Schools

Budget Solution Will Force Minnetonka Schools to Borrow Money Come Spring

While Minnetonka Schools support the payment shift, some say the move delays the real issue.

Ending the state shutdown meant both Gov. Mark Dayton and Republican leaders had to make some concessions. As part of those concessions, Dayton agreed to change, or shift, how Minnesota pays the state’s public schools.

Although local district officials are on board with the governor’s compromise, some worry that Minnesota schools could be ongoing victims of the budget impasse and its ultimate solution. 

What's a Shift?

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The state divides school payments into two parts—most of the payment during the school year, and the rest, the following year. Historically, schools received 90 percent upfront. Over the years, the state has shifted more weight to the second payment—first making it 15 percent, then 20 percent and now 30 percent—in order to balance its budget.

To balance the budget during this most recent stalemate and shutdown, Republican leaders proposed another further payment shift—from the 70-30 percent formula, as it stands now, to 60-40 percent.

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Initially, Dayton had refused such a shift, instead countering with an offer of a 63-37 percent split. To end the shutdown, Dayton agreed on Thursday to further school aid shifts, a decision which generated $700 million dollars—or half of the budget impasse that divided Dayton and Republican leaders.

Reaction to the compromise and the shift was mixed. Critics say a shift could force some schools to borrow money—and incur the costs that come with that—until they receive the second payment. They also say it doesn’t solve the real problem: a swollen budget with few long-term fixes. 

“We’ve already shifted them, and now we are shifting them farther. I think that points to the problem,” said Sen. Terri Bonoff (DFL-Minnetonka). “I’m opposed to short-term measures to solve long-term problems. I think that’s irresponsible.”

“We are sliding down a slope very quickly,” said Scott Croonquist, head of the Association of Metropolitan School Districts. “This is not a structural balance to the budget, this is one time revenue. Our preference would have been that it was done more responsibly.”

Tougher critics of this kind of funding shift, like Sarah Snapp, budget director for Minneapolis Public Schools, call it an accounting trick and say it would essentially give local schools I-owe-yous on their percentages of state revenues.

“It’s not an ideal situation,” she said.

Ideal? No. Better than the alternative? Maybe.

“It’s a definite trade off in the interest of schools, if we avoid cuts to our funding,” Minnetonka Public Schools Superintedent Dr. Dennis Peterson told Patch.

According to many school districts across the state, including Minnetonka, the interest costs that a district would rack up borrowing money to stay afloat until the second payment are far better than the alternative.

“The small amount of interest that the districts have to pay is a small price to pay for avoiding cuts,” he said.

Dayton’s proposal that ended the shutdown would reimburse schools the money they would be out after paying the interest on loans they take out because of the funding shift.

“The real financial hit could be mitigated,” Croonquist said. “That will make it [the shift] less onerous.” 

Minnetonka Schools: To Shift or not to Shift

The Minnetonka School District receives 78 percent of its $89 million annual budget from state funds. Peterson predicted that this shift in state aid payments would force the district to borrow money to get through the next school year.

We’re probably going to have to borrow as we get towards spring,” he said. “But compared to making cuts, it’s a no brainer.”

In fact, the district has been prepping for just this situation. Mere hours before the shutdown went into effect, the Minnetonka School Board passed a cash flow borrowing plan, approving the use of $6 million in Aid Anticipation Certificates to make up any gap in state funding during the 2011-2012 school year. Also, the district has a $7.5 million line of credit previously authorized with Associated Bank. 

Because a shift ultimately impacts cash flow, not cash reserves, Peterson stressed that this shift means the district won't have to tap into any savings.

In total, the district has just over $13.5 million in emergency cash access to use through August 2012—and that’s above the $8 million in other funds the district maintains on a continuous basis. 

Haves vs. Have-Nots?

The funding shift, Peterson said, will have no impact on Minnetonka students because no programs, staff members or student services would be cut. Others worry funding shifts could also have strong impacts on districts less fortunate that Minnetonka.

“Districts with a healthy reserve won’t be hit as hard. It’s not an even impact on school districts,” Croonquist warned.

“We continue going to the same well, believing that it makes no difference” to schools, said Mary Cecconi, a long-time Minnesota education watchdog and head of the public school booster group Parents United for Public Schools.

As districts spend down their reserves or reach borrowing limits, she said, they might consider raising local property taxes. A number of districts will be renewing their property tax levies in the coming years. The funding disparities between rich and poor towns this would create, she said, might be a violation of the state’s constitutional obligation to fund a quality public education system.

“Kicking the can down the road doesn’t solve anything,” Cecconi said.

But Peterson rejected that claim, pointing to the fact that among the state’s public schools, Minnetonka ranks right in the middle for per pupil spending.

“All districts are better off to pay a little interest over a budget cut. It doesn’t matter what condition you’re in,” he said. “It’s not how much money you have as much as how you spend it.”

To read how the shutdown affected Minnetonka Schools, click . 

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