The finance committee of the Minneapolis Public Schools board of education met at its usual time on Tuesday, but did not discuss details about budgets for next year for schools or district administrative departments. Those topics are being held for a discussion at the next board meeting on March 28, which is expected to focus on the district’s finances and the board’s priorities. The February meeting was canceled due to the “encryption event.” Although it was the middle of budget tie-out for schools, the meeting was not rescheduled.
The finance committee members, including Board Treasurer Abdul Abdi, Board Chair Sharon El-Amin, and Directors Kim Ellison, Sonya Emerick and Ira Jourdain, were joined on the dais by Senior Finance Officer Ibrahima Diop and Interim Superintendent Rochelle Cox. After updates on the December and January financial statements, the committee spent the majority of the meeting hearing a presentation from and asking questions of Curt Hartog, Executive Director of Capital Projects.
The district is currently in the third year of a five year capital plan that was approved in June of 2020 to support the district’s Comprehensive District Design. Board policy requires that the district develop a three-year and ten-year capital plan each year. For both plans, the district aligns the capital projects to the board’s stated guidance. These plans are not binding, and can be adjusted each year by the board. The board must approve a one-year capital plan each year. It typically does this in June when it also approves the district’s operating budget for the next fiscal year.
Nearly two thirds of the ten-year capital plan is devoted to maintaining the district’s existing buildings and grounds. The next largest category of projects is building cooling. According to the most recent district estimates in 2021, it would cost over $69 million to air condition all of its buildings. Because of inflation, the costs of these projects are likely to be higher now.
Figure 1: MPS 10-Year Capital Plan by Category
Hartog shared with the board that the district currently has 8 million square feet of building space that it maintains. Maintenance costs for the district are high because many of the district’s buildings are older, and everything from furnaces to lighting, as well as roofs and flooring, wear out regularly across the district’s sixty-five buildings. The maintenance budget includes the district’s grounds, too.
Diop stressed the limitations declining enrollment will have on the district’s ability to issue bonds to fund future capital projects, and pay back its debts, in accordance with board policies.
“As we go through these capital plans, we would be looking at actually curtailing certain things given the decline in revenue due to the decline in enrollment,” Diop told the committee.
Although Hartog presented the current three, five and ten year capital plans, Diop encouraged the board to look for ways to reduce the number of projects because of what he called the district’s “debt ceiling.”
“With declining enrollment, our capacity to support our capital plan as we know it now will be impacted negatively. I think for responding to the public, in terms of the fiscal cliff, we would lead by saying that our general fund is right now supplemented using federal dollars. Those federal dollars would be sunsetting by September 2024. Moving forward, what do we do in the absence of those federal dollars?” Diop told the board.
Currently, board policy 3290 requires the district to spend less than 20% of its operating revenue on debt repayment. This policy was changed in December 2022 to increase the threshold from 15%. The district would not have been in compliance with board policies this past winter when it issued new bonds to fund the ongoing, multi-year capital projects that are part of the Comprehensive District Design without this policy change. Those projects include the Career and Technical Education center at North High School, the remodeling of North High School, and ongoing renovations at Andersen Middle School.
The downside to this policy change, however, is that the district is now devoting a larger proportion of its operating revenue to paying back its debts. This leaves less operating revenue available to pay for its operational costs, including wages, benefits, and transportation services.
In addition to limiting the portion of operating revenue that can be spent on debt repayment, policy 3290 also requires the district to pay off 70% of its debts within ten years. One of the rationales for this policy is for the district to have paid off the debt for capital projects before those projects require updates and maintenance.
As enrollment declines, operating revenue will be less than if enrollment had remained constant. The decline in operating revenue will limit the ability of the district to afford new capital projects.
As the meeting came to a close, Emerick expressed a desire to examine how the capital plan fits in with the findings of the district pro forma that show the district’s costs are high relative to other districts because it operates too many schools with low enrollment.
“We need to be talking about our schools and our school closures and what our plan is. When we are talking about our long term capital investments– and you know I want to defer to board leadership for when this comes to the table– but I don't want it to be something that we are doing reactively,” Emerick said. “I want it to be something that we can really think about what our vision is for our use of space.”