The Hidden Tax Shift Neither Party Wants to Discuss

In my last post, I wrote about the fiscal tricks that Pawlenty and the DFL used in the last budget to allow the State to spend 34.5 billion dollars with only about 30 billion dollars in taxes.   They used 2.3 billion in federal stimulus money -- which was the purpose of that stimulus in the first place, to avoid the layoff of state employees and especially teachers in the midst of the massive recession that began in 2007.   Then, they forced school districts to borrow about 1.8 billion dollars so that the state could shift aid payments for the current year into the next year.   These numbers are widely discussed.   The 1.8 billion dollar figure is a one-time shift, and each year, the folks in St. Paul can avoid reckoning with the Pawlenty budget shift, by just shifting the 1.8 billion on to the next year again.   That's what Dayton and the Republican legislative majorities are proposing to do -- the shift isn't even in dispute.   In fact, the discussions just before the shutdown contemplated an even bigger shift.

But there's a much larger shift in the education budget that neither party talks about, but its used year after year, and that's the special education aid shift that shifts the State's special education mandate onto local districts, forcing them to raise local property taxes.   For 8 years governor Pawlenty and the legislature shifted larger and larger special education costs onto local districts, and the total of these shifts make the 1.8 billion shift that everyone talks about look like spare change.   Every biennium, the governor and legislature wink at each other, give a shout  out to the Federal government, and intentionally underfund special education by at least 600 million dollars for the biennium, but unlike the smaller shift that we talk about, the State never reimburses local districts for the special education shift.  They just keep larding the deficit onto local districts year after year.

This biennium, the legislature and Governor have served up the largest special education deficit in history, just about 1.3 billion for the biennium.   If this practice continues, the total deficit for the next decade will exceed 7 billion dollars.   Local district have no revenue source to cover this deficit, and the size of the deficit varies greatly from district to district.  The special education deficit, along with unrestrained labor cost increases, represents the major cause of class size increases, of teacher layoffs and of other program cuts, but our policy makers in St. Paul refuse to address the problem.   They are making the problem worse.

The folks in St. Paul love to blame the federal government for this problem, but that is a prevarication.  Minnesota has a higher special education requirement than the Federal Government.  If the Federal Government repealed the special education law tomorrow, we'd still have the same special ed spending in Minnesota.   A few legislators proposed a bill to reduce our special education cost mandate down to the federal level, and the bill couldn't even get a committee hearing in the Republican legislature.   Republicans are big fans of the special education deficit, just like their DFL colleagues.

How do local districts cover this gigantic deficit.  They have to go to the voters and get an operating referendum.  In the vast majority of school districts in Minnesota, excepting some of the wealthy suburban districts, the special education deficit for the district is larger than the voter passed operating referendum.  That's right, in many districts, if the state fully funded special education, the districts could function without an operating referendum.  

When you hear a Republican or Democrat rail against unfunded mandates, its time to chuckle.  They're just pretending.  The 700 million unfunded mandate, the great special education deficit shift, is passed every biennium by both parties with a wink and a nod, and nary a concern for by far the most significant unfunded mandate ever conceived in education.