It may take a miracle to fund school 'Miracle'

DFL representatives last spring announced a massive funding plan for K-12 education that they would unveil at the beginning of the 2009 legislative session.

They dubbed it the "New Minnesota Miracle" after the 1970s reform that shifted much of the responsibility for paying for schools from property taxes to the state. They loaded the plan with hundreds of millions of dollars in new school funding, property tax relief provisions, and requirements for schools to use some of their new money to improve student performance.

Some DFlers were confident they could get at least some of the $1.7 billion a year in proposed new school money from the funding that would be available for the 2009 session, or from higher taxes.

Now comes the reality check.

Schools survived an initial round of budget cuts this month by Gov. Tim Pawlenty to wipe out an immediate deficit of $426 million. But a much tougher job remains. A $4.8 billion shortfall during the next two years means it will take a miracle for schools to get any new money at all. In fact, it could take a gargantuan effort by legislators to make sure school funding isn't cut.

"Clearly, in the current situation the kinds of investments anyone wants to make in education are not going to happen," said Sen. Tarryl Clark, DFL-St. Cloud, the Senate assistant majority leader.

The problem for K-12 education this year is that it consumes about $6 billion to $7 billion annually -- about 40 percent -- of the state's budget.

Educators say, gamely, they will keep working to wring more money out of legislators. Still, few school districts harbor any illusions about how the session will turn out. Many are starting their 2009-2010 budget deliberations expecting no new money from the state.

Though many districts are in relatively good financial shape this year -- in large part due to more referendum requests than expected being approved by voters in November -- they say next year paints a different picture if they don't get more state money.

Deficit predictions

In recently announced projections, Minneapolis is predicting a $28 million budget hole next year. Other figures gathered by the Association of Metropolitan School Districts include projected shortfalls for 2009-2010 in these districts: Rosemount-Apple Valley-Eagan, $18 million; Anoka-Hennepin, $17 million; St. Paul, $15 million; South Washington County, $10 million; and Eden Prairie, $6.3 million.

This means that with the new year likely will come new rounds of teacher layoffs, increased activity fees and program cancellations. The picture gets grimmer if K-12 funding gets cut from current levels. Across-the-board cuts applied equally to state funding would mean about $2 billion trimmed from K-12 education next year.

Legislators have mentioned several ways to reduce the chances that schools could be walloped this session. One involves combining school districts into buying pools to save money on purchases. Another might be changing the way school boards negotiate salary increases with teachers, making it easier for boards to freeze pay in times of economic distress.

Pawlenty and some legislators have also mentioned the prospect of zero-based budgeting, starting from the ground floor to figure out what schools need and what they don't.

Apart from the bleak budget outlook, the worsening economy's effect on schools has, so far, been relatively benign. Lower home values don't affect district property tax revenues because those are set at a specific amount for schools. While districts invest millions of dollars, state law requires that money to be invested very conservatively.

"In essence, we haven't lost any money," said Jeff Solomon, director of finance and operations for Rosemount-Apple Valley-Eagan schools. "But the rate of return has dropped dramatically."

Two years ago, Solomon said, the district's portfolio of short-term bonds, certificates of deposit, and U.S. Treasury investments, returned 5 percent annually. Returns now are down to 2 percent or less.

Pension portfolios

Teachers' retirement benefits -- which are set by state law -- are safe, said Laurie Hacking, executive director of the Minnesota Teachers Retirement Association. But teacher retirement funds are in stocks as well as other investments, and they've been whacked by the market decline. Should the value of the pension portfolio fall too low for too long, Hacking said, teachers and school boards might have to contribute more to keep the pension fully funded.

Despite plenty of gloomy predictions, Rep. Mindy Greiling, a Roseville DFLer and the prime legislative mover of the "New Minnesota Miracle," plans to introduce her bill as soon as the session opens for business. She pointed out that there will be no budget amount specified in the bill, nor will there be a date specified for when the new school funding measures must go into effect. She said she has revised her original plan to phase in the "New Minnesota Miracle" over the next six years. Now, it will take longer, though she's not certain how much longer.

"If we're doing something positive, in addition to filling up the deficit, any revenue increases have to be tied to getting started on the New Minnesota Miracle," she said. "It could get started with a penny."