On Tuesday morning, Minneapolis Public Schools hosted a question and answer session for local reporters with Ibraihima Diop, senior officer of Finance and Operations, and Thom Roethke, director of Budget and Planning.
In opening remarks, Diop accentuated the positives of the district’s current financial position, including an upgrade to its credit outlook to positive from stable, an unassigned general fund balance just over the 8% minimum required by the board, and recent external audits that have shown minimal issues. Diop also praised the governor and State legislature for increasing funding for special education and English Learners, increasing the basic per pupil amount and tying that to inflation in future years.
Despite the rosy remarks, Diop acknowledged that the district still faces a financial crisis, as explained in last November’s pro forma financial projection. Roethke said the pro forma financial projection lays out a scenario where the district doesn’t make any changes, but added, “We don’t just sit on our hands and do nothing.”
“The State will not be taking over Minneapolis Public Schools,” Diop said, dismissing the idea that the district would soon enter statutory operating debt. Under Minnesota statute, statutory operating debt occurs when districts must borrow more than 2.5% of their operating expenses from the State to fund their operations. Districts then must submit a plan showing how they will balance their budget to the State in order to continue to receive State aid.
This contrasts with the district’s own November 2022 budget pro forma memo which says, in part, “Our five-year pro forma anticipates fully depleting the general fund fund-balance [sic] during the 2024-2025 school year, and quickly descending into statutory operating debt.”
Diop said the pro forma was a sign of “moral courage by the district to share what we know with the public.” He added that it will be followed by the district sharing with the public the steps it will take to avoid the scenario laid out in the pro forma. However, the district has not provided specifics about what those steps will be, yet.
Under his leadership, Diop acknowledged that the finance department has been raising the alarm, through its pro forma memos, for several years, warning the district it needs to reduce expenditures to be financially sustainable. He called it “encouraging” that the press and the board was finally paying attention to the pro forma.
Diop emphasized that the district has been preparing to reduce expenses by using priority-based budgeting, which will aid the district in eliminating duplicative programs and programs that have not been shown to improve student outcomes.
The district has not shared which, if any, programs were reduced this year after priority-based budgeting, nor which programs it expects to cut in future budgets. It has also not shared a dollar amount for how much it expects to save by implementing these cuts.
The district spends nearly four of every five dollars on staffing costs.
“The future district is likely going to have fewer people in it,” Roethke said, noting that cuts will reduce staffing.
The district has been accumulating vacancy savings in its assigned fund balance over the past several years, according to Diop. Vacancy savings refers to jobs that the district assumes will not be filled but are included in the budget.
Next year, the district plans to spend $755 million on its operations, plus an additional $224 million on capital projects and debt service. It will use $97 million in one-time funds, primarily pandemic relief funds, to close the gap between its operating revenue and expenses. The budget also incorporates about $32 million in new, ongoing State funding, and assumes that a 5% vacancy rate will save the district $27 million in labor costs that are budgeted but won’t be incurred.
Between 2018 and 2022, the district’s assigned fund balance designated to be used for “class size” reasons has increased from $12 million to $43 million, according to the district’s audited annual financial statements. These one-time funds could, presumably, be used to transition to lower expenses.
Diop estimated that in the 2024-25 school year, the district will need to reduce expenses by 8-10%, compared to the budget for 2023-24. Pandemic funds currently account for about 13% of the district’s operating revenue.
In a press release on June 15, the district said, “MPS expects to receive an additional $20 million in state funding, which reduces an expected deficit of approximately $97 million to around $77 million.”
During the June 27 press conference, Diop said the district does not have a budget “deficit,” but has a budget “gap.” He explained that the $92 million of ESSER funding, which expires in September 2024, and which the district is using to balance the 2023-24 budget, will not be available in 2024-25. He reiterated that the district expects about $20 million in new State funding in 2024-25, and that this new funding would reduce the budget “gap” to “a manageable number.
“What I mean by manageable number is anywhere between 50 and 60 million,” Diop said.
Although the district has shared that it expects $20 million in additional State funding in 2024-25, it has not shared a projection of how its costs might increase. The collective bargaining agreements with the district's two largest labor unions, the Minneapolis Federation of Teachers teacher chapter and Education Support Professionals chapter, both expire on June 30. According to the district, negotiations will not start until “fall.” Minneapolis Schools Voices has asked for a more specific date, and we will share any response we receive.
Although Interim Superintendent Rochelle Cox told the board the budget cycle for 2024-25 would begin this July, both Diop and Roethke said that the budget cycle will proceed on its usual timeline for next year, starting with revenue forecasts in September.
The district will focus on cost-cutting in 2024-25 because its ability to raise revenue is limited by State law. Some states allow school districts to raise any amount of revenue locally, but in Minnesota, the State restricts how much districts can levy locally. In recent years, the district has levied the maximum amount allowed by the State, so it cannot further increase its property tax levy to cover a gap between revenue and expenses.
The board has asked the district for a plan for “school transformation” that, according to comments by board members, may include closing or consolidating schools. But, Diop deflected one reporter’s question about potential school closures saying, “I don’t think that we’re here today for closing schools. That’s something for the board to decide.”
The district’s operating budget has increased nearly 9% since the 2019-20 school year, while enrollment next year is expected to be 20% lower than before the pandemic and the implementation of the Comprehensive District Design. State aid and the local property tax levy are both based on district enrollment. Decreases in enrollment reduce district revenue.
The school board will meet again on August 8.