Student Opportunity Gaps

State Finished in Black: School Cash Flow Improves to 90/10

By October 6, 2013 No Comments

By Sam Walseth, MREA Lobbyist

When campaigning last fall, the soon-to-be newly elected House DFL majority promised voters they would repay the school aid payment shift in full. This was a big promise and a daunting task, both fiscally and politically. Over $2.1 billion had been borrowed from schools through the “Great Recession” to help balance the state’s books.

Before they took office, the payment schedule sat at 60/40, meaning almost half of what was due to schools would be paid in “catch up” payments the following year. However, a swift economic up-turn last year generated substantial cash that made it into the state’s coffers. By last spring, school payments improved to about 85/15.

Capitol insiders were stunned at the turnaround. Most predicted it could take years, if not a decade to repay that amount of money to schools.

Going to 90/10

While an 85/15 schedule has been the norm through the 1980’s and early 1990’s, current law calls for a 90/10 payment schedule to schools.  The 90/10 schedule has been difficult to maintain. DFL and GOP majorities alike have used shifts through the 2000’s to balance the budget – a fact that many GOP legislators are still fuming about. They took so much heat for utilizing this budget tool in the wake of a $6 billion deficit when they had the legislative reigns in 2011.

To make good make on their campaign promise, House DFL leaders had proposed a one-time income tax surcharge on top earners to repay all of the loans to schools. The Governor and Senate DFL leaders were cool to this idea. Advocates for spending state dollars wanted any new revenue to go into back filling cuts and new programs instead of repaying loans.

Surplus to Schools

The income tax surcharge fell off the table in leadership negotiations at the end of session last May, but the House DFL secured language in the E-12 bill saying that any surplus funds after the state closed its books on the fiscal year ending June 30, 2013 would go to repay any remaining school loans.

A week ago the state reported that it had closed the books on the last biennium with a surprising $636 million on the bottom line. Now $287 million of that will be distributed to schools on their regularly scheduled October 15 payment. This will restore the payment schedule to 90/10.

In addition to this, the remaining $349 million of the surplus will take a sizable bite out of the less known and understood property tax recognition shift. The remaining debt to schools now stands at $238 million, which is all due on the property tax recognition shift.

If the December budget forecast shows a projected surplus, the property tax recognition shift has statutory first dibs on those dollars. There will be a lot of pressure to spend money next session in a supplemental budget bill or to cut or eliminate some of the new taxes stemming from the 2013 Tax bill, but not before schools receive every last penny owed to them.