Monday, December 07, 2009

Hanging Out in Room 15. If I ever write my autobiography, the title will probably be something like "Hanging Out in Room 15 . . . or Room 112 . . . or Room 200 SOB." I think you get the picture.

It's going to be a full day at the Capitol today, with the Senate Tax Committee meeting this morning to discuss the latest budget forecast and take a look at the Governor's proposed constitutional amendment that aims to limit (quite aggressively) state spending. They're currently discussing the budget forecast and nothing really new has been introduced into the conversation at this point. State economist Tom Stinson is describing (I imagine he can recite his testimony in his sleep for all the times he's had to repeat it) once again the condition of the state economy. It hasn't changed since last week and it's still not all that good.

It's always interesting to get inside the debate on issues like economic performance and the give-and-take of a legislative hearing provides some insight as to the dynamics--both political and in a policy sense--of the budget issue. Senator Julianne Ortman (R-Chanhassen) just asked a very pertinent question regarding Dr. Stinson's assertion that the economy is recovering. Dr. Stinson stated that inventories are low and that firms will have to increase hiring to re-build those inventories. Senator Ortman's point is that if unemployment remains high and individuals don't have the income to purchase products, why is there any reason for optimism as inventories will probably remain in a realistic position as they pertain to the realistic level of demand. Senator Ortman described her concern as a "chicken-and-egg" problem and it certainly is.

The commitee is now trying to determine the level of the Governor's unallotment powers as they pertain to transfers within the general fund. The Health Care Access Fund is losing revenue and if the Governor were to stop any transfers within the general fund to the Health Care Access Fund, care providers would be in a difficult position and would have to refuse care or recoup costs through another means.

We've moved on to the subject of the remainder of this fiscal year and the 2012-2013 biennium and the "real" level of the shortfall as it pertains to those budget periods. The point just made is that Legislature will have to take action to keep the budget shortfall projected for the next biennium at $5.4 billion. As I reported last week, the budget forecast assumes the unallotment of the General Assistance Medical Care (approximately $$920 million), but takes the K-12 funding shift back to 90%/10% from 73%/27%. In other words, the forecast is built on some assumptions that require legislative approval that may or may not happen.

The committee is now moving to discussion of the Governor's proposed constitutional amendment to limit state spending to the amount of revenue collected in the previous biennium. Senator Amy Koch (R-Buffalo) is the Senate sponsor of this amendment and is providing the background for the proposal. Senator Koch just mentioned that 30 states (18 through their constitutions and 12 through statutory guidelines) have limits on their revenue-raising and spending authority.

Senator Koch believes that this proposal provides more flexibility than previously-discussed approaches in this area, particularly the Taxpayers Bill of Rights (TABOR) that was enacted in Colorado.

At first blush, I'm not quite seeing the utility of this proposal. It would limit spending in the short-term and would also require that the Legislature enact tax increases prior to programs being implemented, which arguably would provide greater transparency. A few years back, there was an effort to require the Legislature to pass the tax bill before passing any of the funding bills and I am reminded of that effort in listening to the discussion of this proposal, although there is no question this proposal goes further by limiting the growth of the base level budget for on-going programs.

But, as Senator Bakk has just pointed out, limiting flexibility in the state budget may push funding needs to the local level and as we know, especially given the property tax disadvantages SEE members experience on a daily basis, the property tax is not applied equitably in terms of either burden or revenue generation. Further, there is always concern regarding amending the constitution and how constitutional changes may influence the ability of all branches of government to react to changing realities.

This proposal, or someting like it, is going to be discussed during the 2010 session. There's no doubt that the current economic slump and the resulting budget shortfall are going to spur a discussion of the future of Minnesota and the nature of government spending and how it fits into that future. So, as every good Boy Scout supposedly knows (I was a farm kid and hence a 4-H member and cannot speak with any measure of certainty on the matter): Be prepared.

The afternoon portion of my day at the Capitol was spent in the Senate Charter School Working Group meeting chaired by Senator Kathy Saltzman (DFL-Woodbury). The subject of the day was charter school lease aid and building decisions being made by charter schools.

The hearing provided a comprehensive look of not only how charter schools are making their building decisions and funding them, but also provided a thorough discussion of the funding tools used by other public entities--including the maximum effort loan program and the school debt service program--in the construction of buidings.

Belle Plaine Superintendent and SEE member Kelly Smith, along with Blooming Prairie Superintendent Barry Olson, provided background on the process used the public school districts on building issues, particularly the election process and the difficulty faced by many districts in gaining approval for bond issue elections. Gary Olson and Kristin Larson from Ehlers and Associates also provided insight on the process, giving a thorough description of how bonds are sold and how districts can get the best rates for these bonds. Mark Beltz, former Farmington school district Business Manager (and longtime friend of SEE) who currently provides consulting services to school districts and charter schools, outlined a proposal that would allow charter schools to own their buildings (currently prohibited by state law) and save the state lease aid payments in the process.

