I’m glad to report that Watershed remains solvent, though the weak economy and state actions challenge us. Approximately 97% of our revenues come from the state and federal governments, so their actions have an enormous effect on us. Conventional school districts can access local revenue sources through levies and referenda, but charter schools can’t. Here are four types of effective cuts we’re facing this fiscal year 2009-2010.
1. The largest effective cut is a result of recent state accounting shifts which greatly increase the percentage of deferred payments from 10% to 27%. These deferred payments are often referred to as holdbacks.
For the past few years, the state has held back ten percent of our entitlement each year. That is, we receive 90% of state revenue by June 30, the end of our fiscal year. The other ten percent arrives in the fall of the new fiscal year, for the most part; some doesn’t arrive until the following spring. One purpose of these holdbacks is to allow time for the state to analyze and confirm every student’s enrollment status for every single day of each school year. This process takes a few months. We’re used to ten percent, so this level of holdback hasn’t been a big deal.
However, the increase to 27% means that an additional 17% (roughly 170,000 of our roughly million dollar budget for 09-10) won’t begin to arrive until August 31, 2010. We don’t have cash reserves anywhere near the size needed to manage expenses until then. In fact, very few schools do. Hundreds of Minnesota districts and charter schools, including Watershed, are now exploring loan options with local, state and national lenders, in order to survive this challenge to our cash flow. Note the distinction: our budget is balanced, but our cash flow is in trouble. I expect we will solve this problem in the next three months, but it will cost us thousands of dollars in interest payments each year for the next few years. In the meantime, I’ve asked many of our vendors to allow us to stretch out our payments whenever possible. I’m grateful that many have allowed this. We can’t do this with staff, of course, which is our largest expense.
An immediate problem: we’re $14,000 short for July 2009, compared to July 2008.
2. The second effective cut for us amounts to about $56,000 for this fiscal year (July 1, 2009 - June 30, 2010). The state cut this amount (8.7%) of our general education aid, replacing it with an equal amount of federal stimulus (ARRA) money. The good news is that we’re likely to begin receiving this replacement money within the next month, once the state has completed a new system it’s had to develop. The bad news is that we’re short an additional $4600 or so for July.
3. The third effective cut, in my view, is that overall funding for schools wasn’t increased. Any inflation this year will function as another cut. It’s not as immediately severe as cuts one and two, above, but it doesn’t help.
4. The fourth effective cut has to do with the state’s need to prorate many forms of its aid. This is the smallest of all (less than one per cent), and it might end at any point. If it doesn’t, we could be looking at several thousand dollars in additional cuts for the entire fiscal year.
This is our reality, and it’s painful. It means we can’t do as much for our students as we’d like. That’s why donations of any size are particularly welcome during these difficult times. Thank you for your support.
Note: Here at Watershed, we’re committed to balancing our budget each year. It helps to have capable volunteers on our Finance Committee. If you’re interested in school finance, or would simply like to know more, please give me a call at 612-871-4363.
Phil Grant
Administrator
