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PAYMENT SHIFT: Politics, Reality & First Bill

By January 19, 2013 No Comments

The school payment shift was a hotly contested issue in the last campaign cycle with House DFLers pounding on Republicans for their decision to utilize a large shift to help balance the current budget.  Memories must be short as both parties have use payment shifts to balance previous budgets when they were in charge. In fact, payment shifts can be a preferable option given other choices including permanent budget cuts. With their election victory, House DFLers feel compelled to follow through with their campaign promises and made the first bill of the new session, HF 1, one that would accelerate school from their current 82.5 percent current year level to 90 percent starting in the next school year (July 1, 2013).

What’s history?
The 90 percent percent current year funding threshold is the more recent normal for the payment schedule, however an analysis of the last 30 years of school finance shows the average current year funding level to be about 84.1 percent.  From 1983 to 1996 the payment schedule was 85/15.

A recent state budget update shows an increase in state revenues of $114 million for the current year. Current law stipulates that if the $114 turns out to be a surplus (spending changes over the last two months could cut into this revenue) then it must be used to accelerate school payments.  It costs the state about $71 million to accelerate school aid payments by 1 percent, therefore, $114 million would accelerate an additional 1.6 percent and the current 82.5 percent would go to 84.1 percent.

What will this bill do?
HF 1 will require about $425 million in new revenue from the state to schools under the current budget forecast.  HF 1 does not include repaying the property tax recognition shift which would cost another $636 million under the current forecast.  Senate DFL leaders and others believe current law is working sufficiently to accelerate school district cash flow to the 90 percent level.  The House DFL will use repaying the shift to 90 percent next year to support their efforts to generate new state tax revenue.

What are we supporting?
MREA is supporting state tax reform including greater sales tax collections to support education and wants to see those tax collections invested in not just cash flow improvement, but a variety of initiatives including many in the Education Finance Reform report.