Governor's budget spares K-12, but cost shifts remain

The Governor’s K-12 Supplemental Budget proposal is both the easiest to understand and the most complex.

The easy part: The proposal does not cut state aid to local school districts. The complex part: The budget requests the legislature ratify the Governor’s 2009 unallotment decisions, including $1.8 billion in shifts to education spending.

The Governor’s proposal puts the legislature in a difficult spot. Some have argued that the Governor overstepped executive authority in making the unallotments. Yet ratifying at least part of the K-12 unallotment plan would reduce next biennium’s deficit and clarify a somewhat murky situation.

The $1.8 billion in school payment shifts actually have two components: the School Aid Payment Deferral and the Property Tax Recognition Shift. Here’s how they work.

Shift No. 1: School Aid Payment Deferral

The state staggers its school aid payments for any given year over a two-year period. It’s called the “90/10″ formula. Prior to unallotment, districts got 90 percent of their aid in the current year, and the remaining 10 percent in the following year.

Unallotment changed the formula. It reduced the school aid paid in the current year, shifting costs forward to the next year. (It went from a 90/10 split to 73/27 split.) In the short run, it reduced the amount of money the state had to pay to school districts in FY 2010, saving $1.2 billion. While schools get the money eventually, such a shift can create cash-flow problems for districts.

Because unallotment only applies to the FY 2010-11 biennium, the shift is only temporary. The state budget forecast assumes the state will revert to the 90/10 school aid formula in the next biennium, which would require the state to make a catch-up payment, a one-time, $1.2 billion expense.

The Governor’s budget proposes leaving the 73/27 formula as is and continuing the shift. It would reduce the projected FY 2012-13 deficit by $1.2 billion. Putting the formula shift into law this session could clarify when the state intends to pay back the shift. But given the size of the FY 2012-13 deficit, it’s hard to see where the resources will come from anytime soon.

Shift No. 2: Property Tax Recognition Shift

Similar to the State Aid Deferral, the Property Tax Recognition Shift creates a one-time savings. It requires school districts to count a portion of their property taxes earlier than they used to. (For example, part of the property tax revenue school districts would have counted in FY 2012 under the old rules now gets counted in FY 2011.) This accounting change inflates school district budgets in FY 2011, allowing the state to reduce its aid payments to schools. The shift saved the state $600 million in FY 2011 under unallotment.

Unlike the aid payment formula change, the property tax recognition shift is assumed to be ongoing – it will continue unless the legislature acts to change it.

Some E-12 cuts, new spending

The Governor’s Supplemental Budget proposal would cut the Department of Education by $1 million this biennium, part of the standard departmental cuts (3 percent of unspent FY 2010 funds and 3 percent of FY 2011 funds). The Perpich Center for the Arts gets cut $390,000. The proposal also adds $360,000 of new spending, primarily for data collection and rule making related to academic standards and teacher/administrator preparation.

Funding for early childhood programs will be covered in a later blog. The bottom line is that the Supplemental Budget makes minimal cuts to early childhood programs funded through the Department of Education, but some significant cuts in early childhood programs funded through the Department of Human Services, notably Basic Sliding Fee Child Care.

-Scott Russell

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