James Warden
Posted: Friday, January 15, 2010 12:26 am

Second- and third-grade teacher Molly McGovern Wills (left) helps Signe Hauck pick assignments for the elementary schooler’s portfolio Thursday at Prairie Creek Community School.

Cannon River STEM School was all set for a smooth opening this school year. Planners were conservative in spending and had secured federal grants to start up charter schools.

But they couldn’t have anticipated Gov. Tim Pawlenty’s decision to withhold nearly three times as much money from schools as the state normally does. Cannon River can now expect to receive several thousand dollars less than it had budgeted for the year. The school has secured a line of credit and expects to borrow money to get through until state money catches back up.

Cannon River isn’t alone. Schools from Northfield to New Richland and Waseca to Blooming Prairie are reeling from earlier, more long-term holdbacks — even as they learned this week that Pawlenty wants to delay further payments a couple months in order to balance the state’s books.

“Certainly, there have been better years to open a school,” said Executive Director Nalani McCutcheon.


Shifting times

Holdbacks are actually part of routine business. In normal times, districts receive 90 percent of their state money at the beginning of the year and 10 percent after the school year. This is done in order for payments to reflect accurate student enrollment throughout the year.

But after July 1, districts will get 73 percent of their money at the beginning of the year and the remaining 27 percent in 2011. Even those types of shifts aren’t unheard of, though. The state enacted payment shifts in 1983, 2002 and 2003 and eventually repaid all those deferrals.

However, previous shifts weren’t as large as the current shifts, said Brad Lundell, executive director of Schools for Equity in Education. Lundell recalls the initial payments as being no lower than the high 70 percent-range.

“This is the largest it’s ever been,” he said.

More significantly, there is no automatic payback requirement as there was with previous shifts because Pawlenty used his unallotment powers to eliminate the money from the state budget — effectively transforming the shift into a cut.



The unallotments are under legal challenge. A Ramsey County District Court ruling declared his cuts to a food program illegal, which would have implications for the rest of his unallotments. Pawlenty is appealing that decision and has asked for a speedy review, but the situation remains murky.

Lawmakers could help clear up the confusion. The Legislature could ratify Pawlenty’s shifts, which would trigger the provisions governing how to “unshift” money after a payment shift that are already in state law.

The governor has asked lawmakers to do this. At first blush, the prospect of success would seem to be good because lawmakers included a shift in the budget that the governor vetoed. Yet the Legislature’s shift was offset by a tax increase that DFL lawmakers say is necessary to balance the budget, and some say the two measures can’t be separated.

The details of the shifts could be worked out by the courts if the lawmakers don’t make a decision, which would leave schools with an even more uncertain future. Even if the Legislature approves the shifts, payments could be delayed years until the budget is in the black again. And there’s the possibility that lawmakers may simply cancel them altogether if they can’t find the estimated $1.7 billion needed to pay for them.

“There’s a lot of pieces on the board, and (payment shifts are) one of the pieces that’s being moved around,” Lundell said. “Really, what it is is we’re the state’s credit card here, and the state is using us to borrow.”



Problems on the ground

The effects of all this wheeling and dealing can have monumental impacts at the ground level. Owatonna Public Schools made $2 million in adjustments, including cutting positions, to balance its budget so it wouldn’t have to borrow to get through the year, said Dianna Groskreutz, the district’s controller. Similarly, Blooming Prairie Public Schools made $300,000 in cuts, said Administrative Secretary Nancy Clark.

“We’ve got to the point that we can’t go any further on staff,” Clark said.

Other districts are taking out loans to get through the year, which costs money that could be spent on students. Waseca Public Schools borrowed $3.3 million at .8 percent interest, said Business Services Director Elizabeth Beery. Low rates like that will only increase as the market improves. Even at that enviable rate, the district will pay about $27,000 in interest.

“That $27,000 is very close to (the cost of) a teacher,” Beery said.

