By Megan Boldt
Updated: 07/16/2011 12:03:13 AM CDT
Minnesota is turning to schools to help balance the books - again.
Part of Gov. Mark Dayton and Republican legislative leaders' two-year, $35.8 billion budget, which would end the state's shutdown, would delay aid payments to school by an additional $700 million to help fill a $5 billion state shortfall.
That means 40 percent of state aid schools were expecting - or about $2 billion - will be held back until next year, an accounting move that makes it look like the state's budget is balanced. Right now, the state is deferring 30 percent of school payments.
The decrease in money from the state will force more school districts and charter schools to borrow money to help with cash flow. But the deal also includes an additional $50 per pupil, which will cover the borrowing costs for most.
"They're borrowing money from schools, who then have to borrow money to operate, all so they can say they gave us an increase in funding," said Eugene Piccolo, executive director of the Minnesota Association of Charter Schools. "This is just a big con game."
Charters, which are public schools that operate outside the traditional district structure, will be hit the hardest under the agreement. They will face higher interest rates because they typically lack access to low-interest loans like school districts do.
Paul Simone, director of the Math and Science Academy in Woodbury, said the school definitely would have to take out a loan during the year, probably at an 8 percent interest rate. That compares with the less than 0.5 percent rate many districts can secure.
Simone still has to borrow even though the school, which has an operating budget of about $2 million, has a healthy fund balance of $800,000. Simone said the school would also probably hold off on planned capital investments such as new computers.
He had no qualms Friday airing his frustration with the budget agreement.
"They're calling it a compromise when no one is compromising on anything," Simone said. "Now I have to take out loans to pay my bills. I was thinking about going to my vendors and telling them I'm only go to pay them 60 percent of what I owe....I'm wondering how well that will go over."
Some charters can sell their anticipated state aid payments to companies for a fee to help with cash flow, Piccolo said. (A charter would get the money early from a company and then pay it back with interest.) But that fee varies widely - anywhere from 4 percent to 20 percent.
Piccolo said the financial hardship of the shift could crimp the startup of new schools and put some existing charters out of business.
"There are some that their cash-flow situation is so severe, this could tip them over," he said.
For school districts, it means more borrowing for longer periods of time. And that means bigger interest payments.
St. Paul Public Schools could have to borrow up to $30 million this year, said Julie Schultz Brown, the district's director of communications, marketing and development. That could cost the district about $450,000 in interest over two years.
But the $50-per-pupil increase on the state aid formula will probably bring in about $2 million this year for the school district, more than making up for the interest costs.
Rosemount-Apple Valley-Eagan, the state's fourth- largest school district, borrowed $15 million this month, its first loan in at least 20 years. That's because previous accounting shifts by the state left the district about $68 million short over the past two years, said Jeff Solomon, the district's finance director.
Solomon anticipates the new proposed shift will delay an additional $18 million to $20 million in payments.
The district sold aid-anticipation certificates this summer, which will cost about $44,000 in interest and fees. Solomon anticipates Rosemount will have to borrow again later this year, bringing the total costs to almost $100,000 for the district.
For most school district officials, the shift is mainly an accounting headache and hassle.
But what could happen in the future worries them the most.
"This is one-time revenue for the state. They're really not solving the deficit," Solomon said. "They're just postponing the problem another two years, and that's unfortunate."
Megan Boldt can be reached at 651-228-5495.