Photo by Will Jacott/Minnesota Reformer.
Minneapolis Public Schools finance and budget officials put a positive spin on their financial outlook Tuesday, seeking to assure residents that the district can avoid state intervention.
Ibrahima Diop, senior officer of finance and operations, said the school district has faced decades of chronic underfunding and is now grappling with declining enrollment and rising costs, creating a financial crisis.
Earlier this month, the Minneapolis Board of Education approved a $755 million 2023-2024 budget propped up with $92 million in federal COVID-19 pandemic funds, nearly $32 million in additional funds from the state and the district’s reserve funds.
In the aftermath of budget debates — during which school board members discussed the prospect of closing schools and state intervention — district finance and budget officials held a press briefing Tuesday to clarify the district’s financial situation.
For the past three years, the school district has balanced its budget with the help of nearly $262 million in federal pandemic funds, but that money runs out in September 2024. That will leave an estimated $77 million budget gap next year, which MPS officials think can be reduced by tapping the fund balance and through expected vacancy savings to $50 million to $60 million, or about 8% of the district’s $755 million general fund budget.
Diop said the projected budget gap is not unsurmountable; since he joined the district, they’ve always started out with a budget gap that must be closed.
Like other school districts that used the federal money to make ends meet, “We are still facing an imminent financial crisis,” Diop said. “So knowing that, we’ve been making steps to make sure we have options.”
Diop indicated cuts are coming, especially in the next three to five years.
“We will be ready because we haven’t been just sitting and waiting for that to happen.”
The district will reduce expenses to balance the budget, he said, and hopefully avoid having to tap its reserves to do so, because they play a role in the stability of the district.
“It will be a critical year,” he said.
On the good news front: The Fitch ratings agency recently upgraded the district’s outlook from stable to positive.
Still, the district cannot let its reserves drop too low or it risks state intervention.
The district’s most recent five-year budget projection predicted “an unprecedented fiscal crisis in the 2024-2025 school year” if costs aren’t cut, with the general fund depleted sometime in 2025 and the district quickly descending into the red and falling into what’s called “statutory operating debt.”
If a district’s reserves — which are akin to a savings account — drop too far into the red, the district must submit a plan to the state showing how it plans to get back on track or risk losing state funding. The loss of state dollars would put the district into a fiscal death spiral, since it accounts for more than half of its general fund revenue.
But district leaders said the budget projection just illustrates what would happen if they did nothing, and they sought to assure the public they will avoid that with budget adjustments.
“The state is not taking over Minneapolis Public Schools,” Diop said. “And I don’t think that that should be anybody’s hope or wish.”
He blamed decades of underfunding that have plagued “every district in the country.” During the recently completed legislative session, lawmakers approved additional state aid to schools, which is expected to amount to about $20 million in new funding next year for MPS, and future increases tied to inflation.
The district was built to serve about 40,000 students, but currently enrolls about 28,000. The district saw a 17% decline in student enrollment between 2017 and 2022, and state funding is tied to enrollment. Diop said an MPS survey two years ago showed people were moving out of Minneapolis due to violence, a “perceived lack of safety,” and because it has become too expensive.
Director of Budget Planning and Analysis Thom Roethke said the district has very low student-teacher ratios compared to the rest of the state.
Diop declined to talk about closing schools — that’s up to the school board to decide, he said. MPS is “people intensive,” Diop said, with about 80% of its costs going to salaries and benefits. So to cut costs, the district would need to reduce its workforce and cut costs elsewhere, he said.
“If that is something that would be needed, then it will be communicated openly to staff and to the community,” Diop said. “We are not saying that we are going to lay off people … that would be too easy and too lazy.”
Later in the briefing, however, he acknowledged the likelihood of staff cuts: “We do know … the future district would be one that would have less staff members than we do now.”
Roethke said the district ended the last school year with 28,456 students and now has 28,087, losing about half as many as expected.
Normally, enrollment drops during the course of the school year by 600 to 800 students, but this year enrollment increased, largely due to students from families that primarily speak Spanish.
* Updated at 10:42 a.m. Wednesday to reflect MPS clarification on budget gap figures.
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