How schools will be affected by aid payment shift

The budget agreement reached Thursday makes some fundamental changes in the way the state funds public schools. Gov. Mark Dayton had already proposed delaying 30 percent of school payments as part of the budget he presented in February.

This new plan delays 40 percent of payments, meaning schools would only get 60 percent of the funding they've been promised during this fiscal year. The remaining 40 percent will be paid next fiscal year, an accounting shift that lets the state's books appear balanced.

The largest short-term impact on Minnesota school districts involves their cash flow. State payments to schools vary each month for several reasons. To have even more of the payments held back has, in recent years, forced districts to take out short-term loans as they run out of cash on hand.

School officials say the interest paid on those loans, and other costs related to setting up proper financing, is money that goes to bankers instead of classrooms.

To blunt the effect of this larger delay, the proposal also includes an increase in the per-pupil funding formula, a move aimed at boosting overall spending to districts enough to cover the costs of financing.

Charlie Kyte, who lobbies on behalf of school superintendents, says he shares the desire to end a government shutdown, but more borrowing won't fix the problem.

"What this does is delay the problem, so that two years from now we're going to be sitting in the same kind of spot," said Kyte. "The I supose the solution at that time will be to borrow a little bit more from the schools."

The state has used this delay before to make the state's budget balanced on paper. However this would be the largest, by far. The previous record was 30 percent, which was the delay for the fiscal year that just ended.

Education officials say this budget agreement showcases a paradigm shift in the use of delayed payments. Payments to schools have traditionally been delayed at lower levels, such as 10-15 percent, and there was fairly universal agreement that those smaller delays were actually a proper move from a bookkeeping standpoint, given how fluid the numbers can be that are plugged into an education funding formula.

In the past decade, there's been a shift in the use of those delays -- away from a more routine bookkeeping move to a new "solution" for filling budget deficits.

In FY 2003, 17 percent of payments were delayed. That number increased to 20 percent in FY 2004, and fell back to 15.7 percent in FY 2005. Then, in FY 2010, 27 percent were delayed, followed by last year's 30 percent and the latest plan of 40 percent.