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3.1.10 Update - This Week at the Capitol
On Tuesday, the state will receive an update on the budget situation. The March forecast is the first update since last November’s forecast showed the state had a $1.2 billion deficit for the remainder of the current biennium. Indications thus far point to little change from the November figure, but there are still concerns about a further decline in state revenue.
The legislature will review the forecast information this week and are still a ways off from providing a comprehensive budget solution to the Governor. There is speculation that the legislature will attempt to solve the deficit through several rounds of budget cutting legislation. If they go this route, the first budget cutting bill will include about $217 million in cuts to state agencies and the higher education systems. The second round would involve several hundred million in cuts to the health and human services systems. The third round would include cuts and possibly deeper payment shifts to the K-12 system. There is speculation that this bill wouldn’t have the votes to pass and would lead to a budget stalemate.
In the meantime, legislative committees continue to review individual bills. Check out this week’s schedule to see what the education committees are up to.
SCHOOL TRUST LANDS: A CALL TO ACTION
Most Minnesotans have never heard of School Trust Lands. We know our income taxes pay for the state’s education system, and people have a keen sensitivity to property tax statements and local school levies. But few of us know anything about the lands set aside in the state constitution that deliver tens of millions of dollars to our schools every year.
Because few people know about this important resource, we aren’t getting as much out of the lands as we should. Less public scrutiny over School Trust Lands means less oversight and less revenue for our students. That’s why, on behalf of our students, the Minnesota House of Representatives is encouraging the state’s education community to get informed.
What Are School Trust Lands?
More than 2.5 million acres of land and an additional 1 million acres of mineral rights were set aside when Minnesota became a state. Today School Trust Lands are managed by the Minnesota Department of Natural Resources. Revenues earned from those lands are invested by the State Board of Investment and are constitutionally dedicated to be used for schools. Tens of millions of dollars earned on those lands are spent in classrooms every year, in every corner of Minnesota.
How Do the Lands Earn Money?
The interest and dividends from the Permanent School Trust Fund generated $27 million in 2009. Revenue is generated from many activities, including sale of timber, wild rice leases, mining leases, state forest campground fees, lakeshore leases, easements across state trust land, utility licenses, the sale of a few parcels of land, and several other types of surface use. In addition, revenue is generated from rents and royalties on taconite iron ore removed from the land.
How Does This Benefit Students?
Revenues from Minnesota’s School Trust Lands are deposited into the Permanent School Trust Fund. Interest and earnings from the Permanent School Trust Fund are distributed directly to Minnesota school districts. Those funds provide resources for learning supplies, teacher salaries, building maintenance, school curricula, and everything that makes Minnesota’s schools among the top- performing, most rigorous schools in the country.
What Can You Do To Help?
Efforts are already underway to improve management of our School Trust Lands. Legislation passed in 2008 improved oversight of the Permanent School Trust Fund and resulted in an additional $33 in new ongoing funding for every student in Minnesota.
Working together, for the sake of our students, we can and must do more. I strongly encourage you to keep asking questions, and learn more about our School Trust Lands. But more importantly, I urge you to engage your friends, neighbors, teachers, and local school boards in conversation about what we can do together to more effectively manage this important asset for years to come.
Please contact matt.swenson@house.mn with any questions.
Matt Swenson
Communication Specialist/Writer
MN House of Representatives
Federal Legislative Update
Rural-ness in the USA
Did you know that –
These facts often find their way into the federal legislative discussions. Both sides of an issue revolving around funding and ruralness use these facts to argue their points.
Title I formulas
Many of our formulas use the census count to help derive how much money we received. Since the census uses projections or extrapolations to project how many people live in a county instead of actually counting people, rural areas get hit with an under-count using this method. If you get a chance to share your ideas with federal legislators, tell them we want free and reduced lunch counts used to determine Title I formulas since they more accurately reflect the need in rural communities.
Federal Money – you have to compete for it
There is a growing trend toward federal money being available through grants. This debate is happening regarding the REAP bill and certainly we have seen it with other areas as well. This shift toward competitive grants might not be the best for small / rural districts since we typically do not have the staff or expertise to write extensive grants to access this money. Weigh in on your thoughts with your congressional representative or senator on how this will impact your district.
REAP Bill
If you are one of the many Minnesota districts that receive funding under the REAP bill, this is coming up for reauthorization. We need to continually reinforce the importance of this approach for our smaller districts. Although the date when this will come up for consideration isn’t known yet, we hope that it will be soon.
