School payments may be delayed

Millions of dollars in state payments that area school districts expected to receive this spring may be delayed until the end of June, school administrators learned Wednesday.

Sen. Paul Koering, R-Fort Ripley, said from his St. Paul office he sat in on a presentation by the state's management and budget commissioner on Wednesday and the news wasn't good.

Commissioner Tom Hanson outlined the state's cash flow problems and said Minnesota may delay payments to schools that would have been received in March, April and May, until the end of June.

The amount of money that would be delayed varies by district. Koering said the proposed estimated maximum reductions he learned of include Brainerd School District, $5.8 million; Crosby-Ironton School District, $1.2 million; Little Falls School District, $1.9 million and Pequot Lakes School District, $2.7 million. Koering contacted several area school district officials Wednesday to let them know about the possibility of delayed payments.

"This is a very, very serious problem," Koering said. "This is going to affect everyone and it's going to affect school districts. To me, any district that gives any increase in wages or increases its budget at all, I think down the road is going to be in a sorry state of affairs. I just think it's fiscal irresponsibility. I'd like to caution all the cities, counties and school districts, now is the time to be fiscally responsible and also say that the unions that are negotiating, especially Education Minnesota, that we're in for even more difficult times ahead."

Contacted Wednesday night, Rep. John Ward, DFL-Brainerd, said he had not yet heard of the latest reports of possible delayed payments to school districts and had not had time to research the matter yet.

"I do know as we continue to move payments back ... that's going to impact kids' education," he said. "Anything that short-changes our students' educational opportunities is a concern to me." The proposed further delay in state aid payments is the last thing Steve Lund, director of business services for the Brainerd School District, wanted to hear this week. He received a call from Koering Wednesday about that real possibility.

"It puts us in a bit of a predicament," said Lund. "It shifts the burden of borrowing from the state level to the school districts. Our board has built up that fund balance to preserve our level of education and at the same time, I have our legislators telling us to brace ourselves for a cut. I'm thinking, you're penalizing those districts that have diligently tried to build a reserve balance."

Koering said he didn't think school districts with reserves were unfairly penalized.

"There are very few school districts that don't take a hit," he said. "For the most part, everybody is feeling the pain."

Ehlers and Associates, the Brainerd district's financial advisers, sent an e-mail to its school districts about this additional payment delay. In that e-mail, it said that this little known statute has been on the books since 1986 but has never been implemented. This delay will affect 296 of the state's 341 districts and the state total of the maximum amounts for all districts would be more than $943 million.

Lund said the district, like all districts, previously received 90 percent of its state aid reimbursements the year the expenses were incurred with the remaining 10 percent reimbursed the following year. That was before Gov. Pawlenty's decision last year to delay state aid payments on a 73/27 percentage shift.

If the state solves its cash flow crisis by delaying payments to districts, Brainerd schools' payments will be eliminated for half of April and all of May at a cost of $5.86 million. The statute requires the state to reimburse districts for that delay by June 20. Lund said the district's estimated maximum payments from the state that would be delayed includes a $2.13 million payment on March 15, a $2.57 million payment on March 30 and a $1.15 million payment on April 15.

The district currently has an unreserved fund balance of about $6.6 million. The district's monthly expenses average about $5.6 million but because of its payroll structure for its teachers, the district's June expenses are about $11 million. It's the district's biggest monthly draw in cash flow.

Lund said the school board will need to immediately borrow funds so it won't experience a cash flow shortage.

"This is why the additional shift is very concerning, even though the statute states that the state has to have it made back up by June 20, it puts us in a very difficult position over halfway through our operating year," said Lund.

"Obviously it's a very real, live indication that we're not out of this," Lund said of the recession. "I don't know if it's necessarily improving if our state is basically running out of money that they have to further delay payments to meet their cash needs - Wow. I've preached to the board more and more - I may eat crow and I hope I do eat crow - but we have to position ourselves to absorb cuts here."

And the Brainerd School District may lose $200,000 if a teacher contract agreement is not reached by Friday.

Lund said, "No contract, no money. It's one thing after another."

Lund said about half the school board is out of town this week attending a state school board convention in the Twin Cities and there has been no talk of renewed negotiations or meetings with Education Minnesota Brainerd, the district's teachers' union. The district will forfeit about $200,000 in state appropriations if it does not settle and approve a ratified teachers' contract by midnight Friday. It does not appear like this will happen.

Koering said Minnesota is facing a $1.2 billion deficit for 2010 and a $5.4 billion deficit into the 2010/12 biennium.

He expressed disappointment the Democratic majority in the state Senate had not voted along with him to remove from law a penalty on school districts of $25 per student if contract agreements are not reached by Jan. 15.

Commissioner Hanson had indicated in the meeting Koering attended that the state was in danger of running a negative cash balance in the month of April. Koering emphasized the seriousness of the current fiscal crisis.

"When the state of Minnesota doesn't have enough money to pay the obligations they have I think all units of government and school districts should sit up and take notice," Koering said.

MIKE O'ROURKE may be reached at mike.orourke@brainerddispatch.com or 855-5860.

JODIE TWEED may be reached at jodie.tweed@brainerddispatch.com or 855-5858.