Charter school facilities has been a hot-button issue recently. A StarTribune article from about a week ago outlined how some charter schools have set up "building corporations" to construct and manage buildings and that this process, effectively skirting the prohibition on charter schools from owning buildings, has resulted in these corporations charging unwarranted fees.

Senator Saltzman has been working extremely hard on issues related to charter schools over the past two years and this is one area where reform is likely in the session ahead.

Below is a link to an article in Sunday's StarTribune written by Gene Piccolo, Executive Director of the Minnesota Association of Charter Schools, on the facilities issue.

StarTribune Article: http://

Saturday, December 05, 2009

MSBA Delegate Assembly. The 2009 MSBA Delegate Assembly concluded earlier today and it was once again an interesting exercise. Two proposed resolutions, both offered by SEE member districts, were of particular interest to me as the proceedings took place. The first, submitted by the Cambridge-Isanti School Board, sought to re-establish the general education levy, which was eliminated during the 2001 legislative session as part of then-Governor Jesse Ventura's "Big Plan."

Anyone who knows me knows my feelings on the elimination of the general education levy. It stands, in my estimation, as one of the dumbest single moves in the history of education funding in Minnesota. As a bit of historical backdrop, there are a number of culprits who contributed to this decision. Of course, it was former Governor Ventura and his august set of advisors who proposed the move in the first place. Add to this, the House of Representatives at that point in time made the decision to make the general education buydown part of its tax bill.

It's important to remember that the state was reaping the benefits of an economy that was enjoying peak performance in the late 1990s and had, in a stark departure from Minnesota's current fiscal position, considerable budget surpluses. This created a sense of security, false as it turned out, that the state was in a position to assume the close to $800 million in general edcuation levy with state resources. In fairness to the Ventura administration, it is important to remind ourselves that as part of the original recommendation to replace the general education levy with state revenue, it was suggested that the base for the sales tax be broadened to include clothing and services. This would have brought more state revenue into the equation and provided a cushion to ensure that the general education revenue amount could increase into the future.

However, the Legislature got a bad case of tax cut fever and the resulting decisions put state funding on shaky ground going into the future. Rumor had it that the state was already projecting a shortfall as the economy headed into recession and that was before the cataclysmic economic downturn that occured in the aftermath of the terrorist attacks in September of 2001.

The one thing that makes me bark a bit in retrospect is that Governor Ventura supposedly surrounded himself with hard-headed fiscal realists who were more than up to, at least in their rhetoric, the challenge of staring down legislators more interested in "politics over policy." Instead, the Ventura administration folded rather than stare down the Legislature, particularly the House of Representatives, when they refused to include the sales tax base-broadening as part of the final package.

The results of the decision to eliminate the general education levy proceeded to have disastrous effects. First, there was no state revenue available to provide increases to the general education program when the state economy took a turn for the worse. Further, the fairest levy that was applied across all property in the state at the same rate was replaced with greater reliance on the voter-approved referendum levy, which is both inequitable in burden and not applied across all school districts. Even though over 90% of the state's school districts currently have voter-approved referenda, the resulting per pupil revenue and tax burdens vary widely district-to-district.

But that's all in the past and I don't want to let my blood pressure get any higher, so I'll return to the MSBA Delegate Assembly. The resolution to bring back the general education levy failed on a vote of 56-62. Not bad considering the resolution wasn't aggressively "worked." While I'm a bit disappointed that the resolution didn't pass, any attention this subject receives is a bonus. Word on the street is that the Senate Education Committee might attempt to expand its consolidated levy proposal into something that more closely resembles, in both size and type, the general education levy.

The other resolution of interest was offered by the New London-Spicer School Board, calling for an increase in the equalization level for all current levies. This resolution passed by an overwhelming vote of 110-7. Of course, if resolutions passed by the MSBA Delegate Assembly automatically become law, we wouldn't have to worry about any cuts to any school districts, as spending for education would reach the mega-mondo-zillion level. What is heartening, however, is that the concept of equalization is something now etched deeply into the minds of school districts throughout the state. Now, if we can just get the Legislature to go along a bit more on this widely-shared belief we'll have a more adequate and equitable funding system.