Many of the districts that don’t expect to borrow are arranging lines of credit just in case. And pretty much everyone expects savings to dip down to zero before the state returns the money.

“The budgets are just so tight this year,” said Colleen Mertesdorf, Faribault Public Schools’ director of finance and operations.

Charter schools face travails beyond those of traditional public schools. They pay higher interest rates because they don’t have levy powers or buildings that can serve as collateral for a loan (the buildings they use are either leased or owned by an affiliated building company). Prairie Creek Community School Director Caroline Jones expects to pay 7 percent to 7.5 percent interest if her school needs a loan, which it likely will.

Charters also typically haven’t built up the reserves that the public school districts have. This can force them to undertake deep cuts. Discovery Public School in Faribault reduced its reading program and cut its arts and music program because they aren’t mandatory. Students actually need one year of arts and music to graduate, said Jim Severson, the school’s director. Discovery could get by with cutting that program this year because students have been taking it each of the past four years, but it will need to eventually offer it again.

Even Prairie Creek Community School, which built up a 23 percent reserve over five years before the holdbacks, froze all salaries, Jones said.

“We were poised like we were on the top of the mountain and then all of a sudden this comes. It makes me so angry and sad,” Jones said.



Limited ways to respond

State mandates compound the difficulties schools have responding to shortfalls. Districts can’t cut teacher positions if they don’t make those cuts by April, said Kevin Wellen, superintendent of New Richland-Hartland-Ellendale-Geneva Public Schools. Because staffing constitutes 80 percent to 85 percent of NRHEG’s budget, as it does for all schools, that means the district may have to find any savings in the 20 percent of the budget that is still on the table.

“The reality is, for the remainder of the year, there isn’t much we can cut,” Wellen said.

Districts are also barred from making any cuts in certain areas like social work — even if enrollment drops, Groskreutz said.

That’s had very uneven effects across the state, she said. Districts that didn’t have many social workers saw very little change, while those, like Owatonna, with social workers in almost every school, were stuck with high staffing levels.

Lawmakers did temporarily ease other restrictions, including allowing districts to divert money not usually directed to the district’s day-to-day operations. But officials say they need more freedom to take such emergency measures.



Uncertain future

As bad as the delay and the accompanying cash-flow problems is the uncertainty of what is going to happen. Business departments are gaming the various scenarios to give their boards an idea of what to expect.

Even the best-case scenarios are dire. Lawmakers will have to iron out a $1.2 billion deficit this year, and forecasters predict a $5.5 billion deficit for the next biennium.

“The next two years are even more daunting,” said Tom Stringer, business director for Northfield Public Schools. “This is going to be a long process to get through this.”

Lawmakers could be tempted to save money by not returning the amount deferred — especially the 17 percentage-point difference they kept this year. Waseca, which already cut $1.3 million since fiscal year 2009 and failed to pass a referendum, would have a hard time getting by if the $3.9 million it is owed disappeared.

“I don’t even want to think about that right now,” Beery said.

Wellen, the NRHEG superintendent, thinks this is unlikely because politicians know the difficulty schools would have trimming the budget with the prohibitions against cutting employees midyear.

But even if the state gives back the full 27 percent, Lundell said schools may not be made whole because lawmakers could change the base formula on which those percentages are based. The base amount has stood at $5,124 per student since the 2008-2009 school year, said Mertesdorf, the Faribault director. A drop of $50, less than 1 percent, would cost the district $200,000. Anything beyond that, and the district would likely have to look into cuts.

Lawmakers have until the 2011 session to restore the money because the shift isn’t due to be repaid until that summer. McCutcheon said she understands if the state needs to make cuts; it’s a recession, after all. But schools need to know what’s going to happen so they can start their own planning.

“Every structure of the state is going to have to relook at how things happen,” she said. “(But) cuts have to be measured, and we have to know in advance that they’re going to happen.”


— Reach Staff Writer James Warden at 333-3127.