PoliGraph: Sen. Hann’s claim correct, but lacks context

Once again, state lawmakers have agreed to delay payments to schools as a way to balance Minnesota’s books.

During a Midday interview on July 20, 2011, Senate Assistant Majority Leader David Hann said the accounting mechanism isn’t ideal, but its effects are also short term.

The shifts don’t “do anything to diminish the program of education. It doesn’t bring any harm to any classroom programs, to any funding,” said the Republican. “The total funding is there, it just delays the delivery of the funding for a period of time, and that effect is relatively short term once you get past the initial year of a shift.”

Hann’s correct, but the issue also deserves some context.

The Evidence

To close the budget gap for the coming two-year budget cycle, Gov. Mark Dayton and Republican legislators agreed to delay $700 million in school payments. That’s in addition to $1.4 billion in payments already put off to the next biennium.

Hann is correct that this doesn’t represent a cut in school funding – schools will get their state aid, just later than expected. Minnesota law requires future budget surpluses be used to pay cash the state owes the schools.

And he’s also correct that schools take the biggest hit in the first year of the shift.

Here’s how it works: For the school year that started on July 1, schools will get 60 percent of what they are owed this year, and 30 percent of what they are owed from the previous school year. That means they’ll be short 10 percent. To soften the blow, the Legislature also approved a $50 per pupil funding increase this year and next.

But for the school year that starts July 1, 2012, schools will get 60 percent of what they are currently owed, and 40 percent from the year before – 100 percent of their funding.

Hann’s larger point, that these shifts don’t have a huge impact on schools, is more difficult to measure because schools are coping with the payment delays differently.

This is the third year in a row that the state has changed the school payment formula, so some schools have sought short-term revenue by taking out loans or by selling certificates to investors backed by future aid payments or tax collections. Charter schools are in the same bind, but don’t have access to the same low-interest borrowing options that school districts do.

All this short-term borrowing means schools are paying interest and other administrative costs rather than investing that cash in schools, says Charlie Kyte who is executive director of the Minnesota Association of School Administrators.

“The interest they pay on it is money that’s not available,” Kyte said. “Will they take it out of reserves? Will they take it from their gyms? Will they lay off teachers?”

Schools with larger cash reserves have so far faired better than districts that are struggling, he said. But based on anecdotal evidence, Kyte says his organization estimates 70 percent of Minnesota schools will have to borrow.

The Verdict

While we know that some schools will have to borrow to make it through the latest shift – or have had to borrow already – it’s difficult for PoliGraph to say whether Hann’s underlying point, that schools aren’t cutting programming as a result of the shift, is accurate.

But Hann is correct that schools will eventually get all their money back, and that the effects of payment delay are most burdensome in the first year of the shift.

SOURCES

Minnesota Public Radio News, Midday, July 20, 2011

Minnesota House Legislative Staff, Minnesota School Finance

A Guide for Legislators, September 2010

Minnesota Public Radio News, Delayed payments balances books, but burden schools, by Tom Weber, July 5, 2011

School payment shifts illustration, provided by the Senate Education Committee, July 21, 2011

Interview, Dr. Chris Richardson, Northfield public schools superintendent, July 21, 2011

Interview, Scott Croonquist, executive director, Association of Metropolitan School Districts, July 21, 2011

Interview, Jeff Solomon, business manager for Rosemount-Apple Valley-Eagan school district, July 21, 2011

Interview, Eugene Piccolo, Executive Director Minnesota Association of Charter Schools, July 21, 2011

Interview, Peter Winiecki, spokesman, Sen. David Hann, July 22, 2011

  • Ryan

    I suppose there are two ways to look at this: that the time value of money is zero, and that it’s non-zero. If you presume that future dollars are equivalent to current ones, his statement holds. But since schools presumably have to borrow or reduce balances in their accounts below those they would have otherwise, there is a cost. The increase in the per-student formula is intended to compensate for this. However, cash flow is important too; if it weren’t, you could delay funding 10 or 100 years, with no effect.

  • Ralph Crammedin

    Senator Hann subscribes to the Wimpy School of finances. He will gladly pay you Thursday for a hamburger today. My guess is the good Senator would be outraged, however, if someone who owed him money pulled this sort of nonsense on him.