Editor's note: This article was updated with a information from Superintendent Dr. Teri Staloch's email to staff on Wednesday, Feb. 12 at 12:25 p.m. A further clarification stating that the bond referendum projects did not contribute to the current budget gap was made on Friday, Feb. 14 at 11:39 a.m.

Prior Lake-Savage Area Schools leaders are looking to cut around $3 million — or about 3% — from the 2020-21 school year budget after lower-than-expected enrollment created a gap in district revenues.

"This is something the board hasn't had to do in 10 years," Business Services Executive Director Julie Cink said at a board work session Monday.

Superintendent Dr. Teri Staloch told the board that the district would be considering cuts based on previously set parameters for class sizes, open enrollment and the district's fund balance.

"We need to make some adjustments to make sure that we continue on the course of offering excellent education and maintaining the financial stability that we've been known for," Staloch said.

Staloch said the administration will bring back several budget adjustment options at the next board work session on March 16 and get board feedback before a second presentation of options in April. The board could vote on final cuts in May.

She's "grateful that our district is financially stable," she said, and the district is working to keep it that way.

District budgets generally tick upward each year for rising costs even if nothing new is being paid for. The $3 million cut would be measured against that higher future number, which the district hasn't yet decided. The 2019-2020 general fund budget for the district is about $106 million.

The superintendent said the budget cut discussion would start with getting input from staff members. Board members agreed to do so before getting public input.

"I'm all about hearing from the community, that's not a problem," Board Chairwoman Lee Shimek said. "But to bring this up as, 'Community, what do you think?' is too nebulous. I don't want to go there. I think we need to have some idea of what we're looking at."

Board members also asked for context on what impact their options would have on student experience and performance.

Cink said that enrollment this year had grown only by 50 students instead of an anticipated 252. The slower growth meant that the district received about $1.5 million less in general education money from the state than planned.

That gap, growing employee salaries and costs related to construction throughout the district created a $3.6 million difference between the budgeted revenues and expenditures.

In 2017, voters approved a $109.3 million bond referendum and a $250-per-pupil increase in the 10-year operating levy. The bond allowed the district to start construction projects and renovations throughout the majority of its schools and build a new Bridges Area Learning Center and elementary school, Hamilton Ridge, set to open in the fall. Those projects did not contribute to the budget gap the district is trying to fill.

"These funds can only be used for these purposes," Staloch wrote of referendum funds in a Q&A portion of an email sent to staff about the cuts Tuesday. "The newly constructed spaces are needed to serve our current student population and will also allow for future enrollment growth."

Cink said that the budget approved by the board on Dec. 9 placed the district's general fund balance — the difference between the district's assets and debts — at 11.15%. The board has a policy that the district will maintain the general fund balance between 8-12% of the district budget, an amount equal to approximately 4-6 weeks of the operating expenses.

Even so, Cink told the board that unless the district makes some changes, the fund balance percentage could slip.

With a more conservative growth rate of 125 new students a year, the district's revenue and spending trends would place the fund balance at 5% in two years and 0% by 2022-2023.

"Although this looks like we're going off the cliff, we don't make it to that cliff, because the board will make decisions to help us maintain a good healthy fund balance and help us move forward," Cink said, adding "most districts" are in the same situation.

In December, board members voted to increase the number of new students allowed to open enroll in all grade levels in an attempt to take better advantage of open space in schools and increase state aid.

The board last made budget cuts in 2010, when student growth slowed to 1%. That year the district approved $3.7 million in cuts, eliminating 22.5 full-time equivalent teaching positions.

"The good part of it is is that it makes us look at ourselves and see how we're spending our money," said Shimek, the only board member who was on the board in 2010.

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