State withholds payments to schools to pay the bills

by Tom Weber, Minnesota Public Radio

St. Paul, Minn. — School districts across Minnesota got word Tuesday that the state will withhold some of their funding in coming months.

Withholding payments will free up some of the state's cash so it can pay its own bills. Today's action is in addition to more than $1 billion in delayed payments to schools that were announced last summer.

School districts get their funding from the state in the form of twice-monthly payments.

Today's move means both payments in March and one in April will be smaller than expected for many districts.

State finance officials predict they won't have enough money in the bank during those months to meet their cash flow needs. So, the state will hold back a total of $423 million from schools. All of it will be paid back in May.

The borrowing is also limited -- only those districts that have built up the largest cash reserves will have money withheld. More than 100 districts will not be affected at all.

"It's unfortunate," said State Education Commissioner Alice Seagren. "We'd certainly would not like to have this happen, but it should not have too big of an impact on school districts."

Among those districts that will be affected are Minneapolis, which will take the biggest hit at nearly $49 million, and St. Paul, which will see $28 million withheld.

Michael Baumann, St. Paul's chief business officer, said there were no plans to borrow money short-term to meet cash flow needs this year, until now. That will result in unplanned interest payments of as much as $75,000.

But, in a district with a $640 million budget, Baumann calls it "completely manageable."

"At $75,000 we should be able to adjust our expenditures through the rest of the year to capture that and to deal with that," Baumann said.

The state's largest district, Anoka-Hennepin, is among those that won't have any money withheld because its reserve is too small.

This new move comes in addition to a different kind of payment delay the governor imposed on schools last summer. That shift moves some funding for all districts into the next fiscal year, and some lawmakers and education officials have said they're worried that money might not be paid back.

Ever since the state released its most recent budget forecast in December, Gov. Tim Pawlenty has signaled that schools were no longer safe from budget cuts as they have been in the past. Just last week he reminded districts during a press conference that a delay is better than a cut. That sentiment was echoed today by superintendents, including Northfield's Chris Richardson.

"A short-term borrowing in this way, where we know that at least the money will be repaid to us by the 30th of June, is still far better than a cut," Richardson said.

That point was conceded by a group of four Democrats who held a press conference this afternoon to criticize this move. The bigger problem, said Rep. Mindy Greiling, DFL-Roseville, is that it's not the long-term solution that's needed to fix the state's budget.

"We should not be skating on such thin ice at this point, with the deficit we have," she said. "If we have to take these technical corrections - borrow from the kids one more time - something is very wrong in the entire budget process."

State Democrats also said today that they'll try in coming weeks to repeal the law that was used to make today's payment shift possible. Tuesday's action was actually the first time the law had ever been used in more than 20 years it has been on the books.

A spokesman for the governor said Pawlenty would entertain ideas on changing the law, but doesn't favor eliminating it entirely as an option.