UPDATE: Morris Area will have $475,000 in aid delayed
and Sun Tribune report
ST. PAUL -- The Morris Area School District will have almost $475,000 in general aid delayed as the state copes with its current cash shortage.
Gov. Tim Pawlenty's top finance officials told lawmakers they were considering the payment delays this spring because revenues flowing into the state could fall short of being enough to pay for bills.
Morris Area Superintendent Scott Monson said the district is one of 231 districts of the state's 337 that will have payments delayed. The delay will start in March and go through April with an estimated maximum of $474,801 in aid payments delayed from the State until May or June, Monson said.
The projections further show that Morris Area we will receive 0 percent of its regular March 15 aid payment and only 44 percent of its regular March 30 payment. The regular payments should begin again on April 15, Monson said.
"We are being told the amounts that are delayed will be paid in full on May 30," Monson said. "We will use this revised information from previous delay estimates in our cash flow projections to determine if there is a need to borrow additional funds to cover cash flow. If that appears to be the case, then we will need to explore options that are available, including a short-term line of credit."
The delay is in addition to the state already having put into place a shift in percentages for aid payments. School districts had received 90 percent of their General Education Aid during the school year and the other 10 percent after the school year. However, Gov. Tim Pawlenty shifted the percentages to 73 percent during the year and 27 percent after the school year. With Pawlenty's unallotment of school payments last year and substantial overall deficits looming, there is some concern districts won't receive their 27 percent unless the Legislature reinstates the funding.
The current year deficit is set at $1.2 billion, and the state could be facing an additional deficit of $5.4 billion for the next biennium.
"These are interesting times," Monson said.
District's at times have to borrow money to cover cash flow requirements until state General Education Aid payments are received. Morris Area had to borrow about $1.35 million to cover cash flow, Monson said.
The state was basing their delayed payments on whether districts had a certain amount of undesignated fund reserves per student.
In a meeting almost two weeks ago, DFL legislators complained about the possibility of delaying more school payments.
"It is not just robbing the school districts, it is slapping them in the face for being fiscally responsible," Rep. Mindy Greiling, DFL-Roseville, said.
All or part of state payments to schools in March, April and May could be delayed until June. State law exempts from delays a handful of districts with small budget reserves. School districts already are forced to borrow money, and pay interest, just to keep budgets in the black because the state is delaying other school payments due to Pawlenty's summer budget actions.
Last summer, Pawlenty delayed $1.8 billion in school payments as part of a $2.7 billion budget-cutting action. Since then, the state learned it faces another $1.2 billion deficit and a still deeper deficit is possible. The delays schools learned about Tuesday are on top of earlier delays.
The state sent school superintendents a notice Tuesday saying it will delay its payments to about two-thirds of the districts. The $423 million delay is needed because the state will not receive enough revenue to cover its obligations, officials said.
The administration promises to repay the money on May 30, when tax revenues are expected to increase enough to cover the state's needs.
The newest delay is on top of $1.8 billion in school payments Pawlenty this summer ordered to be delayed over the next two years to help balance the ailing state budget.
Some school leaders say they may have to take out short-term loans to cover the spring delays.
Education Commissioner Alice Seagren said the state had no option under law other than to borrow from schools.
"State law requires school district payments to be delayed in order to avoid short-term borrowing," Seagren said Tuesday in a prepared statement.
The amount of each district's payment that is delayed is determined in a large part by the size of financial reserves the school has on hand.
Districts with the least money in the bank will receive normal payments, while some districts will get only partial payments and some will get no money at all.
Besides school payments, the Pawlenty administration will delay $53 million due to the University of Minnesota system and will postpone corporate and sales tax refunds for up to 90 days.
School districts may appeal the delay.
"Districts were really dumbfounded," said Grace Kelliher of the Minnesota School Boards Association.
Several superintendents pointed out that in a sense the state is penalizing districts that have been prudent enough to set aside a healthy fund balance.
"We are a conservative school district that has built a fund balance," said Warren Schmidt, interim superintendent in Breckenridge, which faces a delay of about $305,000, or 40-plus percent of its March and April aid. "Now we're basically going to be punished for that. What's the lesson here?"
Moorhead Assistant Superintendent Wayne Kazmierczak said the action "just seems like another gimmick and not the way for the state to solve its budget issues."
While the law was passed to allow the state to borrow from districts with money in the bank, Kelliher said, in many cases that money is committed.
One in five districts may have to borrow to cover the payment delays, Rep. Mindy Greiling, DFL-Roseville, said.
Since the payments will be made up in May, the delays do not help cut the state budget deficit.
Rep. Dean Urdahl, R-Grove City, said there is not much the state can do other than to delay payments.
"It is a good news, bad news situation," he said, adding that the districts will be repaid soon.
"I don't know what the ramifications will be," he added.
Some Democratic legislators plan to introduce a bill to overturn the law that forces state leaders to delay payments when cash runs low.
"It is wrong to balance the budget on the backs of our students," an agitated Sen. Chuck Wiger, DFL-Maplewood, said.
Sen. Terri Bonoff of Minnetonka and Greiling said it is not likely that they can overturn the law in time to avoid this spring's delays, but an even worse financial situation is expected for next school year, which could mean several months of delays, they said.
"My fear is this sort of delayed payment will happen again next year, and it will be a greater delay," Kazmierczak said.
Don Davis of Forum Communications Co. and the Sun Tribune contributed to this report.