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School Finances on Decade-Long Starvation Diet

March 10, 2010 By John Fitzgerald, Education Policy Fellow

For nearly a decade, Minnesota's leaders have kept education on a starvation diet. This diet has caused a desperation of spirit in our education system. Insufficient funds have forced schools to make bad choices just to provide their constitutional guarantee of an education for our children. Four-day school weeks, draw down of reserves, skyrocketing class sizes, continued cuts in the workforce, an ever-growing reliance on local levies--all evidence of starvation and desperation.

Here is a look at the state of Minnesota school finances.

Riding the wave of state financial surpluses in the late 1990s, Minnesota lawmakers cut back on property taxes and promised to fully fund education, leaving local property tax levies for any "extras" an individual district might wish to offer.

By 2003 the state had gone back to being cash-starved and to balance the budget, Gov. Pawlenty cut school funding. Since that time, any increase in school funding either met inflation or, in most years, was less than inflation providing no growth at all. Between 2003 and 2011, state aid for education has dropped 14 percent.

Let's say that again. Since 2003, the state has cut spending on schools by 14 percent.*

Schools tried to make up that 14 percent deficit via voter-approved property tax levies. The process left many districts bruised after difficult elections and widened the gap in education quality between the few districts in property wealthy areas and the many in property poor areas.

Remember, schools are supposed to be funded at about 90 percent by the state, 5 percent by the federal government and 5 percent by local taxpayers. Today, the feds still pay for about 5 percent of education while the state pays for about 75 percent and the locals try to make up the rest.

Not only are Minnesota schools underfunded by  the state, they're also subject to accounting gimmicks and shifts as the Governor tries to balance the budget on cuts alone.  For example, schools don't actually get their full financial allotment each year. A percentage is pushed off into the next year. Since about 2003, schools receive 90 percent of their aid one year and 10 percent the next, giving the state a savings the first year with the promise that the school budgets will be made whole sometime down the line.

To balance the budget last spring, Gov. Pawlenty changed that 90 percent/10 percent shift to a 73 percent/27 percent shift. Schools had planned on not receiving 10 percent, but they had to scramble last spring to find an additional 17 percent to cut out of their budgets. Conceivably, schools will someday receive 127 percent of their budget and be made whole, but that day is not likely to dawn soon.

Another interesting tidbit: To save money this spring, the state withheld several aid payments to those schools that had any financial reserves. This allowed the state to pay its bills with money that should have gone to schools, and caused schools to either spend down their reserves or take out loans - and pay interest and fees - to pay the bills the state is supposed to pay.

In addition to being simply bad policy, this financial slight of hand also punishes those districts that had been able to maneuver through rough financial terrain by causing them to drain their rainy day accounts only because the state's budget policies are out of whack with Minnesota's needs.

And then there are unfunded mandates, the largest of which is special education. The state and federal governments require special education but refuse to pay their share for it. Funding caps leave the state about $141 million short of its obligation. The federal government is about $270 million short of its obligation.
Add 'em up: That's $411 million that goes to special education students. If the state and federal governments paid their bills, then that would be $411 million that could go to early childhood education, or dropout prevention, or narrowing the achievement gap.

Is there hope for the future of education in Minnesota? We're taught that there's always light at the end of the tunnel, but we're going to have to make some very unfortunate choices until we get there.

*Minnesota 2020 uses the implicit price deflator (IPD), rather than the consumer price index (CPI), to determine inflation. The state Council of Economic Advisors prefers the implicit price deflator to determine the true cost of government. While the CPI measures household inflation, goods bought by state and local governments are different and require a different measure of inflation. For more information on the IPD, go to this Minnesota 2020 story, or visit this site for an interactive table with IPDs. Line 57 in this table is the "state and local" IPD.
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