have to borrow a total of $382 million to meet cash needs. In doing so, they'll incur $3 million in financing costs. That's money they say could be used for teachers or other classroom necessities. In addition, the 42 districts who are members of the Association of Metropolitan School Districts report having cut more than 600 staff members this past spring including more than 400 teachers.

"Districts always try to make cuts that aren't going to impact students, but they've been trying to do that now for a decade. And quite frankly those options are really disappearing," said Scott Croonquist, who heads the Association of Metropolitan School Districts.

"Districts always try to make cuts that aren't going to impact students, but they've been trying to do that now for a decade."

Croonquist said the result has been a slow increase in recent years in class sizes, along with a slow decline in class offerings and extra curricular activities.

He says there is one bright spot: that $3 million in financing costs is blunted by historically low interest rates.

There's no comparable survey for districts statewide, but leaders of organizations that represent districts across the state say they hear anecdotally that the need to borrow is rising.

DFL lawmakers were quick to use the survey to criticize the Republican-led Legislature. Rep. Mindy Greiling called the borrowing a "shameful result of Republicans stealing from schools."

"None of this was necessary," added state Sen. Chuck Wiger, DFL-Maplewood, in a separate statement, adding the governor's plan to raise taxes on the wealthiest Minnesotans would have prevented the need for a larger deferment. Wiger's district includes the North St. Paul-Maplewood-Oakdale school district.

Not so fast, counters the GOP. Rep. Pat Garofalo, R-Farmington, said only focusing on the deferment ignores the fact that schools in 2011 also saw their biggest funding increase in years. The increase includes $50 more per pupil in the general funding formula in each year of the biennium.

Garofalo said both Republicans and the governor touted that increase as a way to offset the borrowing costs that are now being outlined in the new survey, and the deferment was part of a deal to end the state government shutdown.

"You had a governor who was unwilling to cut spending and a Republican legislature that was unwilling to raise taxes, and so this is what we got," Garofalo said. "But the school districts are complaining about it, you know it's a fair point — I probably should have fought harder and longer to insist the governor cut spending as opposed to (doing) this shift."

Garofalo adds a potentially larger budget issue for schools than the shift is a 2010 bill that required districts to contribute more to the state's teacher pension system. That bill was approved during a time when the DFL controlled the Legislature; the higher contributions were also noted by the Association of Metro School Districts on Wednesday.

There is one point of agreement: the increase schools got this year will offset the borrowing costs. The metro districts that are spending $3 million on financing are also getting more than a $3 million increase this year. The issue district leaders have is that the money could have been spent elsewhere. And with a 40 percent deferment now in place, schools that are joining the borrowing club this year are likely to stay in that club until further notice.

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