School payment shifts work in Minnesota during economic down turns, because the state and schools are use different accounting systems. MREA has joined other education associations opposing accelerating the repayment of the shift beyond current law. Dennis Peterson, superintendent of Minnetonka Public Schools, recently provided a clear explanation why the payment shift works and the importance of delaying the repayment of the shift in an Op Ed published in the Minneapolis StarTribune Feb. 23.
His explanation is as follows:
I have no desire to take a partisan position in my efforts to bring clarity to the issue. My interest is solely in describing the value of the shift to school districts and the importance of delaying repaying the shift. This can actually get funds to school districts throughout Minnesota that can be used to pay for teachers and programs essential to our future.
I am aware that the use of a payment shift is widely misunderstood and demagogued as an “accounting gimmick or trick.” That is very sad, because it has been one of the most important tools used by legislators and governors of both parties to avoid deep cuts in funding to schools. It is very likely that all school districts in the state would have suffered deep reductions to funding that would have translated to serious staff and program cuts for our students and communities without implementation of the “payment shift.” Nearly every other state in the country was forced to reduce education funding during the past five years. As our leaders wisely used tools available to them, including the payment shift, Minnesota spared their schools and the students in them that pain.
The payment shift is a very simple issue, but has been mischaracterized and misunderstood over the years. Basically, the payment shift and property tax shifts are possible because the State of Minnesota uses a cash basis of accounting and school districts use a modified accrual basis of accounting. In the cash basis, expenditures (like state aid) are recognized when they are paid. In the modified accrual basis, revenues are recognized when they are earned (like the state aid earned by districts). So, a payment shift occurs when the school districts earn their revenue and account for it in one fiscal year and the state pays some of the money due to the school districts in the next year. There is no less revenue for the school districts in this situation; it is just a cash flow issue.
School districts have not had less money during these years than they would have had without the shift; they just received it somewhat later than the year in which it was earned. In fact, I believe we would have all received much less money had the shift not been made to enable the state to get through the difficult last five years. If anyone doubts that, they need to articulate where the state would have cut the budget by the $2.888 billion dollars involved in the payment shift in order to have had a balanced budget.
The payment shift is not “balancing the state’s budget on the backs of school children!” Schools are receiving their earned funding, but it is just delayed a few months. The amount owed to school districts is not “owed to our children!” It will be paid in due time under any scenario. For those districts that have had to borrow for cash flow purposes, the minor cost has been offset by the important gain in maintaining the funding already in place.
Every school district in the state has suffered during the recession because they did not receive much for increases in funding. As our economy begins to rebound, now is the time for the state to provide school districts with more funding they can actually spend on teachers and programs for students. Frankly the one percent increase in the formula proposed for the next year and nothing on the formula the following year is hardly adequate for schools. Paying back the shift will provide nothing more to school districts that can be used for teachers and programs! Now is not the time to pay back the shift. School districts need money they can use to improve learning for our students.
Dennis L. Peterson, Ph.D.
Superintendent of Minnetonka Schools