If the announcement that the state is paying school districts back the bulk of the millions they had borrowed made you assume your school district would soon be rolling in money, you are probably not alone.
Recently, the news media reported that on June 30 the state ended fiscal year 2013 with a $636 million positive balance in the general fund. As the result of a provision passed by the Legislature earlier this year, that entire amount had to be used to pay back money borrowed from school districts. With Anoka-Hennepin School District being the largest district in Minnesota, you would naturally expect it to get a big payment.
Unfortunately, that’s not exactly how it works. The borrowing was really a delay – or shift – in when the state paid school districts. Instead of making payments on the normal schedule, the state shifted a portion of the payment until the following year. This helped balance the state’s budget during a time it was plagued with deep deficits, but it created a cash flow problem for some school districts.
It meant districts had to borrow money in order to pay salaries and other expenses on time. Anoka-Hennepin had to borrow each year for three years. It was able to invest the amount borrowed and earn interest on it until it was actually needed to pay the bills. The interest earnings partially offset the cost of borrowing. Overall, the tax shift cost Anoka-Hennepin approximately $322,000 over the three-year period.
So, as the state pays back the shift, it simply means that it will give school districts the money due them on time rather than later. It does not mean they get additional revenue. It does mean they won’t have to borrow to pay the bills. That will save Anoka-Hennepin about $100,000 in interest costs annually.
Another piece of good news reported in the media is that the school district received increased state aid so the board could reduce the annual property tax levy by more than $6.3 million. This is, in fact, great news for taxpayers and we appreciate the efforts of our local legislators to provide this money for tax relief. It is not, however, money that can be used to pay teacher salaries and lower class size.
While paying back the shift and providing tax relief are welcome, they do not provide money that districts can use to cover the inflationary costs of operating schools and educating students. These costs increase by about 3 percent per year. When the Legislature set its funding levels for this school year and next, it provided an increase of about 1.5 percent per year in what is known as the basic aid formula. That’s the biggest share of the total state funding pie. The state also provided money for such things as mental health grants and all-day-every-day kindergarten. Again, this revenue is good for students, but it has to pay for new programs, rather than cover inflation on basic expenses.
So, when our expenses increase 3 percent per year and our revenue increases only 1.5 percent per year, it means the district will have an operating deficit. Our general fund budget is just over $430 million, which puts the projected deficit around $6 to $7 million for the current year. As the result of measures to reduce spending in the past, such as closing schools, Anoka-Hennepin has a fund balance to cover the deficit. The school board decided to spend down part of the fund balance rather than make cuts to balance the budget this year.
Next year, the district will face another deficit. By the end of this current fiscal year, our fund balance will drop to about 8.9 percent of expenditures, which is within recommended guidelines of 5 to 15 percent. However, continuing to spend the fund balance is not sound financial management, reducing expenditures is. We are already developing plans to make cuts in order to balance the budget.
The school board has stressed the importance of making cuts as far away from the classroom as possible so they do not directly impact students. That is our plan. We are taking a close look at ways to reorganize to come up with a less costly model of providing some of the central support we provide to our schools. We wanted you as local citizens to know the reasons for our upcoming reductions at a time when you are being told we received a “windfall” from the state. I have made this point before – what the state spends for education is not always what we get locally.
Dennis Carlson is the superintendent of the Anoka-Hennepin School District.