Districts Will Have to Borrow to Tide Them Over and Interest Will Cost Millions (MN)

May 19, 2010

School budgets didn’t get whacked during the 2010 legislative session, but plenty of money will be slow to arrive.

The Legislature approved another $208 million in funding shifts for K-12 education, meaning state aid payments that will be delayed. That money is tacked onto more than $1.7 billion in state funding already being delayed. Pushing back such payments allows the state to balance its books for the current budget period. It also means, however, that many school districts will have to borrow more money to cover their expenses because they’re not getting paid on time.

The Anoka-Hennepin school district, the state’s largest, was already expecting to pay $1 million in interest on money it will borrow to help pay its bills next year. District chief financial officer Michelle Vargas said the added shift means the district will have another $90,000 in interest payments.

Those interest payments, Vargas said, "are part of our budget deficit; it’s going to cut into what we can do."

Ultimately, that all figures into budget deficits that may be resolved in a number of ways, including school closings, program cuts and teacher layoffs.

Statewide, the funding shift will cost school districts $20 million a year in interest payments, said Charlie Kyte, executive director of the Minnesota Association of School Administrators. "That equals 400 teachers a year," he said. "We’re paying for this shift with 400 teachers a year."

Still, school officials prefer a shift to an outright budget cut because, at least theoretically, they are going to get that money someday. That’s why they are more likely to borrow money, rather than make budget cuts, as a direct response to the funding delays. When they’ll get the money back is another question. Much of the almost $2 billion in delayed funds is supposed to be paid to districts by July 2011. But it seems unlikely the cash-strapped state will have the money by then to do that. And all it takes is the stroke of a pen to put off those payments for another year, or even longer.

"Because it was passed by the Legislature, at some point they will pay it back," said Scott Croonquist, executive director of the Association of Metropolitan School Districts. "It’s just when they have the money available. More than likely, it will take many, many years."

Because the Legislature passed no K-12 bill this year — one stalled in the closing hours of the session — it means the state is unlikely to apply for up to $175 million in federal Race to the Top grants. Gov. Tim Pawlenty made application for the funds con tingent on the Legislature passing various legislative reforms. But state officials weren’t slamming the door on the state filing an application.