A surprise windfall from budget savings and a strengthening economy have allowed state leaders to pay down an extra $636 million in debt to public schools.
The state's public school tab now sits at $238 million — a fraction of the $2.8 billion owed just a couple of years ago.
Republicans and Democrats scrambled to claim credit for a flash of good news after a politically and financially tumultuous period that stretched the state budget to its limit and ultimately reshaped the makeup of the Legislature. How Minnesota's leaders manage state finances in coming months is expected to leave a deep mark in the upcoming fight for the governor's office and control of the Minnesota House.
"This is a great success," DFL Gov. Mark Dayton said. "It's a tribute to Minnesota's economy and its employers and its employees."
Dayton and DFL legislative leaders made the announcement at a high-profile news conference in the governor's office, highlighting what they say is a fresh sign that the state has crawled out of the worst recession since the Great Depression and once again is on the right track.
Moments later, Republican leaders assembled outside the governor's office with a glossy chart, showing how it was their budget from two years ago that led to the strong economic recovery.
"This is good news, but not surprising news," said Rep. Kelby Woodard, R-Belle Plaine. "Every indication we had of the GOP-led budget over the last two years is that we were creating surpluses."
The past economic downturn resulted in deep cuts to the budget and a draining of the state's reserves. Republicans' refusal to raise taxes to ease the pain led to a dramatic showdown with Dayton that culminated in a three-week partial state government shutdown. Dayton finally ended the shutdown by agreeing to a GOP proposal to borrow more money from K-12 schools as an alternative to higher taxes. At its peak, the borrowing topped an unprecedented $2.8 billion. The smaller payments caused cash-flow problems for some school districts, which in turn had to borrow money to cover financial obligations.
Senate Minority Leader David Hann, R-Eden Prairie, said the positive outcome of this budget was worth the acrimonious standoff with Dayton, even though it might have cost them majorities in the House and Senate in the last election.
"I think the long term effects are beneficial," Hann said. "No one likes to see a government shutdown, nobody likes to see the debate come to a place it got to, but what we are adamant about at that point is that we did not want to increase the tax burden on this economy."
The state's top budget official said the mega-loan payment is a testament to the state's relentless pressure to reduce costs, which saved an additional $122 million that will go to repay schools. If the economy continues to improve, schools could be totally repaid by the November economic forecast.
In 1983, the first time the state borrowed money from schools, it took about 15 years to repay the debt.
"In Minnesota, we don't tend to pat ourselves on the back," said Minnesota Management and Budget Commissioner Jim Schowalter. "The fact that we have paid back these shifts so quickly is really quite incredible."
Dayton and a new slate of DFL legislative leaders approved a new two-year budget this year that includes about $2.1 billion in new taxes, mostly in the form of higher income taxes for the state's top earners and three new businesses taxes. That new money will be used largely to boost education efforts such as all-day kindergarten and college readiness programs.
House Speaker Paul Thissen, DFL-Minneapolis, said the last election showed that voters don't want politics "mired in gridlock and political brinkmanship." Minnesotans, he said, wanted the repayment of schools to be a top priority. "This is another great day for Minnesota and another day we are talking about progress in the state," Thissen said.
Dayton has ridden a wave of positive economic news in recent weeks. Along with the big chunk of school debt repaid, the state just announced that employment levels have returned to prerecession levels. A week ago, Forbes Magazine ranked Minnesota eighth in its list of "Best States For Businesses."
"We have come a long way, but have a lot more to do," Dayton said.