Under Minnesota law, school boards must pass a balanced budget by June 15 for fiscal year 2024 which runs from July 1, 2023 through June 30, 2024. The first draft of that budget was shared with Minneapolis Public Schools board of education finance committee members at the April 18 meeting. It shows district revenues are expected to be $879 million in fiscal year 2024, while expenses are expected to be $976 million. The district expects to close the gap using one-time funding from a combination of fund balances.
Overall, the proposed budget shows the district will use $132 million in one-time funding next year to cover its operating expenses– expenses excluding debt service and capital projects. The one-time operating funds are a combination of $86 million in one-time pandemic relief funds, $40 million in assigned general fund balance, $2.9 million in one-time pandemic funds for the community service fund, and $4 million from the community service fund balance.
The reliance on one-time funding for ongoing expenses is an indication of the financial challenges the district will face in fiscal year 2025, which begins on July 1, 2024. Nearly 18% of district operations next year will be funded with one-time money.
The draft budget does not assume any additional State funding. Despite early optimism that the State of Minnesota would significantly increase funding to schools, bills currently in the House and Senate would allocate approximately $30 million in additional funding to MPS next year. Those bills also include provisions that would increase district costs, including unemployment insurance for paraprofessionals during summer break and paid family and medical leave. The net impact of those provisions is not yet known. The expected $30 million in additional revenue for MPS will not be enough to avert the oncoming fiscal cliff.
The resolution begins with a table of dollar amounts, followed by a series of “whereas” clauses. The table represents the revenue and the expenses the district will budget for next year. The clauses explain how the district will close the gap between its expenses and revenue because the revenue is not enough to cover all of its costs. Negative numbers in the table are represented as parentheses. For example, negative $100 is written as ($100).
The table includes rows which represent the district’s main accounting funds. These include the general operating fund, food service fund, community service fund, capital projects fund and debt service fund. The row labeled “general fund grants” represents federal funding to MPS, primarily from Title I. There is also a row showing the federal pandemic funds the district will use next year. Across each row is the amount of revenue the district expects in each fund, followed by the expenditures the district plans to make from each fund.
The draft 2023-24 budget resolution.
For some funds, the revenue and expenditures are equal. The fourth column labeled “Change in Fund Balance” shows $0 for these items. For example, the district is planning to use $86 million of its one-time federal pandemic relief funds to cover operating expenses next year.
For other funds, expenditures exceed revenue. In these cases, the district is using some of its fund balance to pay for its expenses. In this way, the fund balance acts as a reserve.
The food service fund revenue is budgeted to be $22 million, but that fund is projected to incur almost $27 million in expenses. Typically, the district would use the fund balance in the food service fund to cover this gap. However, the food service fund balance has been depleted, so the district cannot use food service fund balance to cover this gap. By law, the food service fund cannot have a negative fund balance, so the district will transfer money from the general fund to cover this gap. That transfer is shown in the third column, labeled fund transfers.
Minneapolis Public Schools will transfer money from its general fund next year to cover an ongoing deficit in its food service fund.
The district expects to transfer $4.3 million from the general fund to the food service fund. This is shown in the third column as a negative number in the general operating fund, and a positive number in the food service fund. In the row labeled total, the third column, fund transfers, shows $0, which indicates the district is moving money from one accounting fund to another.
The fourth column of the table shows changes in fund balances. Altogether, this column totals to -$97 million. This means the district will utilize $97 million from its reserves to cover its expenses next year. About half of these reserves are for operating expenses, and half are for capital expenses.
Below the table are a series of “whereas” clauses in the budget resolution. These clauses explain how the district will close the gap between its planned expenditures next year and its expected revenue.
The first clause notes that the district expects 5% of its positions to remain vacant next fiscal year. The resolution does not specify how much it expects to reduce expenditures because of these vacancies or which positions it expects to remain vacant. In May 2022, the district reported that it had vacancy savings of $24 million in the 2021-22 school year. At that time, the district had a vacancy rate near 10%.
The second clause explains that the district will use $5 million in assigned fund balance from capital projects levies. At the end of fiscal year 2022, the district had $10 million in fund balance in this fund.
The district will use $40 million of assigned general fund balance to cover its general operating expenses next year. At the end of fiscal year 2022, the district had $68 million in assigned general fund balance. The district budgeted $18 million in assigned general fund balance for the current fiscal year, 2023, to cover its operating costs.
The next clause describes the transfer from the general fund to cover the expected deficit in the food service fund next year. The district does not expect the new State funding for universal school meals to mitigate the deficit in the food service fund. The deficit is a result of rising food costs and a decline in enrollment. The same number of schools are serving fewer students at each school, which has increased the cost per student of providing food service.
The district will use $4 million from the community service fund balance to cover expenses in this fund next year. The district ended fiscal year 2022 with $5.1 million in the community service fund balance.
The second page of the budget resolution.
The district will transfer $48 million from the capital projects fund to pay for capital expenditures. The finance committee discussed the capital plan at its March 21 meeting. Capital expenditures include new building projects, like the new Career and Technical Education center, and maintenance of existing district facilities and buildings.
The capital projects fund is the accounting fund where the district records revenue from bond sales and expenditures on capital projects. The revenue from bond sales cannot be used for operating expenses, like classroom teachers or student transportation.
The negative $48 million indicates the district is spending this amount from the fund balance in the capital projects fund. This is not unexpected because the district may sell bonds in one year, but not utilize the proceeds until some point in the future. Funding for capital projects and debt service comes from bond sales by the district, and must be spent on capital projects and paying the principal and interest on bonds.