Have you ever borrowed money from someone and paid them back little by little until your debt was paid in full?
Most people who lend a friend or relative money appreciate that good faith effort. They realize they’re probably not going to get their money back in one lump sum, but are satisfied when the borrower is chipping away at what they owe when they have extra money available.
Instead of taking the extra cash and wasting it, or letting it sit around to spend on something later, the borrower is being fiscally responsible by trying to pay off his debt.
Historically, Minnesota state education finance policy has included a 90-10 school shift, where 90 percent of the authorized funding has been sent to schools and the remaining 10 percent has been sent to them in the following biennium. This gives finance folks in state government and the schools the ability to square up the final payment with the number of students that actually attended school.
Two years ago, when the Democrats ran the Legislature, they chose to exacerbate the shift by enacting a 70-30 split. This maneuver amounted to $2 billion worth of borrowing from our schools.
Last session, while Governor Dayton initially proposed expanding the shift all the way to 50-50, he and the Legislature eventually agreed to borrow money from the schools by extending it to a 60-40 level. This means schools receive 60 percent of their expected revenue during the current the biennium, and 40 percent the next biennium. This freed up $700 million in state resources, helping eliminate our $5.1 billion budget deficit.
Since the end of last session, Minnesota’s economy has made a $6 billion turnaround, as in less than one year our state now has a projected $1.2 billion surplus. Most of this money was used to refill our reserve accounts. The remainder, as required by state law, was used to pay back the schools, meaning half of the shift extension enacted last year has already been eliminated.
As of today, our reserve accounts contain more money than they have since Republicans took control of the Legislature.
Recently the Legislature approved a bill that would pay back the remainder of last year’s extension, and pay a portion of the 70-30 shift the DFL chose to take from our schools in 2010. With roughly $1 billion sitting in the bank, the proposal would have used $430 million to pay back some of what we owe.
Governor Dayton vetoed the proposal saying that with a projected deficit of $1.1 billion expected for the next budget cycle, taking funds out of budget reserves was a bad idea.
Here’s something to know about recent budget deficit projections for the Fiscal Year 2014-15 biennium: They have been dropping dramatically, because our economy is improving and because our legislative reforms have been providing for significantly less spending.
In February 2011, the 14-15 budget deficit was projected at $4.4 billion. Our July reforms initially lowered it to $1.8 billion. In November, a new forecast of less spending dropped it to $1.3 billion, and in February 2012, it was lowered to $1.1 billion.
With our unemployment rate dropping from 7.5 percent to 5.7 percent in one year, and 32,000 Minnesotans finding a job in the last three months alone, it’s not outlandish to think this projected deficit may be gone by the time November rolls around if these positive trends continue. And I believe they will.
Regardless, most Minnesotans believe we should begin paying off what we owe the schools.
The Legislature approved a plan that would have reduced our debt to our schools to the lowest level in years by using some of our available funds and not raising anyone’s taxes.
But in Governor Dayton’s eyes, we apparently won’t address our borrowing until we have more than $2 billion sitting around collecting dust, while maintaining our $1 billion in reserves. To me, telling our lenders - in this case, the schools – they must continue borrowing while waiting for their money, when we are quite able to pay off more of our debt, is the wrong message.