Minneapolis Public Schools officials say they will not be hit by significant borrowing costs if the state Legislature agrees to pass the deal Gov. Mark Dayton However, lobbyists for public schools say increasing the payment shift will not solve the state's long-term fiscal problems.
Central to the plan Dayton agreed to today is an accounting trick that rearranges $700 million in the state aid to public schools, so that it is paid out in 2012 instead of 2011, when the state will have enough money in its coffers to make the payments. Traditionally, the state has paid 90 percent of funding for schools at the beginning of each two-year budget cycle, followed by a 10 percent “clean-up payment” the following year. Last budget cycle, this split was changed to 70 percent and 30 percent, and under this budget deal, only 60 percent of state aid would be paid following the passage of a budget, with 40 percent paid the following year.
To make up the missing 30 percent, schools will have to borrow money, but according to MPS Director of Funded Programs Sarah Snapp, the district will use a rainy-day fund so it doesn't have to borrow right now.
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“Our fund balance helps us with cash flow, which means we will not have to borrow as soon,” she said. “I am not sure when we will need to borrow. After we get our first payment, we will be able to do a more accurate projection.”
Still, drawing down these emergency funds is “not an ideal situation," Snapp said.
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For other schools, a small increase in state aid will help cover the interest costs that come with any shift-associated borrowing. Many districts do not have the large rainy-day fund Minneapolis has.
“It’s obviously not our first choice,” said Scott Croonquist, head of the Association of Metropolitan School Districts (AMSD) and a critic of the funding shift. “But if they do the shift and do include some revenue for school districts to pay for the interest costs (incurred from borrowing), that will make it less onerous.”
AMSD represents metro-area school districts at the state capitol.
“We will be right back here in two years,” he added. “We are not balancing the state budget. That’s the real danger and downside here—the future.”
