Inflation, staffing costs contribute to deficits
After the Lakeville Area School District’s unassigned fund balance dropped below the recommended 5% of district expenditures at the end of fiscal year 2022 due to what the district says were inflationary pressures, along with increased costs for busing, utilities, and substitutes, it is taking steps to reduce expenses and will start assembling a 2023-24 budget that is projected to include $7 million in cuts.
Among the immediate action that was detailed during a Nov. 15 School Board work session was a hiring freeze, reducing building budgets by 10%, and placing a moratorium on out-of-state travel.
Due to what Superintendent Doug Van Zyl described as a perfect storm of rising enrollment precipitating the addition of staff and other rising expenses, the district’s unassigned general fund balance dropped from $14.2 million to $6 million from fiscal year 2021 to 2022. It is projected to drop to $740,498 in the fiscal year 2023.
Board policy says the unassigned fund balance should have 5-13% of annual general fund expenses on hand for emergency purposes. Since the percentage is currently at 4 and is expected to drop below 1 in 2023, the district has to make immediate budget adjustments.
The unassigned balance (a “rainy day” fund) is important since it provides a cushion in tough economic times or instances of delayed state payments as happened in 2010.
Executive Director of Business Services Bill Holmgren has said in budget discussions during the past year that the board will have to look at changes in programming, but it wasn’t expected this early.
He said due to the policy, a balanced budget has to be presented to the board, as it is expected to have adjustments of at least $7 million for 2023-24.
Van Zyl said it is a big number that would account for several full-time positions in each building, but it is a relatively small percentage in entire budget of $182 million.
The majority of the district’s budget is in staff salaries, but the district can’t reduce its teaching staff since those employees are funded through a contracts that run through the end of the academic year.
Among the items the district will review for 2023-24 are staffing formulas for regular instruction and supports, and third-party vendor contracts.
Board Member Terry Lind said cost reductions should include district office staffing, noting that in the 2011 round of adjustments there was no area that was not affected.
“Everything goes under the microscope,” Van Zyl said.
The superintendent, who was hired in March, said a lot depends on the community whether to cut the fat, the fat and the meat, or the fat, meat and the bone.
“We’ve been painted in the corner,” Van Zyl said. “There are only so many things that are going to get us out of that corner.”
Board Member Robin Richards said the budget news was upsetting.
She said the community will step up the challenges, and the district has to be transparent.
Richards said the district has many great minds to address the issue and it will require the Lakeville community coming together.
There will be opportunities for district residents to be involved in contributing thoughts to a facilities advisory group.
“We are not going to get out of this by ourselves,” Van Zyl said. “The sky is not falling. This is the process we are going to have to go through. It’s not a comfortable process to go through. There is no good place to start.”
Van Zyl said in a statement last week: “Good things are happening across our school district for our students, thanks to our staff and our families. Working together, we will solve these financial challenges and continue doing great things for our kids.”
Deficits have grown along with the student population, as more spending has come with additional staff hires. Staff salaries and benefits account for $139.6 million of the district’s $178.9 million in FY23 general fund expenditures.
“The staff is growing faster than our students,” Van Zyl said. “That is why we are in the situation we are in.”
District enrollment has grown to nearly 11,800 early childhood through grade 12 students.
Van Zyl said enrollment decreased slightly during the pandemic, which reduced last year’s revenue while expenses increased.
“That hurt our budget,” he said in a statement. “Structures and programs to support students that we started for very good reasons (before and during the pandemic) are not financially sustainable.
“Our financial situation, like other Minnesota school districts, is compounded by state funding that has not kept up with inflation for nearly 20 years, as well as the state and federal governments not fully funding critical special education programs as promised.”
Van Zyl said the issue is that the district can’t put recurring expenses in the “savings account” or the unassigned fund balance, as those expenses have caused the “savings account” to be depleted.
He said a district shouldn’t have three, four or five years of a negative fund balances.
“Then the unforeseen happens, and you are further off the cliff,” he said. “There is going to be some pain.”
In the past several years, the district has completed several building projects and hired new staff to keep up with growth.
In June 2020, the School Board approved building additions to Eastview, JFK and Christina Huddleston elementary schools to add classrooms for 364 students using lease levy funds, which Minnesota districts can use without having to seek voter approval.
The board discussed at the time placing one or more of the school additions onto a future bond referendum to seek land and building costs for a ninth elementary school, but chose to use lease levy in order to expedite the process to accommodate current excess enrollment and future enrollment growth.
The Lake Marion addition was also funded by lease levy, which use certificates of participation with higher interest rates, but are paid back in fewer years than most general obligation bonds.
A $43.975 million bond referendum for the ninth elementary school was approved in spring 2021. Van Zyl raised the possibility of the district not having enough funds to open the ninth elementary, which is under construction and is slated to open in fall 2024.
He described the bond referendum and construction of a new school as putting the cart in front of the horse, as often such building projects are run contingent of an operating levy passing to fund staffing at the school.
The School Board was slated to discuss the budget situation at its Tuesday meeting after this story was posted.
Tad Johnson can be reached at firstname.lastname@example.org.