Editorial: Be cautious with education dollars

Beginning last month, Minnesota schools, colleges and universities became eligible to receive about $1.2 billion in federal stimulus funds. Of that total, about $845 million will go to pre-K-12, much of it channeled through the state Department of Education.

Though school officials say the financial aid from the American Recovery and Reinvestment Act (ARRA) is welcome and needed, it is no windfall for many financially strapped districts. The bulk of the funds -- about $500 million -- will simply replace what the state would have paid to school districts to keep 2009 funding at the same level as 2008.

Once Congress passed the stimulus bill, Minnesota cut its education budget by that amount knowing that the federal dollars would fill in. By one estimate, it helped save several thousand school district positions that would have otherwise been lost.

The stimulus funds will not help districts with another expense -- interest payments. To help balance the budget this year, the state is delaying about 27 percent of what schools are owed until the following year. But the bills and payroll won't wait until then, so the funding shift means that many districts will have to borrow to meet day-to-day expenses -- and make interest payments with money that could have been used for education. Because of strict rules about how stimulus money can be used, districts cannot direct those funds toward interest payments.

Statewide, it is uncertain exactly how much districts will borrow. Some will be able to cover any shortages or loan interest with reserve funds. But others know they will take on millions in short-term debt along with six- or seven-figure interest payments. Anoka-Hennepin school officials, for example, say the district might have to borrow more than $20 million in 2010, which could amount to nearly $1 million in interest payments. In Brooklyn Center, school leaders are borrowing $8 million, which translates into about $250,000 in interest.

On the bright side for districts, about $345 million of Minnesota's stimulus funds will be new dollars for lower-income students and special education. But even some of that comes with caveats. Districts should be cautious about bringing on new staff with one-time funding. Federal maintenance-of-effort provisions require that spending levels be the same year to year, so districts couldn't cut the positions once the federal money goes away.

Schools may receive additional federal financial help by applying for competitive grants in several areas, including "Race to the Top'' funds for innovative programs. However, Minnesota schools will compete with other states for that money, and it is unknown which programs will be chosen.

As school leaders figure out the rules and learn new accounting and reporting procedures for the federal dollars, they should proceed cautiously. Some are wisely considering spending on technology or training -- sensible ways to invest a temporary infusion of funds. Districts should avoid making long-term commitments with federal dollars if they cannot cover those costs themselves in the future. In two years, the federal funds will be run out, and it's uncertain whether state finances will back in the black by then.