Will state's school payment delay be only the first step?

Article by: GREGORY A. PATTERSON , Star Tribune
Updated: January 30, 2010 - 9:58 PM

The impact of the state's tardiness in K-12 funding varies among districts, but all fear for the future.

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East metro school districts say the state's move to delay $423 million of payments this spring will hurt a few, while causing considerable concern for the future among all.

State law requires withholding the funds when the state can no longer pay its bills without borrowing.

The districts are affected by the move in one of three ways: The most severely affected will have to borrow money to cover funds the state withholds; others will be able to get through using reserves; some won't be financially affected because they don't have sufficient financial reserves for the state to tap.

School districts throughout the state, including the east metro, will miss two payments in March and one in April; they are set to be repaid in full on May 30. None of them have said they will cut programs.

"This is a game-changer because we had not planned on having to borrow," said Michael Baumann, chief business officer for the St. Paul Public Schools, the state's second largest district with 38,000 students. The district will have $28.9 million delayed. Officials haven't completed a plan for handling the delayed payments, but Baumann says interest costs for borrowing money could range between $10,000 and $75,000.

Small districts will be affected, too.

"The impact on our district is big, and it's a little unexpected," said Deb Blackburn, business manager for South St. Paul Schools, a district of barely 3,400 students. The district doesn't have money to cover the $3.1 million it will miss, so it will have to borrow, Blackburn said.

"The last time we borrowed money was in 2007 and the interest cost us $137,000 -- and that's almost two teachers," Blackburn says.

Meanwhile, Stillwater, White Bear Lake and South Washington County school districts said they will be able to avoid borrowing. But paying their own way through the period means they will lose interest from invested money.

South Washington County officials say they will lose about $15,000 in interest. Stillwater and White Bear Lake officials have no estimates yet.

"We're very fortunate to be in the position we're in right now," said Pete Willcoxon, White Bear Lake's executive director of business services.

The Forest Lake and West St. Paul school districts don't have to worry about all that, because they don't have enough money in their reserve fund to be eligible for the state holdback.

"We're not affected because we have hardly anything in the fund balance," says Susan Brott, spokeswoman for West St. Paul schools. "There's barely $300,000 in the fund balance right now. We're already doing short-term borrowing."

Longer-term, it's not pretty

But what bothers Brott and others throughout the east metro is the potential that the situation will worsen.

"Our greater concern is for the long term," says Mark Porter, superintendent of the South Washington County Schools. "Will they need to exercise this same authority in the next fiscal year? And at what point will they be unable to repay all of these delayed and shifted payments?"

The Legislature could make things worse, school officials say.

Ray Queener, assistant superintendent for business and administrative services in Stillwater, said he fears the Legislature could fail to pass a bill ensuring that the state will make good on the 27 percent of school funds that it is holding back this year.

"That would have a draconian effect on our school district," Queener said.

Gregory A. Patterson • 612-673-7287

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