With budget surplus, state could remit payment to schools

Rushford, Minn. school
More than $300 million from a state budget surplus announced this week will be used to pay back some of the money borrowed from schools last year to balance the budget.
MPR Photo/Tom Weber

A glimmer of good news came this week for Minnesota schools: More than $300 million from a state budget surplus will be used to pay back some of the money borrowed from schools last year to balance the budget.

The problem is the state still owes schools $2.4 billion in deferred payments.

With IOUs in hand, many districts have had to dip into their reserve funds. And more are starting to borrow money just to make it through the year.

Last year, in an effort to balance the state budget, DFL Gov. Mark Dayton and Republican lawmakers agreed to defer a portion of state payments that go out to school districts.

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The deal means schools get 60 percent of their state funding during the year, the other 40 percent will come in payments over several months beginning this summer.

The delayed payment has forced many schools to dip into their reserve funds to make ends meet.

Two years ago, the Northfield Public Schools district held a reserve fund of $10 million. Today, the district, located about 45 miles south of the Twin Cities, holds half that amount.

Superintendent Chris Richardson hopes his district, and others in the same situation, can make it through the fiscal year on their remaining reserves.

"If for any reason there would be any loss in anticipated revenue, or any unforeseen additional costs, we're all one step away from having to look at short-term borrowing as an approach to maintain our budget," Richardson said.

Southeastern Minnesota's Zumbrota-Mazeppa School District did have to take that step earlier this week.

Superintendent Tony Simons said the payment shift, combined with rising expenses, has nearly depleted the school's reserve funds.

"We're down to the point where we're critically in need of revenue to make our payroll. That forced us to borrow $1.38 million," Simons said.

In Moorhead, school district officials took out a loan in February to be able to pay bills through the end of the fiscal year.

Superintendent Lynne Kovash couldn't turn to a "rainy day" fund, because it's all dried up. The district had to borrow $8 million.

"In order to be able to meet the responsibilities we have as a school district we need to borrow money. It's a cash flow problem," Kovash said.

Minnesota schools have borrowed hundreds of millions of dollars to cover their bills because of delays in funding this year and last year.

Public schools get favorable interest rates by joining together in a borrowing pool, said Greg Abbott of the Minnesota School Boards Association. But in the end, he said, schools are on the hook to pay off the interest, not the state.

"Even though the interest is low, at about 0.35 percent, it's still money that they have to pay in interest they wouldn't have paid if the state hadn't shifted the money," Abbott said.

Lawmakers did have the cost of financing in mind when they passed legislation that shifted K-12 payments. They boosted per-pupil funding by $50 this year, and another $50 next year.

School administrators are bracing for more accounting challenges ahead. Next year, school districts face another shift in payments similar to this year's 60/40 plan.

No one knows what's coming in the year after that, but Moorhead Superintendent Kovash worries lawmakers may try to delay half of school district's payments.

"Could it be 50/50? What could it be? That's the part that we struggle with over the long haul," Kovash said.

There are two measures at the State Capitol right now that aim to pay off the money owed to schools: A DFL effort would eliminate a tax advantage for foreign operating corporations, and use the money to pay off the shift. And a Republican measure proposes using some of the revenue from racinos to do the same.