E-Rate – under fire
E-Rate has always been a bit controversial. The Telecom groups typically don’t like it. They collect about 25 cents a month on each bill. The money collected gets forwarded to Washington and becomes the E-Rate money that schools and libraries access. Today this money is capped at about $2.25 billion with about $4.2 billion in requests from 43,000 applications. This is 3000 more applications seeking $200 million more than was requested last year. There has been some talk of making other entities eligible to access this money. (Community Colleges and Head Start) If that were to happen, there would be even less money to go around. Right now we think things will turn out OK.
There is some Investing In Innovation (I3) grants coming up as part of Race to the Top – but these will be competitive and must align with non-profits and have local matching funds as well. This will be pretty hard for many rural districts because they simply don’t have the potential to have matching funds available or some type of business partnership to assist them. The regulations are not out yet, but it looks like they will be 350 – 400 pages long.
2.22.10 Update - Budget Debate Underway with GAMC Veto
Last week ended with Governor Pawlenty vetoing legislation to partially restore the General Assistance Medical Care program. Pawlenty ended the program by line-item vetoing its $375 million appropriation last June. Pawlenty proposed moving GAMC recipients into the MN Care program last fall. Last week he included this in his budget balancing plan. The change is paid for by eliminating 21,000 current enrollees from the MN Care program.
The Senate would take up any override attempt first, but Majority Leader Pogemiller ruled out quick action on such a move. He said he would give the Governor time to come up with an alternative, but if that doesn't happen, there will be an override vote. The original version of the legislature’s GAMC fix was paid for with Medicare and Medicaid surcharges. The Governor threatened a veto because of the surcharges, so the Senate amended the bill and paid for it with general fund dollars. The House adopted the Senate’s plan and skipped the usual conference committee process for major legislation. House Minority Leader Kurt Zellers commented about the process and suggested a compromise could have been worked out in conference committee. However, 38 of his 47 members voted for the bill. Now the pressure is on to secure at least three of those votes if an override attempt is made. The House GOP will likely support the Governor's veto and the GAMC battle will end up back in the budget balancing mix.
There is a lot of support for saving the GAMC program. 125 votes out of 134 on the House floor makes that clear. However, the vetoed version would have cost the general fund money. The previous version included surcharges paid for by health plans that allow for drawing down more federal health care funds. The HMO’s reportedly are not happy with these options as it would cause cash flow and other financing problems for them.
MS 127.46 and the Shift
About cash flow; the House and Senate education finance committees reviewed proposals to repeal MS 127A.46. The statute will be used for the first time ever this spring to delay cash payments to schools for a short period of time. The current short term borrowing plan seems reasonable, but there is growing concern about the next fiscal year. The state is looking at negative cash flow for almost the entirety of fiscal 2011 (July 1, 2010 – June 30, 2011). Former State Finance Commissioner Jay Kiedrowski testified in support of repealing the statute arguing that the state created the problem and should be the one to take out a loan. He argued that it makes little sense to mess up the books for 340 school districts plus the higher education systems.
In response to the argument that the bond houses would downgrade Minnesota’s credit rating if the state borrowed money, Kiedrowski noted that Moody’s Investors Services’ recently moved to lower the outlook for Minnesota’s debt rating, although they did retain their second highest (Aa1) rating for Minnesota. Minnesota hasn’t been forced into short-term borrowing since 1985, and the loan was immediately paid off then. MS 127A.46 was enacted in 1986.
The education finance committees also reviewed legislation to enact the $1.2 billion of aid payment deferrals Governor Pawlenty instituted through unallotment last June. Rep. Garofalo, a vocal opponent of using shifts, is authoring the legislation to put the deferral plan into statute. He’s doing so out of concern that politics will get in the way, and the next Governor, facing a huge deficit, could simply not repay the deferral and blame Pawlenty for cutting schools well over $1.2 billion. Risking a cut of that size is a high stakes political gamble; one Rep. Garofalo believes the legislature shouldn’t engage in. During both the House and Senate hearings on the shift, legislators commented that it will be very difficult to spare the K-12 budget this time around.
Education, Health & Human Services, LGA and Balancing the Budget
Education advocates often hear frustration from their counterparts representing other spending areas of the state budget. The comments usually revolve around “education getting all of the money” and “education needs to be a part of the solution too.” Both of these comments need to be challenged. For starters, K-12 education has been on a steady decline as a share of the general fund since Governor Ventura’s “big plan”, or school funding takeover, went into law a decade ago. In 2001, K-12 education cost 44% of the state’s general fund, while Health & Human Services programs cost 27%. The forecast for this biennium is that K-12 will cost 37% of the general fund and HHS 33%. If nothing changes, HHS will likely take up a larger share of the general fund than K-12 education in a few years. This is a far stretch from the claim that K-12 receives “all the money” or even a majority of state dollars.