Friday, December 04, 2009

Lawsuits? In the past couple of weeks, I've heard more and more from various (and unrelated quarters) that it may be time to consider a lawsuit against the State of Minnesota on the grounds that it is not meeting its constitutional duty to provide a "general and uniform, thorough and efficient" system of public education. Clearly, we've been on a funding yo-yo for the past decade, with four of the ten years witnessing frozen education funding formulas. Even in the years when we've seen an increase, the level of increases has not been enough to prevent program cuts or stem the continuing growth in the subsidization of special education expenses from school district general funds.

In another wrinkle, Minnesota's education funding system is also getting more inequitable. From documents we have put together, the gap between districts at the 5th and 95th percentile, in both raw dollar and percentage terms, have been steadily climbing (with a slight dip mid-decade) since 2001.

We all realize that lawsuits are quite an undertaking and it is instructive to look at what is currently happening in other states in the area of school funding litigation. One especially interesting case study is that of Colorado. In 2005, a group called Children's Voices sued the state of Colorado on behalf of 14 school districts. Both the district court and the Colorado state court of appeals ruled that the plaintiffs did not have standing to sue the state. In October, 2009, the Colorado State Supreme Court on a razor-thin 4-3 vote ruled that the plaintiffs do have standing and that the lawsuit will now be returned to district court to be heard.

Florida is another state that recently has seen the emergence of a lawsuit. Fund Education Now and Citizens for Strong Schools have joined several sets of parents in filing suit against the State of Florida in mid-November. This is on top of a lawsuit filed by the American Civil Liberties Union two weeks earlier. Florida currently ranks 50th out of 50 states in several education funding categories and a number of the states' districts have alarmingly high drop-out rates.

Needless to say, if Minnesota school districts decide to head down the litigation trail, there will be ample action in other states to both map strategy and judge prospects for success.



Children's Voices: http://

Great Education Colorado: http://


Fund Education Now: http://

Citizens for Strong Schools: http://

Thursday, December 03, 2009

Permanent School Fund Hearing. The Promoting School Trust Lands Subcommittee, chaired by Representative Denise Dittrich (DFL-Champlin), met this afternoon in the State Office Building. For those of you who need a refresher course, Representative Dittrich sponsored legislation during the 2008 session that changed the way that revenue generated by interest from the Permanent School Fund endowment is factored into the state's education funding system and how these lands are managed.

The public lands that comprise the generate the income for the endowment largely spring from a couple of sources, particularly the lands designated in each township for education purposes that date back to Minnesota's statehood. A number of these properties have already been sold, with the revenue going into the fund, but approximately 2.5 million acres still contribute to the fund. Most of the revenue now comes from leases and mineral exploration and mining rights.

The primary problem Representative Dittrich has sought to address in her original legislation and her subsequent involvement with the issue is how to generate greater revenue from this state-managed property. The Minnesota Department of Natural Resources currently manages these parcels and the general impression is that they are very conservative in the approach they use to promote these properties for revenue-raising purposes. Representative Dittrich's subcommittee has looked at how similar public properties are managed in other states and is trying to find a method by which greater revenue could be garnered through more aggressive promotion and investment. Utah is being studied as an example of how more aggressive management of state-owned property can generate considerably more revenue for school districts.

Given the condition of the state budget and the likelihood that we will see tight budgets for the next few years, any new revenue will be welcomed. Hopefully, Representative Dittrich's efforts will bear fruit. What she is asking the state's education community to do is become more aware of this issue and urge decision-makers to support a more aggressive approach to the promotion of these properties.

Charter School Issues Back in the News. Yesterday's StarTribune ran an interesting story on charter schools yesterday largely centered on the use of charter school lease aid to purchase bonds to construct buildings for charter schools. Loose regulation of these practices have resulted in the use of high-risk junk bonds and the questionable fees charged to charter schools by the companies helping them construct these buildings. Because charter schools cannot own property, they are in effect backed into these agreements because they have limited alternatives in seeking long-term facilities for their programs.

This and several other issues will be studied starting next week in hearings chaired by Senator Kathy Saltzman (DFL-Woodbury). The first hearing will be held on Monday, December 7, at 1:00 PM in Room 112 of the State Capitol.

Link to Charter School Story: http://

Wednesday, December 02, 2009

In the World of Hurt Department. The revenue projection is in and it is not good news. As I reported yesterday, whispers on the street had the revenue shortfall at about $1 billion and it came in about $200 million above that at $1.203 billion.

The primary reason for the revenue shortfall is the precipitous drop-off in income tax collections since the end of the 2009 legislative session. Income tax collections are $827 below the amount estimated in June which accounts for nearly 70% of the revenue shortfall. The bulk of the remaining shortfall comes in the form of less in terms of sales tax collections and capital gains taxes.

