At the heart of the bill is the decision to bring the aid payment shift back to 70%/30% from the 60%/40% aid payment schedule that was part of the agreement reached last July to bring the stalemate between the Governor and the Legislature to an end. Given the uptick in the last two state budget forecasts, the shift is scheduled to be readjusted to 64%/36% if no legislative action is taken this session, as the budget reserve and the cash flow account are now at their statutorily-required levels and the remaining "excess" in the projection would go toward buying back the shift.
The House bill goes one better, taking over $400 million from the budget reserve and using it to put the aid payment schedule at 70%/30%. This would obviously be better for schools, at least in the short run, as the need to employ short-term borrowing would be alleviated, albeit only slightly. The rub is that once the aid payment schedule is set, the state would find itself in a tighter cash position and may need to short-term borrow. Given how the economy has been performing as of late and that is not likely, but the borrowing shoe would be on the state's foot instead of school districts.
Minnesota Management and Budget Commissioner Jim Schowalter appeared before the House Education Finance Committee and expressed his concern that the House approach could jeopardize the state's financial position and that makes this a dicey scheme. I don't disagree with the Commissioner's "macro" argument, but why should local units of government constantly serve as the credit card for the state. Don't get me wrong, it's hard to complain about aid payment shifts when the alternative is a cut in the funding base and a real loss in dollars, but school districts have been jerked around quite a bit over the past couple of decades and the state doesn't seem to readily recognize that.
The whole debate brought me back to when the budget reserve was first created back in the early-1980s during the string of special sessions that tried to remedy on-going budget issues that plagued the state. While the consensus was established early that a budget reserve was necessary, there were some who viewed the maintenance of a fund outside "active" budget as showing a lack of fiscal discipline and a form of confiscatory taxation. Their argument was that if the budget were cut to a level that would accommodate an economic downturn, there would be no need for a budget reserve. Of course, a lot of those folks wanted to stem the intake of revenue by dramatically cutting taxes, which has as much to do with putting a budget into balance as the level of spending. But the question remains, should over half a billion dollars be held in abeyance in the event of an economic downturn or other tax collection/spending outflow issues that put the budget at risk.
Whether or not the aid payment schedule changes, this is another angle from which to gaze upon the budget process. The budget reserve, cash flow account, and education aid payment schedule are all budget reserves of a sort. The amounts or (in the case of the aid payment schedule) percentages are set as part of the budget discussions and then things go on auto-pilot until either the next session or budget cycle. Through this proposal, the House is suggesting that positive action be taken to change the "mix" of the various budget reserves. While this may not put the state into fiscal quicksand, it (as I stated earlier) would change the dynamic between school districts and the state in terms of who may be on more solid footing.
Part of this is political posturing, but that doesn't encapsulate the entire argument. There is a deeper issue at play in this discussion and I hope the fact that the Legislature and the Administration are of different political stripes doesn't dull that conversation. It is a topic worth discussing.
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