Moody's says state school shift payback helps outlook

The nation's top credit rating agencies are taking notice that Minnesota has repaid the $2.7 billion borrowed from K-12 public schools to balance the state budget over the past two budget cycles.

Moody's Investors Service included a long item about the state's rapid payback in its newest newsletter, saying the news improves analysts' outlook of school district finances.

"This final repayment of delayed school district revenues" should improve cash flow for all school districts, Moody's wrote. The payback is "a clear credit positive."

Minnesota's projected $1 billion surplus for the rest of the budget cycle triggered the final repayment of $246 million.

DFLers and Republicans share blame for borrowing the money from public schools, and both sides — at one time or another — pressed hard for faster payback. House DFLers made it a signature initiative in the past session.

State leaders did not force schools to lend the state money. They merely withheld a percentage of the state's overall payment to schools — enough to ensure that the state met its constitutional obligation to balance the budget.

During the worst of the economic slowdown, some school officials told legislators they would rather have the delayed payment than an outright cut. That way, school aid payments would automatically return once the budget picture improved, and school officials would get the bump without needing legislative approval.

"These delays exerted substantial cash-flow pressures on districts, leading many to deplete cash reserves," Moody's wrote.

Many school officials in districts that never had cash-flow problems suddenly found themselves needing to borrow money to smooth out the rough spots of the budget cycle. Schools that routinely borrowed a little money suddenly needed to borrow a lot more.

The amount of school district borrowing increased nearly sixfold from 2009 to 2012, to $792.2 million.

Districts even turned to other sources of money to balance the books.

The Minnesota School Boards Association conducted a survey and found that a record number of districts went to voters for operating levy referendums in November 2011.

Now, school budget officials finally have more room to breathe and Moody's is more upbeat.

For elected leaders, the payback gives voters one less thing to beat them up about during the next campaign. Now any additional money can go for voter-pleasing initiatives like new spending, a larger budget reserve or tax relief.

"We can tell the people of Minnesota that after years and years, and billions in borrowing, we have finally paid the bill we owe our schools — in full," said House Speaker Paul Thissen, DFL-Minneapolis.

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