Falling wage levels--resulting from both unemployment and underemployment--are at the base of the problem with income tax collections. State Economist Tom Stinson believes that the economy has turned the corner and is performing increasingly well, but that even though Minnesota's economic performance overall was better than what was estimated in February 0f 2009, that performance did not translate into more jobs and/or higher wages.

All of this makes the 2010 session one that is going to be extremely painful. It's my opinion that if the shortfall had been half of this amount, the session would have been relatively short, as a number of relatively small adjustments could have been made to limp things through to the 2011 session. It would have been painful and tough, but it at least looked doable. At $1.2 billion, it no longer looks that way.

The forecast throws a monkey wrench into plans for a large bonding bill. The state's debt service is currently at 3.7% of total budget, well above the 3.0% guideline currently being used to estimate how much long-term debt the state should undertake. There is still sentiment to put together a large bonding bill, but it will be interesting to see if the Governor and Legislature can agree on both the magnitude and nature of such a bill.

As bad as the 2010 session looks, it's the 2011 session that's going to have legislators (and gubernatorial candidates) shaking their heads. Page 8 (the next to last page) in the Minnesota Managment and Budget document entitled "News Conference Handout" shows the painful prospects that lie ahead. The $5.4 billion projected shortfall is bad enough, but one look at the details shows that a gimmick-free, pre-unallotment, inflation-included budget shortfall would surpass $8 billion.

The $5.4 billion number does include the buyback of the aid payment shift to school districts from 73%/27% to 90%/10%, but does not include the nearly $1 billion in unallotment to the state's General Assistance Medical Care budget, the approximately $500 million in early recognition of property taxes, and $1.2 billion in inflation. It's hard to count the failure to fund inflation as a cut, but it would mean an erosion of purchasing power. Whether the Legisalture and the Governor can agree to include any or all of these changes as part of the permanent budget going forward to mitigate the size of the revenue shortfall for the coming biennium remains to be seen. I'll go out on a limb here and say the discussions are going to be political. It's also extremely important to remember that another federal stimulus package is highly unlikely.

State Economist Stinson did say that the economy is getting better and that while improved performance may not make the job appreciably easier for the remainder of this biennium, it may make things better for the 2012-2013 biennium. As he pointed out, however, higher economic performance resulting from the rebound are already built into those projections.

In other words, the day of reckoning is upon us to some extent. Senator Larry Pogemiller's (DFL-Minneapolis) comments in this morning's StarTribune clearly bear out that sentiment. The gimmicks are gone and we are now going to have to look at both the revenue and expenditure side of the state budget equation to come up with solutions that provide the services needed by the state's residents and also create greater stability in the system as a whole.

What does this mean for education? I don't really know and I don't think anyone does, at least at this point. I remarked today that we did dodge a bullet to a large extent last session, but we'll be dodging buckshot during the 2010 session. How much we get hit is anyone's guess, but it will be difficult not to at least be touched by more than a few pellets.


Managment and Budget Documents: http://

MN Post Article #1: http://

MN Post Article #2: http://

Star Tribune Article: http://

Tuesday, December 01, 2009

Let the Blogging Begin. It's the first of December so it's high time I dust off the keyboard and get back to blogging. It's been a somewhat uneventful interim, which is basically a good thing. With the mounds of economic bad news we've been seeing nationally (let me re-phrase that to an "absence of economic good news"), Minnesota's fall revenue forecast is expected to be a bad one with a possible revenue shortfall for the remainder of the biennium year in the neighborhood of $1 billion. Part of that is lagging revenue (at last report expected to be in the range of $240 million) and part of it may come through increased state expenditures, especially in the area of health care and income maintenance payment increases that would result from increased unemployment.

Another thing to remember is that although the picture for the remainder of this fiscal year (and by extension, the biennium) will likely be bad enough, things are really going to look ugly for the next biennium. The aid payment shift and property tax recognition shift are not in law and if they are not placed into the law, the problem for next biennium grows by $1.7 billion. Again, this does not affect the aid entitlement, but it does affect districts' cash flow and that more than one-third of Minnesota school districts have dramatically increased their short-term borrowing to meet their cash needs. Needless to say, tough decisions lie ahead.

I will provide you with the links to the revenue forecast documents when they are made available tomorrow.

Legislative Kick-Off Meeting. A group of SEE members met for a very interesting and comprehensive organizational meeting for the legislative kick-off event that is scheduled for Thursday, February 18, 2010, at the Kelly Inn just west of the State Capitol building. Things are obviously heating up for school districts and the problems are especially keen for SEE districts. If you have ideas for what you would like this event to entail, don't hesitate to contact either Deb Griffiths or myself.