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State shifts add more budget challenges

Even as Independent School District 196 is looking at making more than $15 million in budget cuts for next year a decision by the state to delay some aid payments could make things even more complicated.

The Minnesota Management and Budget department on Tuesday told schools the state will delay $423 million of payments to them this year so the state can pay its bills.

The missed payments are to be made up by the end of May, but some school leaders say they may have to take out short-term loans.

That includes ISD 196. Finance director Jeff Solomon said the district could be forced to borrow as soon as April to make up for the state's shift. Solomon said two weeks ago such borrowing might be necessary down the road, but the state's decision has made the need more immediate.

The size of delays is based on a formula in state law that makes bigger cuts for districts with larger fund balances. Some districts will continue to get their normal payments if they carry a small balance.

Solomon expects the delay to involve about $25 million for ISD 196.

231 districts' payments will be delayed out of 341 districts. Charter schools are not affected.

State attorneys say the law requires the administration to delay school payments before it can borrow from outside sources.

There was no immediate comment from the Pawlenty administration, but school leaders were not happy.

"Districts were really dumbfounded," said Grace Kelliher of the Minnesota School Boards Association.

While the law was passed to allow the state to borrow from districts with money in the bank, Kelliher said in many cases that money is committed.

Solomon described the impact as weakening the district's ability to balance its checkbook. ISD 196 entered this year with a $40 million balance in its general fund. That money is there to help cover unexpected expenses.

"That sounds like a huge mount of money, but in relation to our budget it's not," Solomon said.

That $40 million would cover about five weeks of the district's expenses.

The delayed payments were to be made on March 15, March 30 and April 15. State law requires the money to be repaid by the fiscal year's end, which is June 30, but Gov. Tim Pawlenty has said he wants to pay districts back by May 30.

Schools that have to take money out of savings because of the payment delays may face penalties and will lose interest income, Kelliher said. The state will not pay interest when it repays districts.

The law requiring the school payment delays has not been used since it was passed nearly 40 years ago.

The latest payment delay comes on top of an overall delay enacted last summer when Pawlenty balanced a $2.7 billion budget deficit. Of his solution, $1.8 billion was school payment delays.

Town Pages editor Nathan Hansen contributed to this story