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Early school-fund repayment carries a big cost for small benefit

Minnesota House DFLers are pushing the questionable approach to deliver on their campaign promises.

The DFL was swept to power in the Legislature partly on its promise to repay the entire K-12 school-aid shift.
MinnPost photo by James Nord

It’s laudable that Minnesota House DFLers want to deliver on their campaign promises. However, it’s unfortunate that one of these promises has a cost so large for a benefit so small.

I’m referring  to their insistence that the Legislature buy back the entire K-12 school-aid shift that was enacted to help erase previous state budget shortfalls.

In the last election, DFL candidates for both the House and Senate made great use of this issue, suggesting that the school aid shift had effectively slashed state aid to schools and balanced the budget on the backs of school children. This was a gross exaggeration.

However, to make good on their campaign promise, House DFL leaders have persuaded Gov. Mark Dayton and Senate DFLers to impose $860 million in new taxes on Minnesota’s wealthiest residents to reverse the school aid shift in two years, rather than four, as Dayton had proposed.

Both parties have used shift

The facts are that such school aid shifts have been used multiple times, over the last several decades, under both Republicans and DFLers, to help plug holes in the state budget. For state government, such shifts are one-time gimmicks that postpone fiscal problems in hopes of an economic rebound and a surge in future state revenues.

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However, school aid shifts are relatively painless for most school districts, as Minnetonka School Superintendent Dennis Peterson wrote in guest column in the Star Tribune earlier this year.

An important underlying fact is that when it comes to the state budget, K-12 education is the elephant in the room.  It accounts for more than 40 percent of the state’s general fund budget. During economic downturns, it’s tough to exempt schools from budgetary pain.

But that’s what governors and legislators try to do, often while slashing aid to cities, counties and other programs.

What they frequently have done is delayed a portion of the state’s school aid payment to  school districts, resulting in a one-time shift in part of the state’s obligation from one biennium into the next. “School districts have not had less money during these years than they would have had without the shift; they just received it somewhat later,” Peterson wrote.

Rather than seeing this as an “accounting gimmick” or a “trick,” Peterson called it “one of the most important tools used by legislators and governors of both parties to avoid deep cuts in school funding.

“It is likely that all school districts in the state would have suffered deep reductions, translating to serious staff and program cuts, without implementation of the payment shift,” he wrote. “Nearly every other state was forced to reduce education funding during the past five years. Because our leaders wisely used tools available to them, including the payment shift, Minnesota spared its schools and students that pain.”

Less pain than alternative

The payment delay may have forced some districts to dip into reserves or engage in short-term borrowing. But to Peterson and many others, it was far less painful for school districts than comparable reductions in state aid.

Peterson has some credentials to speak on the subject. He’s been superintendent of the Minnetonka school district since 2001, and in 2009 he was named Minnesota superintendent of the year by the Minnesota Association of School Administrators.

To pay for reversing the shift, the governor and legislative leaders have agreed to impose a temporary income-tax surcharge on the state’s wealthiest residents. This will come on top of a permanent income tax increase for these same folks, the revenues from which will be used to erase a $627 million state budget shortfall and pay for the DFL’s spending initiatives.

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The details of these tax increases remain to be worked out in conference committee, but they are likely to vault Minnesota to the top of the charts in taxes on upper-income residents.

But that’s not likely to be mentioned on DFL campaign literature next year. Instead, it will loudly proclaim, “We repaid the school shift!”