Last week, ISD 110 submitted to the Minnesota Department of Education its latest plan to remove itself from statutory operating debt (SOD).

The condition was first identified in 2019, and under Minnesota statute the school board must develop and approve an operating plan by the end of January that reflects progress toward reducing the school’s deficit. The board approved a resolution Monday adopting the plan.

The debt recovery plan outlines projections and assumptions around a number of variables in the financial management process, including student enrollment, revenues, staffing, expenditures and contingency budgeting. On the revenue side, the plan includes a future potential operating levy referendum in the amount of $350 per pupil, or $1.7 million, to move the school district toward a positive balance sheet, although the board has not voted to go out for that at this time.

The last operating levy in 2018 amounted to $525 per pupil, or about $2.4 million.

The district’s current fund balance stands at a negative $6.4 million, driven largely by shortcoming in state funding due to a change in its special education funding formula. The resulting condition, known as a cross subsidy, has resulted in considerable general education funds going to pay for mandated special education programs. The formula change has hit the Waconia school district and a few others in the state particularly hard.

Changes to the funding formula made in 2016 lagged for two years and took the district somewhat by surprise when it was uncovered during a financial audit in early 2019. Since then, there’s a better understanding of the formula and the state has provided some relief, according to district officials, although the cross-subsidy still exists.

The state is not asking the district to “jettison programs,” nor does it demand an immediate return to financial solvency, District Finance Director Todd Swanson explained at a school board finance committee meeting last Thursday.

District administrators and school board members said they don’t want program cuts either, so they approved a plan that proposes new revenues in addition to controlled spending.

There are only a few schools in SOD, but some have remained there for several years.

That’s not what this district wants, board members agreed, so the board approved a plan that could get the district out of debt by 2023 and projects a positive fund balance by 2025 if the operating levy or other events occur, like considerable student growth or increases in state funding.

In addition to better understanding the special education funding formula, the district has developed a modeling tool to help administrators and school board members better understand the impacts of their decision making.

One board member called it a “plug and play’ model and said it was very useful in the board’s decision making

District administrators are calling this year and next break-even years for the district. It cut about $1 million in spending in 2019 and has a balanced budget this year. It also gained some expenditure relief from teachers in their latest contract settled earlier this month which runs through next year.

The district is allocated funding on a per pupil basis, so growth in enrollment would help its finances. Gov. Tim Walz and state lawmakers also are aware of the cross-subsidy concern from District 110 Superintendent Pat Devine and fellow superintendents who have felt impacts from the special ed finding formula.

It’s unlikely that affected school districts will get relief this session; however, a governor’s task force is expected to make recommendations on the issue this fall.

So, the Waconia school district will file its proposed plan and monitor enrollment, spending and legislative developments before deciding on what it might ask from voters.

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