Minnesota officials need cash to pay the bills, and they’re dipping into the pockets of Pine City schools to get it.

On Jan. 26, it was announced that the Pine City School District will have roughly $1.55 million in payments delayed for the months of March and April. Pine City is just one of 231 school districts throughout the state which will have payments delayed, making a total of $423 million that the state will borrow until May.

According to district officials, these delays account for all of the state aid that would have been received in semi-monthly payments of $519,993 on March 15, $630,204 on March 30, and $404,801 on April 15.

The state has reported it will be repaying these funds on May 30.

Education Commissioner Alice Seagren said that the state is taking this step as an emergency measure before taking out short-term loans, and noted it is mandated by law. “If ... modifications in the state aid payment schedule to school districts would reduce the need for state short-term borrowing, the state must first use its authority to delay state aid payments to school districts ... before engaging in state short-term borrowing,” Seagren wrote in a letter to school districts.

Triple-hit

Pine City School Superintendent Dennis Fischer said the payment delay could have been worse. “Originally we were looking at a $2.5 million hit, which would have really caused some pain for us, because we would have had to go out and do some short-term borrowing – and that would have killed us.”

However, Fischer also noted that this is the second instance of the state withholding funds from the schools. “It’s really a double hit for us, because the state is already withholding $1.7 million from us with the promise to pay it back next year,” Fischer said. “Now this is on top of that.”

The combined payment delays come to a total of $4.2 million. “Our fund balance is $3.1 million,” explained Fischer. “You take the $1.5 million they’re withholding now and the $1.7 they’re withholding receivable for next year, and our fund balance is gone.”

Further, the school district has already had its budget cut by close to a million dollars.

“We’ve heard that Pawlenty wants to hold schools at stable funding,” Fischer said. “What that means, we don’t know, because we were already cut. He says that school districts haven’t been cut, [but] I can show you the sheet of paper that shows a one-time reduction of $954,000 for Pine City schools. That was made up partially by the federal stimulus dollar, but that’s only short-term money – there’s no promise it’s going to continue next year.”

Long-term impact

For now, the district has no plans to make cuts. “The short term state aid reduction is not going to affect students, because we have a fund balance.” Fischer declared.

He said that the school district stands to lose about $1,500 in interest because it will be using cash that would otherwise be invested.

But in the long term, the lack of stable state funding will cost the district plenty. “We can’t do long-term planning with cash in investments,” said Fischer. “Our cash flow is going way down, so therefore when we’re looking at money sitting in the bank, we can’t invest it. We have to keep it liquid. We used to get about $100,00 more in interest earnings. Now that’s being eaten up. We’re missing out long-term, and that’s not the way we’d like to operate.”

Better bond rating helps schools

Fischer pointed out the silver lining of the financial cloud – borrowing from the schools will help keep the state’s bond rating solid.

“One reason I’m not totally against what the state is doing, is because if the state has to do a lot of short-term borrowing, Minnesota’s bond rating goes down,” said Fischer.

A lower bond rating means the state pays a higher interest rate when it borrows funds for road projects, new buildings and so on – and those higher costs get passed on to Minnesota taxpayers.

Further, a lower state bond rating would raise the price tag on any new construction projects in the school district. “Our bond rating piggybacks off of the state,” explained Fischer. “So what’s bad for the state is bad for us. In the short term, we lose out on a little bit of interest; in the long term, it’s not a great way to operate schools, but it’s better than a situation where our bond rating goes bad.”