REGIONAL- While last spring’s $19 billion state budget surplus provided room for some additional aid for education, it wasn’t enough to relieve many school districts of financial shortfalls due to issues other than the state reimbursement formula.
The ISD 2142 school board grappled with that reality at its Dec. 12 meeting, approving a 4.37-percent increase in the 2024 property tax levy while engaging in a review of tough choices they will have to make to deal with an approximately $1 million shortfall in the unassigned fund balance for the 2023-24 budget year.
Levy increase
A significant factor driving the district’s pay levy hike is the increase in property market values. The district’s property valuation went from $3.40 billion to $3.94 billion, an increase of around $530 million. District finance director Kim Johnson told the Timberjay on Tuesday that the district’s hands are tied by the state when it come to the concurrent increase in the district’s referendum market value levy, one segment of the overall pay levy.
“The Legislature believes that the higher the market value in your district, the more money that should come from your taxpayers,” Johnson said. “That total referendum market value levy increase of $210,698 is because of the market value increase. We have no control over it.”
Another item that factors into the levy increase is a decrease in the taconite replacement funds the district will receive, a hit of $37,125 for the 2024 levy.
“Taconite is not displacing as much levy as it did in the previous year, and therefore taxpayers have to pay more,” Johnson said.
A third factor in the pay levy calculation is the district’s ongoing debt service for bonds used to construct and renovate district schools, Johnson said. The district will levy for $3.73 million, an increase of $128,021, for bond payments.
“I have gotten one phone call this year on the levy, which is highly unusual, and the question that individual asked was when will the bonds be paid off?” Johnson said. “That debt service is going to be paid off in six years, and there’s going to be a significant drop. There’s going to be a $4.5 million drop in debt service payments in six years.”
With those and several other line item adjustments, the overall 2024 pay levy increase factored out to be 4.37 percent, but not all taxpayers will see an increase on their property tax bill, Johnson said, because of the property valuation increase in the district.
“If you do not have an increase in your market value, you will more than likely see a decrease in your school taxes because everybody else is carrying a bigger share because of the total market share for the area,” she said.
Budget concerns
Johnson reviewed the audited 2022-23 budget and the current adopted 2023-24 budget with the board, and in current year projections show the district will need to tap about $1.2 million of its surplus reserves to balance the budget. That figure will be reduced somewhat when the district’s savings from switching health insurance providers is factored in for the next scheduled budget revision, Johnson said.
The deficit is not as large as it was in 2022-23, when the district’s expenses of $46,117,988 exceeded its revenue of $43,135,941 by $2.98 million. Those back-to-back deficits are projected to reduce the district’s unassigned fund balance from $7.74 million at the start of the 2022-23 school year to $3.55 million by the end of the current school year.
A decline in the district’s student count is behind the budget woes.
“Pre-COVID, our 2019-20 school year, between then and what we have for the revised enrollment projection for the current fiscal year, we have a 167 adjusted pupil decline in student enrollment,” Johnson said.
And when state aid is allocated on that adjusted pupil count, fewer pupils means less money coming in – a lot less.
“That fiscal reduction for each school year, 2021, 22, 23 and 24 has resulted in a $3.7 million deficit in general education aid,” Johnson said.
The adjusted pupil count gives more weight to junior high and high school students, so a clearer reflection of actual head count is what’s called average daily membership.
“With our ADM, we’re down 155 students,” Johnson said.
With the decrease in aid to an organization that spends around 80 percent of its revenue on staffing costs, staff cuts might have been a way to offset those deficits, but that wasn’t an option because of the strings attached to the extra COVID funding the state and district received from the federal government.
“Even though we knew and understood that we were seeing declines in pupil units, in order to get the COVID funding from the government we had to maintain staff levels,” Johnson said. “It’s a Catch-22 – we’ve got the decline in pupil units, but we can’t decrease staffing levels. We had to show MDE and the federal government that the district was maintaining equity in staffing levels. So that has exacerbated the fact that we’re down in revenue. We were basically caught between a rock and a hard place.”
Those COVID funds will run out this year, having been carried over to complete projects approved in prior years. And when the COVID restrictions come off, hard budget choices will need to be made, said Johnson.
“I guess the bottom line is the district is taking a hard look at ways to save money,” she said. “One of those ways was to go out for request for proposals for our health insurance. We’re looking to right-size staffing levels. It’s difficult for a district like 2142 because 155 students could be spread across five schools and how many grades per school? That makes it difficult to do just blanket cuts. So, the administrative team is taking a look at different ways of delivering education that will allow us to right-size districtwide.”
There’s little question that whatever solutions the district finds, staffing adjustments will be a significant part of the mix.
“Any time we try to do some saving with non-payroll related items we are not making a huge impact,” Johnson said. “There are a lot of things that are going on that are going to help us, but we’ve got to figure out long-term what everything is. We’ve been trying to do things over the last couple of years without impacting FTEs and that’s very, very difficult.”