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Governor Pawlenty Leaves Schools Holding the Bag

July 22, 2009 By John Fitzgerald, Education Policy Fellow

Gov. Tim Pawlenty's "no new taxes" pledge is a sham. His decision to shift school payments from one year to the next will increase regressive property taxes for most Minnesotans.

Faced with a $6 billion budget shortfall, the governor decided to write each school district IOUs. It works like this: Each school district gets most of its funding from state taxes. Several years ago, the state started sending only 90 percent to districts one year, then 90 percent plus the previous year's 10 percent the next year, and so on.

Earlier this month, Pawlenty changed it to a 73 percent-27 percent shift, a move he says will save $1.8 billion. This change forces districts to either cut the 27 percent of their budget they won't receive until next year - 17 percent more than they had budgeted - or borrow the money through bonds and loans.

Either way, schools are now deciding who is going to suffer the brunt of Pawlenty's decision: Students through diminished services or taxpayers through greater property taxes. School officials, as one would imagine, are averse to diminishing student education. Therefore, they're looking at other forms of income.

Here's what you might not have known: The state legislature gave school boards the ability to buy bonds without voter approval if the board approves the bonds before Oct. 1. That means the governor effectively fobbed a tax hike onto property taxpayers with school boards left holding the bag.

Consider these recent developments:

The Buffalo-Hanover-Montrose school district will sell $10,850,000 in bonds to cover the cost of "other post-employment benefits," or what it pays to retirees for insurance and severance benefits.

Currently, the district uses a "pay-as-you-go" system, each year budgeting $700,000 for those benefits. By buying the bonds, that $700,000 is unencumbered in the budget to pay for school uses. It is expected that the property taxes on a $200,000 home would be increased $52 per year.

The Red Wing school district is considering a similar shift.

 "With state aid frozen for two years and great uncertainty over the state's ability to fund education after the freeze, our district is examining ways to stretch our general fund to support current and future educational programming," Red Wing superintendent Stan Slessor wrote recently.

"Without bonding, the district needs to cut at least $500,000 from its 2010-11 budget and hold that cut over the next four years. This would leave the district with a negative $500,000 balance at the end of the 2013-14 school year."

He noted that the bond will coincide with the retirement of two previous bonds, which should keep property taxes stable.

The Marshall and New Prague school districts will take out general obligation aid anticipation certificates of indebtedness to combat Pawlenty's shift. Marshall will finance $5 million, New Prague $3 million.

Meanwhile, the Bemidji School Board will borrow $9 million to cover the funding shift.

Bemidji School District superintendent Jim Hess said the money will be used in increments, withdrawn only when needed. The School District will also have to pay interest fees from the borrowed money.

 "It feels like a rug was just pulled from underneath us by the governor," said Chris Leinen, the district's director of business services.

 "I find it very troublesome," said Bemidji board member John Pugleasa. "I think it's important for parents and teachers and taxpayers to understand that a portion of dollars that they work hard to produce is going to go toward paying interest of a loan that we didn't ask for," he said.

The officials in Bemidji are correct. The governor's rigid "no new progressive taxes" mantra has left students and property taxpayers on the hook. We're paying more and getting less.

Renewed state investment in our students will make Minnesota stronger than we already are. IOUs, payment shifts, and forced property tax increases send us in a spiral toward mediocrity.

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