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Once more, school districts that set aside money worry about it being state’s ‘low hanging fruit’

In many Minnesota communities, residents reliably and cheerfully vote to tax themselves a little extra to make sure the schools are decently funded.

In many Minnesota communities, residents reliably and cheerfully vote to tax themselves a little extra to make sure the schools are decently funded. Administrators, in turn, try to sock a little of the millage away for a rainy day.

In really lean years, state lawmakers look at districts’ reserve funds, seemingly flush with millions of dollars, and wonder: If ever there were a rainy school-funding day, surely this is it, right?

Would that it were so simple. For the second year in a row, district administrators are listening to the debate at the Legislature wondering whether they should just have “Kick Me” permanently tattooed on their foreheads. Districts that have little or no reserves lose nothing; those that have budgeted the furthest into the black lose the most.

And so Roseville is one of a number of districts questioning traditional notions that reserves should equal 8-12 percent of their annual operating budget. During a budget crisis 20 years ago, the district’s healthy reserve fund got raided by the state.

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As a result of losing $5 million over the course of two years, Roseville ended up in something called statutory operating debt. Any district that has an operating deficit of 2.5 percent or more must file plans with the state laying out three-year plans for getting out of SOD.

Alas, referendum-loving citizenry notwithstanding, it took Roseville 17 years to get back in the black. During the three years since the district has been out of statutory operating debt, it has brought its reserves back to 6.5 percent of its operating budget, according to Assistant Director for Finance Barb Anderson.

“We’ve worked really hard to get it there,” she said.

“The philosophy of many is not to have a big reserve because they want to spend their resources on students,” Anderson explained. “On the other hand, obviously it’s useful in these times to have a fund balance.”

Twice last year Gov. Tim Pawlenty’s administration responded to cash crunches by delaying $142 million in payments [PDF] to school districts.

The governor blamed a Minnesota law that says the state cannot seek short-term loans until it has delayed funding school districts that have cash reserves. Last spring’s move was the first use of the law, which was deemed controversial when it was passed in 1986. DFL lawmakers have sought its repeal.

Public school officials blamed Pawlenty for failing to find other ways to balance the budget. Not only does the delay deprive districts of the interest on the reserves, but once the accounts are empty, they are forced to borrow.

Unless all that fiscal responsibility just makes your reserve one more piece of low-hanging fruit. “It’s really made us gun-shy,” said Anderson.  

“It’s one those issues that’s not real sexy, but it’s really important,” added Scott Croonquist, executive director of the Association of Metropolitan School Districts. The group’s members last year paid a total of $5 million in interest associated with short-term borrowing forced by raids on their reserves.

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There are many reasons why districts need reserve funds, Croonquist and Anderson agreed. District spending is uneven even during flush times, and the feast-or-famine cycle is exacerbated when the state uses funding shifts to head off its own short-term borrowing.

Districts may be saving up for a big one-time expenditure or eyeing a referendum that’s about to expire. Plus, short-term debt comes with some fixed costs that make borrowing small amounts prohibitively expensive, so districts try to avoid it.

“If you have to make big cuts, you can transition into a new, lower level of funding but not all at one time,” Croonquist said. “They are always one-time funds — and there is no way to replenish them in the current environment.”

Nor are they the public-sector equivalent of a trust fund. The majority of metro-area districts would say their reserves are lower than they would like, he and Anderson agreed.

“If anyone’s worried about school districts having fund balances, to me it’s almost laughable,” said Anderson. “With the funding reductions, there’s no way around digging into them.”