Thursday, June 30, 2011

Where We're at Right Now. We're eight hours away from state government turning into a squash (I'd say pumpkin, but Judge Gearin's ruling made sure we didn't get all the way to pumpkin status) and there's still not a budget agreement. While the sides have been meeting and a quorum of legislators is present and ready to convene if a the Governor and legislative leadership reach accord on the budget.

The scenario remains the same as has been reported with regularity in the press. The Republican Legislature refuses to go beyond $34 billion in biennial spending, while Governor Dayton wants to spend $35.8 billion. Briefly, the base budget for the coming biennium--the budget that would be in effect if the Legislature and Governor were not to reduce any expenditures--is approximately $39 billion. The Legislature has proposed to continue the state aid payment shift for education at $1.4 billion in the first year of the biennium and then bridge the remaining gap with spending cuts of $3.6 billion. The Governor has agreed on the shift, but wants to split the remaining $3.6 billion of budget gap evenly with $1.8 billion in cuts and $1.8 billion in tax increases, particularly an income tax increase on Minnesotans who make in excess of $150,000 ($250,000 for couples).

It's really difficult for me to say what happens next. The closed-door meetings may be generating progress, but it's hard to tell from the statements being given to the press by legislators and gubernatorial staff whether this progress (if there is any progress) is meaningful. The Governor has said that he will not call a special session unless there is an agreement and one thing I am relatively certain of is that that agreement will be signed in blood (figuratively, but I can't say that for certain). There is no way the Governor calls a session without an agreement because once the session begins, adjournment lies solely in the hands of the Legislature. In other words, they could use their own bully pulpit of sorts and take the discussion in any direction they so wished. Given the average Minnesotan's disappointment with how things have transpired thus far this year, that would be a high-risk maneuver on the part of the Legislature, but nothing would surprise me at this juncture.

Judge Gearin Ruling. I referenced Judge Kathleen Gearin's ruling from Wednesday in the first part of this entry. While there weren't any earth-shattering surprises in the ruling, there was good news for school districts, as Point 21 in her ruling holds that the Minnesota Constitution calls for the maintenance of a general and uniform system of public education, making that system essential. From this language, it has been determined that the three open-and-standing funding streams that are available to school districts throughout the state will continue to flow. These funding streams are:
  • General Education Revenue
  • Debt Service Equalization
  • Property Tax Aid and Credits
The revenue from these three funding streams comprise nearly 80% of the state revenue school districts receive. The other angle on this is that the payment schedule for state aid to school districts will revert to the 90% current year/10% subsequent year schedule that was in place prior to the changes made in the past couple of years to distribute the aid on a 70%/30% schedule. The change to the 70%/30% schedule was not codified as statute, meaning that the payment schedule reverted in the absence of legislative action to extend the 70%/30% framework. Ironically, it's the one place where the Legislature and the Governor agreed.

One of the odd effects here is that school districts' cash flow won't change much as a result of the return to the 90%/10% payment schedule. Seeing districts are slated to receive 90% of 80% of their revenue, the resulting percentage is 72% (it's actually a bit higher). 70% of 100% is 70%. The problem, of course, is that the subsequent year "catch-up" payments will be far less as the base is being reduced. In other words, it's not a good deal. An Excel spreadsheet showing the aid amount going out to each district in the first round of payments will be up on the Program Finance section of the Minnesota Department of Education webpage tomorrow.

The primary revenue categories that will not be funded as a result of the shut-down and the decision by Judge Gearin not to classify them as essential state services include special education, integration revenue, community education, adult basic education, and early childhood and family education. There will undoubtedly be a challenge on the special education revenue. In her ruling, Judge Gearin--in Point 22--wrote that the federal government has supremacy over the state in terms of intergovernmental compacts and I believe it can be argued that in order to make good on its part of the compact created by federal special education law, the state will have to expend special education revenue at a level that ensures maintenance-of-effort requirements outlined in federal law are being met. Now, I'm not an attorney (although I was accepted into law school at one juncture in my life), but I think this point would at least appear logical.

What's Next? It's anybody's guess. I've always believed that if this didn't get taken care of relatively early in the wake of the session's adjournment, the curiosity (and belief on the part of both parties that they would win the toss in this game of political football) about what a shutdown would look like and how Minnesotans would react would simply be too great a temptation to forego. In a philosophical sense, one can't prove the negative and if both sides ardently believe they are going to "win" in the event of a shutdown (or have responsibility for the "loss" apportioned more to the other side), everyone needs to point to a reality of what a shutdown actually entails.

My advice is stay tuned to the major news outlets. If an iron-clad agreement is reached, the possibility exists that a "lights on" bill could be passed in a matter of hours and that the 22,000+ employees who won't be showing up for work tomorrow will be back on the job immediately upon passage. That would leave a few days to put the major agreement together and that could be passed in a one-day session. Even if the votes are lined up, there will still be an opportunity for foot-dragging and contentiousness, although my guess is Minnesotans wouldn't look kindly on dragged-out proceedings.

I'll be watching closely as well and will provide you with pertinent information as well.

Job Well Done by MDE. I want to take some time to recognize staff at the Minnesota Department of Education who have met with the education lobbying community three times over the past two weeks getting us ready for the possible shutdown. MDE Communications Director Charlene Briner has been leading these meetings and has done a marvelous job in this effort. Other MDE staff members who have contributed mightily are Tom Melcher, Rose Hermodson, Brian Shekleton, and Christina Gosack. Thanks are in order for their very hard work during these difficult times.

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