Local schools, cities say budget plan isn’t good, but it could have been worse

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• Dayton was right that budget would bring pain

When state legislative leaders and Governor Mark Dayton last week bridged part of a $1.4 billion gap in a budget compromise by delaying payments to schools, they essentially borrowed the missing money from the state’s school districts.

The fact that the state authorized a $50 increase in the per-pupil allotment from the state was good news to school districts; however, some may end up spending the promised extra money on loan interest. By delaying $700 million in payments, the state will force most school districts to borrow money simply to pay the bills.

Feedback from local school districts is mixed, with superintendents admitting that the outcome wasn’t good, but it could have been worse.

The two biggest consequences from the state budget agreement for Cloquet are cash flow and inflation, Superintendent Ken Scarbrough said.

“The state will delay school aid payments at least $5 million,” said Scarbrough. “This 40 percent delay of state aid will drastically affect our cash flow, will lower our interest on investments and likely will increase our costs for borrowing. 

“Our district will be owed an additional $ 50 per pupil in state funding, but that was done to cover the cost of the delayed state aid payments. This means that our school district has seen about five years of flat funding from the state while our costs have been rising.  Energy, equipment, supplies, purchased services and personnel costs have all been increasing.”

Although the federal stimulus funding delayed the impact of flat funding and inflation, the stimulus funding has gone away.

Esko Schools Superintendent Aaron Fischer explained the way state funding happened for schools as recently as three years ago.

“We used to get 90 percent of our [state] revenues throughout the year and then the state would do a ‘cleanup’ payment when we go the final student numbers for the year,” Fischer explained. “Last session the state switched that 90 percent/10 percent equation to 70/30, withholding more money through the year so they could keep that money and earn interest on it. After the latest session, they’ve changed that to 60/40.”

That means the state will pay school districts only 60 percent of their expected state revenue throughout the year, and withhold 40 percent until said cleanup period.

“That [withholding] last year caused us to do a line of credit during months when we didn’t have enough cash flow,” Fischer said. “But because we carry a fund balance in Esko, it caused minimal problems and only a few very short-term loans with minimal interest. This year may be different.”

In Esko, that may mean longer-term loans or “aid anticipation borrowing,” a type of borrowing in which the district borrows money to pay its bills with the understanding that the loan will be paid back when the aid arrives.

If it arrives.

“No, we have not yet seen the 30 percent from last year,” Fischer admitted.

Neither Esko nor Cloquet is planning cuts yet in response to the budget – in part because they had to submit their budgets for the next school year to the state by July 1, well before the budget was passed – but Scarbrough said the Cloquet School Board is considering possible operating referendum questions in November to deal with the triple whammy of flat funding for schools, delayed payments and rising costs.

Things are likely worse for school districts that were already borrowing to make ends meet, Fischer noted.

“It was probably the best that could come out of these difficult financial times,” said Fischer. “But, wow, they are leaving schools vulnerable.”

Cloquet expected the worst, so OK

According to Cloquet City Administrator Brian Fritsinger, the city budget planned for more cuts.

“The actual reduction in aid is about the same as we saw last year,” Fritsinger said, noting that the state eliminated $70,000 in Market Value Homestead Credit and cut Local Government Aid (LGA) to Cloquet by about $490,000. “It’s what we expected and we had worked that into the budget.”

However, he added, Cloquet was also supposed to get an additional $250,000 in in LGA, which also isn’t coming.

On the bright side, if local voters agree, the legislature passed a local option sales tax of half a cent for Cloquet, which would apply to any purchases currently taxed by the state except vehicles.

That would have to be approved by voters, however, in the 2012 election, Fritsinger said. If approved, he said the extra sales tax could generate between $650,000 and $750,000 each year.

“It’s designed for capital projects, like park improvements, utility improvements, trails, things like that,” Fritsinger said, adding that the any sales tax revenue could not be used for regular city operating expenses.

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