A debate between Governor Dayton and the Legislature over how quickly to reverse the school funding shift has put the spotlight on the proper role of the state’s budget reserve.
We have all heard how policymakers opted to delay $2.7 billion in payments to school districts, using those funds to help solve recent budget deficits. Following state law, $313 million of the surplus reported in the February forecast was used to begin to repay these delayed payments. Any future surpluses will continue to restore the shifted payments. According to current projections, it will take an additional $2.4 billion to return the school payment schedule to normal.
The Legislature wants to repay schools sooner rather than later. Earlier this week, the House and Senate passed a K-12 education omnibus bill that included just one provision – using $430 million from the state budget reserve to buy back more of the school payment shift.
The state budget reserve exists to stabilize the state’s financial situation during an economic downturn, as well as to help manage day-to-day cash flow issues. Minnesota currently has $658 million in the reserve – less than two percent of the state’s $33.8 billion biennial budget. Minnesota Management and Budget, the agency that oversees the state’s finances, recommends that we keep $1.3 billion in our budget reserve to properly manage revenue volatility.
Citing concerns that using two-thirds of the state’s budget reserve to pay back schools would undermine the state’s “newly achieved fiscal stability,” Governor Dayton vetoed the K-12 education omnibus bill today. He argued that state law determines that “fully funding our reserves is our highest priority” and should be funded prior to other commitments, including repaying the school payment shift.
With the state facing a $1.1 billion projected deficit in the FY 2014-15 biennium, policymakers should recognize the importance of maintaining adequate levels of reserves to respond to economic changes.