Furthermore, K-12 education is already self-financing a major portion of its entitlements because of the state’s fiscal crisis. $1.2 billion in aid payments are being deferred into perpetuity. The property tax recognition shift saves the state $600 million this year. Another $423 million in aid payments will be delayed this spring with a May 30 payback scheduled. If MS 127A.46 isn’t repealed, schools could see massive payment cancellations in fiscal 2011 and no revenue plan to pay back the loan.
Cities and counties are in a similar situation to schools. Local Government Aid payments have been unalloted in the past, however, cities and counties can levy back a certain portion of unallotments. This budget tool isn’t available to schools, and the idea of giving schools this authority is very unpopular among legislators. If the state isn’t going to give schools a revenue safety valve, they need to be very cautious about actual cuts to education programs. Even in these tough budget times, the public is demanding more of the schools. According to State Economist Tom Stinson, education is the best economic development tool available to states. When you talk to your legislators, remind them of these things and urge them to avoid making cuts in the K-12 budget.
New Legislation of Interest
HF 2944 Greiling; a new version of the MN Miracle
HF 2966 Norton; allowing school to begin before Labor Day, but no school on the Thursday and Friday before Labor Day weekend
HF 3000 Howes / SF 2785 Saxhaug; prohibiting pre-labor day start for Flexible Learning Year programs
HF 3041 Seifert / SF 2575 Frederickson; allow Health & Safety levy to cover costs associated with H1N1 prevention
HF 2994 Nelson / SF 2638 Scheid; allow Health & Safety levy to cover costs associated with H1N1 prevention
HF 3063 Newton; allowing a school board by majority vote to extend an operating referendum
SF 2670 Torres Ray; amending third party billing
SF 2683 Michel; repealing the January 15th penalty
SF 2716 Saltzman; creating a charter school facility commission
HF 3074 Slocum / SF 2757 Bonoff; creating a limited teaching license for new teachers coming from innovative licensure programs
2.15.10 Update -- Governor Pawlenty Releases Budget Balancing Proposal
Governor Pawlenty released his proposal for closing a projected $1.2 billion budget gap for the remainder of the current biennium. At this time, we are seven and a half months into the 24 month budget period in question. His proposal mirrors his state of the state speech. Public safety, veterans and K-12 education were spared cuts. The budget balancing plan relies on cuts to cities, counties, higher education and health and human services programs. The Governor is also relying on the federal government to continue paying 60% of the Medicaid program instead of the usual 50/50 split. The feds began the 60/40 split under the stimulus legislation enacted last year, and the U.S. House of Representatives has included an extension of this for another year.
Specifically, the $1.2 billion gap is closed by cutting the following:
Total: $825 million in cuts
The remaining balance is made up by the assumption that the feds will kick in another $387 million by continuing the 60/40 split for Medicaid. If that doesn’t come through then further cuts will be on the table, including the K-12 budget (or a deeper shift for school aid payments).
The Governor’s proposal includes enacting his 73/27 education payment deferral into statute. There is also a very small provision in the proposal that would fund $15,000 to the Department of Education for "Teacher Contract Reporting". The proposal would require districts to share with MDE teacher collective bargaining information, including settlement date, salary and fringe benefit costs, and duty days for teachers. The $15,000 is for MDE to integrate this information into financial statements.
The Governor’s proposal extends into the next biennium and would reduce $2.994 billion from a projected $5.426 deficit. If enacted, the Governor’s plan would leave a projected structural problem in fiscal years 2012-13 of $2.432 billion.
This week at the Capitol
Legislative finance committees will spend much of this week reviewing the details of the Governor’s budget balancing proposal. The education finance committees in the House and Senate are scheduled to review new legislation that would enact the 73/27 payment deferral into statute. Both House and Senate education finance committees will review legislation repealing MS 127A.46, which allows the state to engage in short term borrowing from school districts based on their fund balances. The statute is being utilized this spring for the first time since its creation in 1986. The state’s cash flow problem is so bad in the next fiscal year that many are concerned that without a repeal or change to the statute that schools could face massive cancellations of aid payments beginning on September 15.
TRA Not Fully Funded
TRA exists from the contributions of employees and employers who hire them. While the state, on a very rare occasion, has put a little money in the fund, it was developed over time by steady contributions and wise investments. A number of years ago (1997-98) the fund had a very high funding ratio, so the amount of contributions by both the employees and employers was decreased. Contributions went from a funding rate of 8% by employers and over 6% by employees to a common rate for both -- a little over 5%. The extreme downturn in the market added to the large numbers of TRA eligible retirees dealt a real blow to the TRA fund. In fact, at the end of FY2009, TRA’s funding ratio, which should be around 90 to 100%, was 77%. To reverse this trend, employee and employer contributions would both have to increase a little over 5%!
