As much as $423 million in Minnesota school aid payments owed to 231 districts (from a total of 337) will be delayed to help the state government pay its bills.
A memo to districts made public Tuesday says that monthly delays will start in March with the expectation that the money would be repaid at the end of May. The deferral will hit districts with more than $700 per student in reserves, which includes the International Falls, Littlefork-Big Falls and Indus-Northome (South Koochiching) districts.
The delays stem from an anticipated state cash shortage. Expected revenue won’t come in as fast as government bills pile up for March, April and May. State law requires Gov. Tim Pawlenty’s administration to withhold the school money before turning to short-term borrowing.
This is the first time the 1986 law has been used. Some officials in the state say penalizing school districts which have been fiscally responsible sets up a weak incentive for the future. Affected districts will have a chance to appeal.
District 361
International Falls
Locally, interim Superintendent Kevin Grover said District 361 received notice of a total amount of $1.249 million to be delayed in state-aid payments.
The state’s juggling of finances will create a cash-flow problem for the Falls district, Grover told The Journal. He added that he and the district’s business office are currently scrutinizing all sources of funding to keep any kind of borrowing, which would create additional interest costs, at a minimum.
“To be honest, we’re probably looking at borrowing a small amount,” Grover said, noting that reserve funding must first be used. This also costs the district interest that would have been gained on those funds. The possibility of setting up a revolving financial account to cover interim expenses will also be assessed, Grover said.
“Just like our personal checkbooks, we can’t always predict the timing of what (bills and payments) will come through,” said Grover.
The following three payments will be delayed to District 361: March 15 payment of $416,477; March 30 payment of $499,772; April 15 payment of $333,181.
District 362
Littlefork-Big Falls
The delays will not negatively affect the Littlefork-Big Falls School District, according to L-BF Superintendent Fred Seybert.
“We will still have a positive cash flow,” Seybert told The Journal, adding that he understands that it will force several of the state’s school districts into a position of borrowing money to pay the bills.
“We are one of the fortunate school districts that will not have to go that route,” Seybert said. Three payments in a total amount of $347,758 will be delayed in state aid payments to L-BF.
District 363
Indus-Northome
Although Superintendent Bob Jaszczak of District 363 could not be reached Wednesday, public information released this week shows that state-aid payments to the South Koochiching School District (Indus and Northome schools) in the total amount of $452,681 will be delayed. It is projected that all of the delayed payments will be restored to the state’s districts by May 30.
Around the state
The delay is not directly related to Minnesota’s projected $1.2 billion budget deficit, but results from an anticipated cash shortage as government bills exceed expected revenue in March, April and May.
State officials also said they would delay a $52 million payment due in March to the University of Minnesota, and delay corporate and sales tax refunds for up to 90 days.
State law requires Pawlenty’s administration to withhold the school aid before resorting to short-term borrowing, but that didn’t stop some lawmakers and school officials from criticizing the move.
Sen. Terri Bonoff, DFL-Minnetonka, and Rep. Mindy Greiling, DFL-Roseville, said the delayed aid follows a trend of irresponsible budget management. They plan to introduce legislation this session to repeal the law that forced the deferral.
‘‘We don’t think it is our school districts that ought to be the bank for the state,’’ Bonoff said. ‘‘We continue to have a short-term response to our problems.’’
A law change probably won’t take effect in time to stop the payment delay this year, Bonoff said.
Minnesota School Boards Association Executive Director Bob Meeks said a delay in state aid could force some school districts to borrow money during that time or remove money from investment funds, which will cost them in interest or early withdrawal penalties.
A spokesman for the Bloomington Public School district, which faces a possible delay of more than $9 million in aid payments, said that while the delay will cost the district interest it would have made on reserve funds, that was preferable to any permanent cuts to the district’s aid.
‘‘Yes, it will have an impact on us, but we will get our money back,’’ spokesman Rick Kaufman said.
Meeks said his biggest concern was that the state would set a precedent of relying on school funds during hard times in the future.
This is the first time the state has used the law, passed in 1986, to cover the state’s money woes. ‘‘Now it could become more common,’’ Meeks said.
Scott Croonquist of the Association of Metropolitan School Districts said using funds from schools with reserve accounts removed some incentive for schools to be fiscally responsible.
‘‘If you are going to have the fund balance that is recommended, then you make yourself susceptible to this action,’’ Croonquist said. ‘‘To penalize those districts by letting the state borrow those funds interest-free is not a good incentive to keep it up in the future.’’
The Associated Press contributed to this report.
