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State delays aid payments to schools

Minnesota officials turn to schools as the state's bank this spring.

The state will run out of money in March and April, and the Pawlenty administration says it needs to borrow money from schools to pay the state's bills.

The state sent school superintendents a notice Tuesday saying it will delay its payments to about two-thirds of the districts.

The $423 million delay is needed because the state will not receive enough revenue to cover its obligations, officials said.

The administration promises to repay the money on May 30, when tax revenues are expected to increase enough to cover the state's needs.

Detroit Lakes Public Schools will see the largest delay, with $2.5 million not coming in. Frazee-Vergas will see a delay of nearly $900,000, while Waubun-Ogema-White Earth's delay amounts to $585,000.

Lake Park-Audubon will not have any funds withheld.

Detroit Lakes Superintendent Doug Froke said the district hopes to "weather the delay."

Districts across the state faced a June 15 payday for teachers to cover salary for June, July and August as teacher payments are spread over the year.

The newest delay is on top of $1.8 billion in school payments Gov. Tim Pawlenty ordered to be delayed over the next two years to help balance the ailing state budget.

Some school leaders say they may have to take out short-term loans to cover the spring delays.

Education Commissioner Alice Seagren said the state had no option under law other than to borrow from schools.

"State law requires school district payments to be delayed in order to avoid short-term borrowing," Seagren said.

The amount of each district's payment that is delayed is determined in part by the size of financial reserves the school has on hand. Districts with the least money will receive normal payments, while some districts will get partial payments and some will get no money at all.

The delay will not affect Lake Park-Audubon, as the district has $1.1 million in cash and investments, with $575,000 in short-term debt.

LP-A Superintendent Dale Hogie said at a school board meeting earlier that the delay in aid payments might be the best of several bad options. The worst would be outright aid cuts.

It would also indirectly hurt school districts if the state opted instead to borrow on the open market to pay its bills -- that would lower the state's bond rating, making it more expensive for all state entities, including school districts, to borrow money, Hogie said.

Other area superintendents could not be reached for comment Wednesday morning.

Tuesday's action means delayed payments for 231 of the state's 341 districts.

"It's a tool in their toolbox," Froke said.

Besides school payments, the Pawlenty administration will delay $53 million to the University of Minnesota system, and postpone corporate and sales tax refunds for up to 90 days.

School districts may appeal the delay.

"Districts were really dumbfounded," said Grace Kelliher of the Minnesota School Boards Association.

While the law was passed to allow the state to borrow from districts with money in the bank, Kelliher said, in many cases that money is committed.

One in five districts may have to borrow to cover the delays, Rep. Mindy Greiling, DFL-Roseville, said.

Since payments will be made up in May, the delays do not help the state budget deficit.

Froke said the state might face the same type of cash crunch this time next year, leading to more state aid delays.

Rep. Dean Urdahl, R-Grove City, said there is not much the state can do.

Some Democratic legislators plan to introduce a bill to overturn the law that forces state leaders to delay payments when cash runs low.

"It is wrong to balance the budget on the backs of our students," an agitated Sen. Chuck Wiger, DFL-Maplewood, said.

(Don Davis reports for Forum Communications Co. )