Minnesota Pension plans, which include TRA, use a 5-year smoothing process so that only 1/5 of the losses experienced last year were recognized. The rest of that loss will be recognized over the next 4 years. If the full loss had been recognized this year, both the employee contribution and employer contribution rates would need to rise 11% to stop the bleeding.
TRA funds assume an 8.5% return on investment. But investments alone, even if they do that well, will not turn this downward trend around. In one case estimate, an increase of 20% per year for 5 years would be needed to make up for the losses in the fund.
If the fund is going to be “fixed”, it will need to bring in additional revenue and reduce benefit obligations. Raising employee and employer contributions isn’t going to be very popular during this economic time, and the state isn’t in much of a position to kick extra money since they don’t have any and are borrowing from education. Reducing the liabilities also must be considered. TRA is proposing to freeze the benefits for a couple of years of those who are already retired; phase in increases in contributions; and reduce the interest rate paid for refunds. All of these may have to be implemented in order to fix the fund.
2.8.10 Update -- 2010 Legislative Session is Underway
The Legislature reconvened last Thursday in what is supposed to be a short session focused on passing a major capitol improvements bill – the bonding bill. The Legislature put forward a $1 billion proposal that is substantially higher than Governor Pawlenty’s $685 million proposal. The Legislature will work next week to get their proposals into a conference committee where negotiations between legislative leadership and the Governor can begin. Besides the bonding bill, the Legislature has an immense amount of work dealing with the budget.
The first week of session also saw an introduction of legislative proposals to restore portions of the General Assistance Medical Care program (GAMC). The proposals would extend GAMC for 16 months and cover about half of those originally eligible for the program. Covered services are reduced in the proposal, and those providing services to GAMC patients would see 50% reductions in reimbursements over the same time period. Hennepin County Medical Center (HCMC) and Regions Hospital in St. Paul serve 40% of the GAMC population and would bear the brunt of absorbing these changes to the program.
The Governor will deliver his state of the state address next Thursday where he will outline his budget balancing proposal and policy goals for this session. As of today, the state is facing a $1.2 billion deficit for the current biennium. The Legislature will critique the Governor’s proposal until they receive an updated forecast in about a month (possibly March 3). The Governor’s budget proposal will likely include massive cuts to health and human services programs. K-12 could be on the Governor’s chopping block. The Governor will propose enacting the property tax recognition shift and aid payment delay into statute, negating a potential problem if the courts overturn his unallotment actions from last June.
Education Funding & Policy Debate
The administration’s decision to use short term borrowing from schools based on district reserve amounts will be examined by the Legislature. On the first day back, legislation was introduced to repeal MS 127A.46, the statute that allows the state to do this. Taking this solution off the table might sound nice, but it would narrow the options available to the state to deal with a deficit. Under “no new tax” governance this means either cuts, levy increases or both. A third solution could allow the administration to examine all local government and HHS reserves in the name of shared sacrifice. Of course those interest groups would argue that education should be part of the shared sacrifice when it comes to cutting $1.2 billion for fiscal 2011.
Mandate relief will once again be part of the legislative mix. Education groups sought relief from several mandates last session, but very few passed into law. The federal stimulus funds softened what could have been a deep budget cutting session last year and took away the sense of emergency and need for mandate relief. However, the continued structural deficit and likelihood of cuts (or deeper aid delays) mean the atmosphere at the capitol has shifted somewhat toward providing mandate relief. It will be an uphill battle once again, but we need to continue to push legislators on mandate relief.
Update 1.22.10 -- Funding and Budget Information
Much has been said about the pending delayed aid payment we are about to see. The Governor said it is going to happen and that they really don't have a choice about implementing MS 127A.46. In a meeting yesterday, he also said that they hope to have the information out in a few business days just how much money they are actually planning to delay. We sent you the potential maximum amount of delayed payment as per statute but the Governor said that he is expecting that it will be lower than the maximum. How much lower we will have to wait to find out. It probably will come out in a district by district spreadsheet. We will get that out to you as soon as it is available to us.
He also talked about the unallotment, or 73/27 payment shift as we all seem to be calling it today. He would like to see that enacted by the legislature as a shift which would guarantee that it would be paid back to us. With today's unallotment, it might not be paid back and essentially become a cut. There are those in the legislature who would like to see education cut, so it would be in our best interest to support having the 73/27 become statute to ensure that we will be paid back one day. We told the Governor that we supported that as well.
