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Continued: State taps schools for another $142 million

  • Article by: NORMAN DRAPER , Star Tribune
  • Last update: September 24, 2010 - 11:40 PM

The state is once again coming up short and going to its usual source for ready cash.

Who keeps lending it money? Minnesota schools.

The state budget office announced earlier this month that it's tapping K-12 education funding for $142 million. The loans are to be paid back, without interest, in May. It's the second time this year the state has done such short-term borrowing from schools.

In the more recent round, 134 of Minnesota's 337 districts -- those with the biggest fund reserves -- are getting hit up for loans ranging from tens of thousands to millions of dollars. The state does that by delaying aid payments to the schools, which it can do by law when in dire financial straits. That means many districts will have to tap their own reserves or borrow money to pay their bills.

School districts can tack the state action on to the big kahuna of delayed school aid payments -- $1.9 billion in funding shifts covering last year and this year that helped the state tackle a huge budget deficit and balance the books.

The shifts have been a big enough headache for schools that they've shown up on the radar of all three major-party gubernatorial candidates.

DFLer Mark Dayton said he hopes to pay back most of the shifted amounts over the next two years. Republican Tom Emmer has said he wants to begin repaying them in 2014. Independence Party candidate Tom Horner has said he wants to start repayments, with interest, as soon as 2012.

The major stumbling block is where the money will come from. With the state facing an anticipated $5.8 billion deficit in the coming two-year budget period, it seems unlikely that money will be freed up to pay off the shift any time soon.

"I don't think anybody can anticipate or predict when it gets paid back," said Education Commissioner Alice Seagren. Seagren noted that the shift doesn't cut school funding, it merely delays it. Plus, school officials say they prefer the payment delays over outright budget cuts.

Delays carry a cost

Still, the delays mean school districts will continue to have to pick up the slack in the meantime. There's a cost to that.

"The schools people are saying that costs $20 million statewide in borrowing interest costs," said Rep. Mindy Greiling, DFL-Roseville, chairwoman of the House K-12 Education Finance Division. "That's real money, real teachers, real kids. "

Recent figures from the Association of Metropolitan School Districts show that, as a result of funding shifts, its 33 member districts have incurred a collective cost of more than $5 million, through interest they have paid on borrowing or interest income lost on reserves they have tapped. The state's largest district -- Anoka-Hennepin -- has made $400,000 in interest payments this year because of borrowing.

It won't break school districts. But, school officials note, they come as state K-12 funding has been frozen for two years and could be frozen for another two during the 2011 legislative session.

"It's more of the cumulative impact," said Scott Croonquist, executive director of the Association of Metropolitan School Districts. "We already have [school funding] delays; now there's this further delay. We also have a funding freeze, so it's the cumulative impact of all these financial impacts that's starting to be a burden for school districts."

Plus, said Greiling, the funding shifts throw a wrench into schools' financial planning. "It plays havoc with districts and their budgeting," she said. "And the worst part of it is paying it back will be counted as schools getting more money, which they won't be. It's really just paying back what's been borrowed."

Hastings schools superintendent Tim Collins said, "Absolutely, it impacts your bottom line," referring to the state's short-term borrowing. Hastings got hit up for $9.6 million by the state this time around, and faced delayed aid payments earlier as well. "As a district, we know we have to borrow money, or lose interest on money we could have been investing. For us, that's about $400,000 to $500,000 a year."

Collins said his district and others that have built up sizable budget reserves are being penalized for being fiscally prudent.

"We all recognize that Minnesota is in close to a financial crisis," he said. "And there's going to have to be some sharing of the burden to get out of that financial situation... It doesn't appear, though, that everyone is sharing equally to set the situation straight."

Norman Draper • 612-673-4547

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