Moody's Investors Service called Minnesota's latest revenue forecast a positive for school district ratings as a budget surplus will allow the state to make good on about $1 billion of the $2.4 billion in school aid withheld when it struggled with a budget gap.
"The cash infusion is credit positive for school districts in Minnesota and will ease the restricted liquidity they've had as a result of the state's delayed aid payments to school districts," Moody's wrote in a recent report.
In fiscal 2010, the state paid 73% of the aid it owed to school districts for that year and paid the remaining 27% it owed in fiscal 2011. In 2011, the ratio of current year to subsequent year payments shifted to 70/30 ratio, and in fiscal 2012 it further worsened to a 60/40 ratio.
"The delayed payments had a considerable negative effect on school district liquidity, especially in fiscal 2011, when state aid accounted for 66% of median school districts' total general fund revenue," Moody's wrote.
Many districts have turned to issuing short-term notes to manage cash flow. In 2012, districts sold $793 million in tax and aid revenue anticipation notes, up from $197 million in 2008.
Minnesota earlier this month said it expects to close out its current budget cycle with a $1.3 billion balance but faces headwinds going into its next two-year cycle.