The Governor said he wanted to shield education from outright cuts since we are carrying part of the budget solution with the 73/27 and the delayed aid payments. It probably is too early to know if that will happen.
We had an earnest discussion about the problems these actions have on districts. Hopefully, we will get information from the Governor's office in the next week or so that you can use in your budget determinations.
Update 1.18.10 -- Wonderful Information on Fund Balances
With all of the discussion about delayed aid payments, fund balances, and potential cuts from the state, it can be hard to sort it all out. Today, MASBO (MN Assn of School Business Officials) put out a statement about fund balances that is an excellent document to use with your staff, public and legislators to explain why we have fund balances and the impact of not having them.
We thank Connie Nordquist of MASBO for sharing this with us!
MASBO Statement on School District Fund Balances
Update 1.15.10 -- From the Financial Frying Pan into the Fire
On Wednesday, Finance Commissioner Tom Hanson presented his cash flow analysis for the state to a legislative commission subcommittee on the budget. The bottom line is that the state will run out of cash in late March or early April of this year and not be above zero until late May or June. In their presentation they showed several methods for dealing with this cash flow crisis. One of those which is receiving a majority of the scrutiny is MS 127A.46 which says that if the state runs out of cash, it can delay payments to districts if they have a certain level of fund balance. This law has been on the books for the past 20 years; put in place after the cash crisis in the early 1980’s. This statute can be enacted by the administration at any time between September 1st and May 30th of any given fiscal year.
Included in this update are links to the statute and the most recent spreadsheet that was sent out late yesterday afternoon. You should be able to go through the spreadsheet and see the maximum amount of delayed payment by month your district could be seeing. In speaking with Lori Grivna from the Governor’s office, she was emphatic that this is the maximum under the statute and that we wouldn’t be seeing that high of delayed payments. While this might be the case – certainly questions about the projected revenue to pay back these payments will come up. It is possible that we might not see the money paid back to us until June 20th – which by itself could cause problems because of the year end payouts many districts need to provide to their staff.
The problem is exacerbated in that this is above and beyond the 73/27 split, and next year the cash flow projection for the state is to be out of cash for much of the year! Now before we all go to the balcony to considering jumping, it is hard to look out that far and be accurate with cash projections. However, they are probably in the ball park, and given that the legislature might not want to change this statute during this session, we might see delayed payments again next year.
Next week there will be a meeting with the Governor to talk about this. Many of our concerns will be aired. Believe me; we are raising many questions and problems with the implementation of this statute. You might want to contact your local representatives to share what the impact to your district could be. We will update you after next week’s meeting. Hang in there – we have gone through this as a state before and we will get through this again!
Links -- Potential aid payment delay under MS 127A.46 ; Max Payment Delay ms 127a.46 preliminary data 1.14.10
Update 1.6.10 -- Unallotment, The Courts and The Legislature
As you may have read, a judge ruled against Governor Pawlenty’s unallotment of funds to a low-income nutrition program. The ruling caused a flurry of activity with the Governor holding a news conference the next day saying that the state needs to deal with our financial shortage. He referred to possibly bringing the Legislature back into special session prior to its February 4th start to address the unallotment to schools by making it a school payment deferral, meaning that the state would guarantee that schools get paid back – at some point in time.
Those of us who went through similar circumstances in the early 80’s remember that it took 10 years to have that money paid back. There is some concern that members in the Legislature might want to make the unallotment permanent and not repay the money. This was referred to on an MPR call in show earlier this week where Senator Pogemiller said he thought that the unallotment was just that – a cut. On this same program, Speaker Margaret Anderson Kelliher, a candidate for Governor, said there wasn’t a need for a special session, and Senator Pogemiller agreed.
In any event, education is better off having the promise to be paid back -- even if it is at some point in the future compared to having the unallotment just become a permanent cut.
Will the unallotment statute be addressed in this year’s legislative session? Most likely it will. We are now beginning to hear legislators talk about how the process of coming to compromise between the Legislature and the Administration was circumvented through the process of unallotment. Others are saying that unallotment was never meant for a normal budget balancing process but for emergencies. Watch for this story to unfold more in the near future.
Legislative Session to Begin
The next legislative session is scheduled to begin on February 4th – only a month away. Already some committees are beginning to hold hearings; expect more to begin in upcoming weeks. The topic of the state budget will be the focus and will take specific shape after the February budget forecast at the end of February. With the statutory close to the session in mid-May, look for some legislators to be interested in finishing up early since their state conventions will be held near the end of April and this is an election year.