State will delay aid payments to two-thirds of school districts

ST. PAUL -- 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 $423 million from schools to pay the state's bills. The state sent school superintendents a notice Tuesday saying it will delay aid payments to 231 of 341 districts in March and April.

The 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.

"State law requires school district payments to be delayed in order to avoid short-term borrowing," Education Commissioner Alice Seagren said Tuesday in a prepared statement.

The law gave the state no other option, according to Seagren.

The state used a formula that takes into account the size of undesignated reserves and the amount of reserve funds per student. Districts with the least money in the bank will receive normal payments, while others will lose all or some of their March and April payments.

Brad Madsen, superintendent of the Lac qui Parle Valley and Dawson-Boyd school districts, has been a superintendent since 1983, and "I have never known this to happen to schools," he said.

"These are extraordinary times," Madsen said. "You can't expect the usual to happen." He worries that the Legislature may cut aid in other ways when it is in session this winter and spring.

School districts need reserves to maintain normal cash flow, said Madsen. Dawson-Boyd will not have any payments delayed, but Lac qui Parle Valley will have to wait for $913,147.

"We've got to hope they've calculated this so it won't cause the district huge problems," Madsen said.

Paynesville Superintendent Todd Burlingame expressed a frustration echoed by other school officials: "You do the best you can, and then you're being penalized."

Burlingame said he is sure that his district will have to take some action to weather the delay of $672,014 in aid payments. The options are to establish a line of credit or cash in investments early to cover any temporary shortfall. "We can't be bouncing checks," he added.

"I have mixed emotions on this," said Renville County West Superintendent Lance Bagstad, who is trying to look at "the big picture" of the state's needs too.

"I understand what they're trying to do, but this is going to affect us," he said. RCW will have to wait for a total of $521,112.

Bagstad said school officials were working on a cash flow analysis to see if the district would have to borrow money to maintain cash flow. "It's going to be close."

In Willmar, the delayed payments will total $938,738, which is about two-thirds of the March 15 payment. Initial reports of the delays indicated that Willmar could have to wait for $3 million or more in aid, so the lesser amount is relatively good news, said Business and Finance Director Pam Harrington.

Harrington said Willmar should be able to get through the delay without borrowing. If the numbers change before March, though, the district may have to use an existing line of credit, she said.

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

School districts may appeal the delay, but they must meet certain conditions to do so.

"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 payment delays, Rep. Mindy Greiling, DFL-Roseville, said.

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

Rep. Dean Urdahl, R-Grove City, said there is not much the state can do other than to delay payments.

"It is a good news, bad news situation," he said, adding that the districts will be repaid soon.

"I don't know what the ramifications will be," he added.

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.

Davis reports for Forum Communications Co. Mila Koumpilova of The Forum of Fargo-Moorhead contributed to this story.