State can start repaying schools

/ 29 February 2012 / jennifer

Star Tribune Editorial, February 29, 2012 –

Forecast brightens, but digging out of debt will take years.

Consider it a Minnesota milestone on the path to recovery from the Great Recession: State government will begin this month to make good on the $2.7 billion IOU it sent its school districts in 2009-11.

A $300 million repayment — 11 percent of the total owed — will go to schools by the end of June.

That’s the best news from the latest state budget forecast, issued Wednesday. Its timing is set by law, intended to guide legislators as they make the year’s final decisions about state taxing and spending.

Were it not for the borrowing from schools that the state has done since 2009, Wednesday’s forecast would have been a green light for $300 million in new spending and/or “tax expenditures” — Capitolspeak for the tax breaks, credits and cuts that siphon dollars out of the state’s revenue stream.

After four years of deficits, pressure is mounting on lawmakers to seize “the surplus” for measures of both kinds. But to their credit, Gov. Mark Dayton and legislative leaders in both parties say that this year, they will tamp down that pressure and repay schools first, as state law requires.

A statute that’s been on the books since 1985 gives school district IOUs first claim on state revenues that exceed budgeted spending. By law, the state budget cannot truly be said to have a surplus until that debt is paid.

Dayton and legislators are right to stick with state law. School districts have borrowed $625 million since September. The interest on that debt is money better spent educating children. The state’s commitment to schools should be honored.

But in coming years, keeping that commitment will be increasingly difficult — and will reveal the full cost of failing to put the state’s fiscal house in order in the past decade.

Minnesota has long had a deficit-prone state budget, made more so in 1999-2001, when taxes were cut substantially and spending was not reduced accordingly.

Two recessions have afflicted Minnesota since then. Each time, the state balanced its books with a number of one-time measures, including borrowing from school districts.

Those measures were politically easier to swallow at the time than permanent tax increases or spending cuts would have been. But they borrowed against the future aspirations of a people who rightly expect state government to be their ally in achieving their personal dreams and community goals.

State government’s capacity to invest in new things — be they Republican-favored tax breaks for business or DFL-preferred spending on education and social services — has been crimped for years to come.

Dayton said yesterday that even if he were to sell the 2013 Legislature on an income tax increase for top earners, as he proposed last year, the debt owed school districts would remain too large to be repaid in 2014-15.

Leave the school IOU aside, and the 2014-15 budget is already expected to be in the red — by $1.1 billion if expected inflation in state expenditures is not counted, $2.2 billion if it is.

As Management and Budget Commissioner James Schowalter said, “The state’s fiscal issues are not resolved in this forecast. There’s still a lot of work to be done.”

There is indeed. That work can start this year with the enactment of a sizable bonding bill, structured to favor quick-start “asset preservation” projects — the new roofs, boilers and energy-saving retrofitting of existing buildings that top the wish lists of both the University of Minnesota and the State Colleges and Universities system.

If there’s one sector of the state economy that’s lagging, it’s construction, state economist Tom Stinson said yesterday. If there’s one sector the 2012 Legislature is positioned to help this year, it’s construction.

Getting unemployed construction workers onto payrolls and tax rolls again can accelerate the state economy’s improvement. Wednesday’s forecast may not have flashed a green light for tax cuts or more spending.

But it signals that it’s time to act on a bonding bill.

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