After last summer’s budget breakdown, the state got some good financial news: it will have an $876 million budget surplus going into the coming legislative session.
But that bright spot was quickly overshadowed by the fact that the state is still projected to have a $1.3 billion deficit in the coming fiscal year – and that doesn’t include the money the state borrowed from schools to help close the current budget cycle’s deficit, some lawmakers point out.
Among them is Sen. Richard Cohen, DFL-St. Paul, who issued this reminder during a press conference after Minnesota Management and Budget released the latest forecast.
“We’ve used school shifts over the years. This isn’t the first time,” he said. “But there’s always been some ability to see ahead to pay back that school shift… This is the first time we’ve had a shift that goes on forever.”
Cohen appears to be correct that the governor and lawmakers have entered uncharted territory when it comes to using this budget fix.
Many times, the state has given schools only part of their annual aid one year and the rest the following year; it’s a trick that allows the Legislature and governor to borrow money from schools in the short term to balance the general fund books, without actually cutting the amount schools are owed.
The proportions have changed depending on the state’s budget outlook, but, at best, schools get 90 percent of their aid in one fiscal year, and the remaining 10 percent the following.
To solve Minnesota’s most recent debt problems, schools are now getting 60 percent of their aid in one year and the remainder in the next. It’s not technically a cut, but the latest change has created cash flow issues for some schools who’ve had to take out loans or use reserves to make ends meet between checks.
If the state decided today to revert to its old formula, it would cost $2.1 billion (that’s not including a separate school-related budget trick that saved the state $600 million.) That figure is not included in the coming two-year budget cycle’s $1.3 billion projected deficit.
To assess Cohen’s claim, PoliGraph put itself in the shoes of a Minnesotan who might not know much about education funding. From that perspective, Cohen’s claim is confusing because he makes it sounds as if latest shift is unprecedented because there’s no plan to pay it off.
But back in 1983, schools started receiving only 85 percent of their payment one year, and the remaining 15 percent the next – and that went on for 15 years without an end in sight.
It’s also worth noting that the law requires the state to give schools extra cash when it has it; surpluses, such as the one Minnesota has now, must first be used to beef up the state’s cash flow and budget reserve accounts, and leftovers must be given to schools to make up for the shift. (There’s not enough of a surplus to do that this time around, though.)
So, while we don’t know when the current round of schools borrowing will end, there is a mechanism in state law that requires schools are paid back.
Cohen said he was trying to underscore how enormous this particular shift is compared to others.
“No one has a realistic idea of how to pay back $2.1 billion,” he said.
Cohen has a point: according to historical data provided by the Minnesota Legislature’s House Research staff, schools are getting paid a much smaller portion of their aid each year than they have in the past.
And so far, it’s the most expensive shift. For instance, in 1997, when lawmakers ended that 15-year-long payment shift, it only cost the state $156 million
Cohen is right that the state has borrowed money from schools in the past to make ends meet, including one stretch that lasted 15 years with no specified end date.
But this fix is different even from that one. Never before has the state delayed such a large percentage of school payments. And while technically the governor and Legislature created a mechanism to correct the shift, it is hard to see how that will happen, given how expensive it would be to pay off today.
This claim earns an accurate on the PoliGraph test.
Minnesota Management and Budget, November Forecast, accessed Dec. 6, 2011
Minnesota Public Radio News, Budget surplus gives state officials wiggle room in legislative session, by Tom Scheck, Dec. 2, 2011
Minnesota Statute 16A.152, accessed Dec. 6, 2011
Minnesota Public Radio News, Video: Budget deal explained, by Molly Bloom and Curtis Gilbert, July 15, 2011
Minnesota Legislature House Fiscal Analysis, State Education Funding Accounting Shifts, January 2011
Interview and e-mail exchange, Greg Crowe, House Research analysis, Dec. 6, 2011
Interview, Rep. Mindy Greiling, Dec. 6, 2011
Interview, Sen. Richard Cohen, Dec. 6, 2011