DL will have to borrow for cash flow: Crunch time for schools
School districts across the state have some hefty summer homework as they assess how the budget deal will affect their bottom lines.
The Minnesota legislature used schools to help close the state's budget deficit by once again delaying payment of money promised to them.
The education bill, signed on July 20, gives the go-ahead for legislators to delay $780 million in aid to schools, bringing that total up from last year's delayed payment to $2.2 billion.
What was once a 90-10 plan (meaning schools received 90 percent of their state aid for the year right away and 10 percent the following year) has now shifted to 60-40, and that 40 percent delayed payment has educators frustrated
"Schools have become a bank for the state," said Detroit Lakes Superintendent Doug Froke, "and we're giving them a pretty good deal."
Froke says the Detroit Lakes School district will now be forced to borrow money to make it through next year.
"We'll be fine up until April when we start preparing for our teacher payout in June," said Froke, "That's when our payroll is just short of $3 million for the month, and we won't have enough to cover it."
Froke says he doesn't know exactly how much they their budget shortfall will be until they get more information from the state.
"We haven't gotten a debt-flow simulation from the state yet, so it's hard for us to know, either," said Froke, who did say a very early, rough estimate of their budget shortfall would be around $550,000.
Borrowing money means also having to pay interest on it, but Froke says a new provision in the education bill will help offset expense to the schools.
"They're not directly giving us money for the interest, but they are increasing the per-pupil funding formula by $50 a student," said Froke, "So that will help offset the cost of interest."
But while the Minnesota legislature is shifting money back and forth to temporarily balance the budget, Froke says once they use the school system to do it, they set off a chain of events that go beyond the next school year.
"As it goes, we'll be borrowing in the 2012-2013 school year, but once the cash position drops, then it's dropped and you're always starting operations without cash."
The impact of this cash flow problem is multiplied when the district is unable to make money on interest from the bank.
"It used to be when we had the payment shift of 90-10, the DL school was able to make just short of a quarter of a million dollars annually in interest alone," said Froke, "Now we get zero, and although interest rates contribute to that problem, if there is no money in the bank, you can't make interest on it."
If the state of Minnesota makes good on its growing debt to the schools and re-instates a higher ratio of timely aid, the cash-flow problem goes away for most schools.
The problem is, not all educators trust that they will ever see that money.
"You're darn right I'm concerned," said Froke, "They (legislators) are in so far now. How easy will it be for the state to solve its problems by simply not paying the money back? If we didn't get this money and somehow managed, they might start to think it's not that much of a hardship for us and so it becomes standard operating procedure."
Froke says the best line of defense for schools now is its parents.
"We need them to write their legislators and really emphasize that they need to pay the money back."
Froke says right now, the district will do its best to minimize the effects on students, but says balancing the budget on the backs of kids will eventually take its toll.