Thursday, January 14, 2010

Soo-prize! Soo-prize! Soo-prize! Gomer Pyle probably sums it up best here because I don't know if there's a more appropriate thing to say (or a more appropriate person--real or fictional--to say it) after finding out that there is yet another way in state statutes to mess up the cash flow of school districts. At Wednesday's Legislative Commission on Planning and Fiscal Policy, Commissioner Tom Hanson of Minnesota Management & Budget unveiled the latest discovery by the administration, a nugget put into law in 1986 in Minnesota Statutes 127A.46 as a temporary measure to deal with cash flow problems the state was experiencing. Rather than let the provision lapse, it was made permanent during the 1987 legislative session and has just remained there without garnering much attention. Until now, of course.
The thing that must be stressed here is that this is not a cut to the education funding base. That's about the only good thing that can be said about it. The provision requires that school aid payments be delayed if and when the state is in the position to short term borrowing problems burrowing into school district fund balances in the process. As in the case of the change in the aid payment shift, the state is once again using school districts to balance its cash flow issues. Not to sound cheeky, but why should we be expected to educate kids when we are doing such a good job as a bank?
As it has been explained to me, the state will likely withhold three payments to school districts (March 15, April 1, and April 15) and begin paying back school districts what they have borrowed from them, with full repayment of the borrowed portion made by the end of the fiscal year. This does not change the 73%/27% payment schedule that the Governor enacted through executive action last June. I look at it this way, much like Shakespeare placed a "play within a play" in Hamlet, state government is putting a "shift within a shift." Alas, poor cash flow. I knew it well.
Here are a few of the particulars. Dr. Tom Melcher has prepared an Excel worksheet outlining the maximum amount a district's cash flow could be affected due to this provision. The total revenue available to the state when the formula outlined in this provision is approximately $950 million. The state's cash flow needs are estimated to be about $550 million, or slightly less than 60% of the $950 million figure. Districts with fund balance per pupil of $350 or less are exempt from the provision and will not have aid withheld. About 90% of school districts have fund balances in excess of $350 per pupil (296 or 341) with the state average sitting slightly above $1,000 per pupil unit.
Fund balance politics have always been dicey for school districts. At least this is a great improvement over the fund balance reduction that was in place during the 1980s. Many of you may recall that fund balances could not exceed $500 per pupil unit without a district being subjected to a revenue reduction during that era of state budget woes. It is maddening beyond belief though that anyone would have the temerity to criticize school districts for carrying fund balances given the uneven path of school funding since 2001. Let's go over a quick review.
  • 2001--Nice increase with $415/PU roll-in.
  • 2002--Nice increase for second year of the biennium and no reduction after the economic downturn.
  • 2003--Zero.
  • 2004--Nada.
  • 2005--Four Percent.
  • 2006--Four Percent.
  • 2007--Two Percent (Big money into special education).
  • 2008--One Percent (Money into special education).
  • 2009--Zilch.
  • 2010--Zip (at best).
  • 2011--Goose Egg in all likelihood.
  • 2012--Flat-line.
In other words, more ups-and-downs than the biggest roller coaster at ValleyFair. Who could blame a school district for putting a little money away, especially given the latest economic downturn and the uphill battle a number of districts will face when it comes to renewing or adding to their referendum levies. But, smacko! Why bother employing sound financial practices when you are going to get punished for it?
I will be posting an abbreviated version of the spreadsheet prepared by Dr. Melcher on the SEE website, hopefully by this weekend. The spreadsheet will simply give two numbers: (1) a district's current fund balance per pupil unit, and (2) the maximum amount of reduction a district could suffer under MS 127A.46.
This latest fracas is making me so excited for the session to start (where's the sarcasm emoticon when I need it?). My guess is the relationship between the Governor and the Legislature will be about as cozy as the Leno-O'Brien squabble and is going to last a lot longer.

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