School Districts Facing Bleak Funding Prospects (MI)

May 10, 2010

Across the state, a similar picture is being painted by school district finance directors – be prepared for whatever the Legislature passes.

But while the overall picture is similar, the methods are different as local school districts that draw students from Savage are taking various approaches to next year’s ambiguous funding.

Some districts are making large cuts to their budgets while others scale back. A few are experiencing enough growth to bring in additional students (and funding) without adding staff. Most districts, however, don’t have that luxury.

“Most districts are drawing down reserves, making some cuts and trying to figure out how to become more efficient,” said Charlie Kyte, executive director of Minnesota Association of School Administrators (MASA).

Here in the south metro school districts try to tackle the multilayered issue the best they can.

Funding history

Education funding has always been a contentious issue. The state of Minnesota devotes 37 percent of its budget to K-12 education – the biggest chunk of the state funding pie.
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 Over the past decade, school districts have been on a rollercoaster when it comes to funding. Since 2000-01, the basic general education funding formula has increased anywhere between 1 and 4.2 percent a year. There have also been four years of no funding increases; 2003-04, 2004-05, 2009-10 and 2010-11.

School administrators say funding hasn’t kept up with inflation, which is increasing the burden on local property owners through operating referendums. In 2008, state dollars accounted for 78.8 percent of K-12 education funding — down 7.9 percent from 2002.

More than 92 percent of Minnesota school districts have operating levies to boost their revenue.

Plus, federal and state mandates, such as No Child Left Behind, require school districts to do more without new money.

In the face of a $2.68 billion biennium deficit last summer, the state froze the K-12 per-pupil funding formula. (The freeze actually resulted in a loss since a federal one-time payment from 2008-09 was not renewed.) Gov. Tim Pawlenty also deferred $1.7 billion in education payments so that school districts have receive less of their state aid payments during the fiscal year, which left many districts needing to borrow money and pay interest or penalties for cashing of bonds early.

What’s more, the state Legislature has yet to ratify the governor’s unallotment cuts. If the shifts are not written into statute, school districts could lose out on those dollars, translating into a 17 percent cut in education funding, according to Rep. Mark Buesgens (R-Jordan), who represents District 35B.

Scott Croonquist, executive director of the Association of Metropolitan School Districts (AMSD), said between 1,600 and 1,700 staff posi tions, or $150 million, would need to be cut from the budgets of the 33 member school districts, including ISDs 720 and 191.

“You’ll see similar stories throughout the state,” Croonquist said. “It’s pretty dire right now.”

Budget 2010-11

Now facing a $1 billion budget shortfall for 2010-11, the House of Representatives DFL leadership presented its omnibus K-12 education funding bill Monday (April 26). The bill maintains flat education funding through the rest of the biennium. It also codifies Pawlenty’s accounting shifts to ensure it gets paid back.

Shielding K-12 education may no longer be possible, Buesgens said. “There’s going to have to be reductions in the (state’s general fund) budget, absolutely.”

Three education funding bills were presented to the Senate E-12 Education Budget and Policy Division April 28. The bills call for a slight decrease to education funding with some cuts in Advanced Placement and International Baccalaureate grants and alternative learning programs in Minneapolis, St. Paul and Duluth.

The Senate did its best to keep cuts away from the classroom, said Sen. Claire Robling, R-Jordan, who sits on the division.

There appears to be “no political will” at either the House or Senate to cut the education funding formula this year, she said.

Croonquist said AMSD, which serves as both a networking group for member districts and a watchdog of education legislation, has a few doubts. The governor’s unapproved budget relies on a large chunk of federal aid for government-run medical care.

“If that money doesn’t come through, we are very fearful of not just flat funding , but actual reductions in funding,” he said.

Protecting teachers and class sizes are a top priority of school boards, Kyte said. Therefore, large-scale layoffs are indicators there’s not much left to cut, he said. Districts are wiping out middle school activities, athletics and academic programs like crazy.

Croonquist said many districts have spent the last few years cutting the low-hanging fruit and the bare tree is wearing thin.

“When push comes to shove, a school district’s budget is roughly 80 percent personnel. There’s just not a lot left,” he said. “We’ve all gotten down to the point where we’re down to actual staff reductions.”

Buesgens advised school boards to be conservative in their budgeting. Instead of looking at anticipated revenue, districts should rely on current actual revenue.

“Create a budget that not only is balanced for the year but also is balanced for two years out, anticipating no new revenue,” he said. “That would be my advice, to be as conservative as you possibly could.”

Even though this year is a bonding year and not a budgeting year, budgets are still big conversations across the state’s school districts.

“In a non-budget year, we’re usually not anticipating big changes,” Croonquist said. “It is an added concern now coming off a year of flat funding and a large (state) budget deficit.”

As local districts build their 2010-11 budgets – final budgets must be approved by June 30 – these issues have been at the forefront of planning.

District 191

Burnsville-Eagan-Savage Business Manager Lisa Rider is copying the a pproach taken last year, assuming a 1 percent decrease in state funding, when creating the 2010-11 budget. “We did that last year and didn’t end up using it in the end,” she said at a February school board meeting. “We’ll be conservative now but we will adjust as necessary when we know what is coming.”

