CHICAGO - A $525 million boost in state public education funding over the next two years is a credit positive for Minnesota's school districts, Moody's Investors Service said Friday.
The legislature approved the increase as part of a biennial budget package that covers the next two fiscal years beginning July 1. Gov. Mark Dayton recently signed the budget bills including a $17 billion education bill and a $373 million capital budget. The state will spend nearly $42 billion over the next two years.
Dayton said the state could afford the 2% education increase due to its budget surplus and rejected a smaller package.
"Overall, the uptick in state aid is a credit positive for Minnesota school districts because it enhances districts' budgetary flexibility, especially for those that assumed a smaller increase in state aid," Moody's wrote in its weekly outlook. Many districts had budgeted for just a 1% hike.
"The higher level of education aid in the state's biennium budget will have a meaningful financial impact on many school districts, including some of the largest in the state," Moody's wrote. St. Paul Public Schools will collect $4.9 million of additional aid during fiscal 2016 and Minneapolis Public Schools will get an additional $4.5 million.
The overall increase will go primarily toward general education aid, which is distributed on a per-pupil basis. "This budget continues the trend of increased per-pupil funding after keeping funding flat during the recession in 2010 and 2011, when the state experienced large budget deficits," Moody's wrote.
For districts that only planned on a 1% increase, the final number "creates a credit positive revenue variance." For others that were more aggressive and assumed a more than 2% hike "there is a limited amount of time to adjust their expenditures, as fiscal 2016 budgets must be finalized by June 30," Moody's said.
Dayton signed the final bills passed by the legislature on June 13 after a special session. Lawmakers and Dayton were deadlocked during the regular session on various issues including education spending. Dayton is a member of the Democrat-Farmer-Labor Party which enjoys a Senate majority while the GOP holds a House majority.
The two sides were divided over how to use the state's nearly $2 billion surplus and ended their special session leaving about $1 billion unspent. Republicans wanted to pass tax cuts and use the funds for road and bridge projects. DFLer's wanted more revenue for education and instead sought a tax package to fund a multi-year transportation package.
Dayton put a positive spin on the final result. "The remaining surplus, combined with the budgeted reserve and cash flow account, has left the state with a positive balance of almost $2.5 billion," he said in a statement. "It stands in welcome contrast to the financial uncertainties of recent years."
Dayton had pushed for a 10-year, $11 billion transportation funding package that relies on higher taxes and fees and wanted a more costly $842 million bond-financed capital program.
Ahead of Minnesota's last new money sale in August, Fitch Ratings affirmed the state's AA-plus rating, Moody's Investors Service affirmed its Aa1 rating, and Standard & Poor's affirmed its AA-plus rating. All assign a stable outlook. The ratings affect $6 billion of GO debt.
With the budget now complete, the state's debt management team has begun working on the state's next new money bond sale to pay for projects in various bonding bill packages.
