At last night’s school board meeting, Minneapolis Public Schools Chief Peggy Ingisson explained that these budget shifts represent significant impacts to school districts. These are cuts and shifts over the next two years. While the Governor explained that “The overall impact of these reductions will be to have state governments live on about 96 or 97 percent of what it’s living on right now.” the impacts to MPS and other schools districts will be much more severe. In year 1, 80% of the impact of the $1.7 billion reduction will fall on the backs of schools. There are two mechanisms that reflect these accounting shifts:

Delayed Payments: Already, schools receive delayed payments in state funds. Today, 90% of what a school is due to get from the state funds comes in a year and another 10% is paid in the following year. The accounting shift will mean that payment schedule becomes 73% for the year and 27% for the following year.
Property Tax Recognition Shift: Additionally, the state budget shifts are in the form of a “property tax recognition shift.” That means the state will retain a greater share of the resources it collects from local property taxes. This component of the plan will result in a 10% to 15% budget reduction to the MPS district, and likely comparable for school districts across the state.

Together, the school aid payment schedule and the property tax recognition shifts will mean a 25% to 35% funding reduction in state aid to the MPS district. Given state funds amount to more than half of the district’s total revenue source, this will require some dramatic actions by MPS and possibly other school districts across the state. These include:
– The schol district will be required to initiate some short-term borrowing to fill the amount that is being withheld in delayed payments by the state. The most damaging part of this is the threat to the district’s strong bond rating. Strong bond ratings mean low interest rates, and something the district has prudently managed and earned. But without a clear plan from the state as to a sense of if and when these funds will actually be repaid, the district bond rating will suffer and the cost of money will rise. There are no funds in the state budget to cover this burden in higher interest borrowing rates MPS will bear.
– The district will be required to tap into its reserves. The MPS district has resisted to this point to tapping the reserve fund. But the extent to which these funds would need to be tapped is more extreme than is to be expected for such a fund. So even though that fund exists, it can only help with a portion of the problem. And like dipping into a savings account, once it’s gone, it’s gone. And it does erode financial stability and credibility in the bond market.
Pushes the district leadership to very seriously and immediately at right-sizing the district in its Changing Schools Options plan. This means cutting programs, closing schools and reducing transportation and choices.
– Need to consider some wage concessions in its contract negotiations with teachers and principals.
– Need to be serious about considering cost savings that emerge from its revised Changing Schools Options plan.

Just to be clear, Governor Pawlenty’s budget actions do not hold public education harmless.

Steve Kotvis
Minneapolis