Rider expects next year’s assumed 1 percent decrease to be followed by eight years of flat funding. Unlike other south-metro districts, declining enrollment is a large factor for Rider and the assumptions include a 162-student enrollment decrease for 2010-11.

The district’s magnet schools and programs will grow to five next year and may cushion some declining enrollment, but likely not enough create a zero-net loss, Rider said. Additionally, students who open enroll in the district’s magnet schools and programs were not considered in the headcount estimation as they can opt out and not attend the school at any point.

This year, the Burnsville-Eagan-Savage School Board waived a policy that recommends an unreserved/undesignated general fund balance of one month’s expenditures, or 8.33 percent of the general fund, and instead will aim for a 3 percent. Rider said there aren’t any plans to make cuts right now.

“We do anticipate it (the fund balance) will be higher than 3 percent, but not at 7 (percent),” she said.The budget assumptions will help Rider create a budget to be adopted before July 1.

District 719

The Prior Lake-Savage Area School District is facing virtually flat enrollment after years of growth. That plateau is just one factor impacting the district’s financial predicament. Uncertain about the state’s funding plans, the School Board recently voted to approve a $3.7 million budget cut for the 2010-11 school year.&l t;br />

The cut represents 8 percent of the district’s expenditure budget and allows the district’s finances to stay balanced if the state elects to cuts education funding by 5 percent.

The approved cuts include 22.5 full-time employee reductions in teaching staff – a 5 percent cut in total teaching positions. The district also plans to eliminate Synergy, a program for gifted and talented students, at the high-school level.Even if state funding were to stay steady, District 719 must cut $1.8 million to balance its budget in light of rising costs.

“I think the very best we can do is zero-zero (frozen funding) and that might not be possible,” said Superintendent Sue Ann Gruver. “Remember that zero-zero is still just under $2 million in cuts.”

The district’s current fund balance is just more than $1 million; the School Board does not plan to add to it or use it during what some administrators envision as a few years of tough economic times.

 “I’ve heard that if we can keep it at zero-zero this year, there are going to have to be cuts next year,” Gruver said about state education. “That could change though. We heard that last year too.”

District 720

At the Shakopee School District, like Prior Lake-Savage Area, enrollment growth has slowed over the past years. However, additional students are easing some of the budgeting pain.Planning for another round of flat funding from the state, the Shakopee School Board will “hold the line” once again by freezing building allocation dollars, using federal stimulus dollars to cover special education costs and dipping into its undesignated general fund reserve balance about $800,000. The fund balance reserve now sits at $6.9 million.<br /&g t;

“There are a number of things going on in our district to hold our expenses down,” said Superintendent Jon McBroom.Overall, Shakopee’s budget will rise slightly by 2 percent.

The budget calls for general fund revenue of $57.2 million and expenditures of $58 million in 2010-11.

“We like to stay conservative on our revenues and liberal on our expenses to make sure everything fits in,” said Business Services Manager Mike Burlager.

The district anticipates adding about 250 students for 2010-11, which translates into approximately $1.25 million in new funding. The district plans to save money by not hiring as many teachers as it ideally would with that type of growth.

Less staff, however, could result in higher class sizes.

“We’re going without some things we normally would add with this type of growing population,” McBroom said.

Last November, district voters renewed Shakopee’s $529.75-per-pupil operating referendum levy to ensure the district will continue receiving about $4.3 million in operating revenue.

Difficult times ahead

Kyte doesn’t anticipate any new funding at least through the next biennium, 2011-13. While costs will continue to rise 2 to 3 percent a year, schools will face a budget cutting dilemma well into the future.

“The difficult times financially are not yet over and we should expect in the next biennium … that school districts will see very, very little new money,” Kyte said.

His advice: “They need to be careful right now so they are preserving as much of their reserves as they can, th at they’re very careful where their expenditures are going, and that they look around for more and more ways to become efficient,” including reducing energy costs, spending less on busing, cutting back on support staff and administrators and even looking at online education.

Times of greatest crises can bring the great innovations, said Buesgens, who believes this is the perfect time for education reform. While it won’t be easy or comfortable, schools must look at doing things differently.Staff contracts are one such area, he said.

Over the winter, local districts approved two-year agreements with their teachers’ unions. Those settlement increases, especially with steps and lanes, are directly related to the cuts schools are making now, Robling said.

Policies like steps and lanes, seniority and tenure need to be dramatically re-thought “so that local school boards can make the necessary decisions and reward those who are the best and brightest educators within the system and have resources available to help those professionals raise their skills if necessary,” Buesgens said.

Buesgens wants the state give local school districts more control.

“If we continue to do a one-size-fits-all from St. Paul, we’ll continue to get what we’ve always gotten: what’s not helpful and hasn’t been in the best interest of kids,” he said.

Robling agreed that schools must get creative in how they operate because “we’re living in a different environment.”

Even with a new administration and possible new tax revenue structure for the 2011 session, the state cannot raise the money necessary to run all its programs. The burden will fall to local schools.

“I f communities want (schools) to thrive, (they) are going to have to find some more ways to put money into their schools. You can’t just keep cutting and cutting,” Kyte said. “You’re not going to have good schools if you don’t have the funds to run them.”

And that’s an investment, Robling and Kyte said, communities must make for themselves.

“Education speaks to the future and need to protect that as much as we can,” Robling said.