Shakopee school board (copy)

Shakopee School Board members sat 6 feet apart from each other in the auditorium at Shakopee High School to discuss the district’s potential levy options in March.

A combination of budget cuts and a voter-approved operating levy would be the “most prudent” approach to mitigating its $2.5 million budget shortfall ahead of the 2020-2021 school year, The Shakopee School District administration advised the School Board this week.

The district’s shortfall is projected to put its unassigned fund balance, which goes toward teacher salaries and benefits as well as other operating costs, at about $1 million at the end of next year. If nothing was done about the deficit — which Superintendent Mike Redmond said is not an option — the problem could snowball until the district’s fund balance drops to $26 million in the hole by 2024.

“Any time school districts aren’t seeing enrollment growth, years 3 to 5 look pretty bleak,” Finance Director Bill Menozzi said.

The district hasn’t had a healthy unassigned fund balance, which by its policy would be around $8 million or more, since the 2013-2014 school year. In 2017, the district faced a projected $4.5 million budget shortfall and had to make more than $3.8 million in budget adjustments.

The district’s unassigned fund balance in 2017 was $691,000. Ever since, the district has made cuts to its teachers and administration, closed Pearson Elementary School and made transportation adjustments and other budget cuts.

Redmond said he’d like to see the district add $500,000 each year to the district’s unassigned fund balance. Even with a combination of budget cuts and a successful operating levy, the picture’s grim without an uptick in state money, Redmond said.

The school board will make the final decision on how to mitigate the budget shortfall on July 22. If the board moves forward with a request for an operating levy, the referendum would take place Nov. 3.

Residents can visit the district’s finance update page for more information related to levy scenarios and budget projections.

Redmond said he encourages any residents who have questions about the district’s finances to reach out.

“I’ll talk to any group, any time, any place, with social distancing.”

Cuts needed ‘no matter what’

District administration said at the May 18 meeting that at least $2 million in permanent budget cuts over the next two school years will be necessary regardless of whether a levy passes or not. The district needs to make $450,000 in cuts for the 2020-2021 school year and an additional $1.6 million in cuts for the 2021-2022 school year.

None of those cuts would affect classroom teachers. Redmond said ideas include a targeted hiring freeze and reducing supplies, staff travel and development expenses for next year. The second wave of cuts for 2021-2022 would likely impact non-teaching staff.

If an operating levy doesn’t pass, the district would need to cut an additional $5.4 million by the 2021-2022 school year — and that’s on top of the $2 million in cuts the district is already preparing to make. Those cuts would impact classroom teachers, Redmond said.

Redmond presented three possible scenarios with phased-in levies that would take place over the course of three to four years.

“Rather than asking for the total amount of money all at once, the idea is that it’s phased in over time,” Redmond said. “I’d say this is a more fiscally conservative, prudent approach for taxpayers.”

The options

Shakopee’s taxpayers will see $4.9 million in property tax relief in taxes payable 2021 as school building bonds get paid off. That equates to $224 less in school district property taxes for a homeowner who has a $280,000 property next year, according to the numbers presented.

An operating levy, if passed, would partly take the bonds’ place and bump taxes back up somewhat, Menozzi said.

One option includes an overall operating levy of $9 million paid over the course of the next four years. It would bring no net tax increase for taxpayers in 2021 and a small net increase the following three years, Menozzi said.

The district’s unassigned fund balance would then grow to $4.2 million by the 2024-2025 school year. But after that, the fund balance is projected to dip back down to $4 million by 2026, even if $450,000 in budget cuts were made in 2025.

Redmond said that the long-term projection is the “worst-case scenario” and is based on a continued shortage of state aid.

Another option is to ask for $2.7 million each year for taxes payable 2021, 2022 and 2023. In order to keep pace with the district’s expenses, this option would require an additional $900,000 in budget cuts for the 2023 school year.

Under this scenario, the district projects the unassigned fund balance would reach $4.2 million -- just under half the amount it’s aiming to save — by 2025. But it’s projected to dip back down by 2026.

With this option, the net tax impact to Shakopee residents would be slightly lower for the first two years than what they currently pay. The third year would bring a slight increase to the net tax impact, Menozzi said.

A third option is an $8 million levy spread out over the course of the next four years.

This scenario would require an additional $1.8 million in budget cuts made in 2023 and 2026.

The district’s unassigned fund balance would reach $3.1 million by the end of the 2025-2026 school year under this scenario.

Board member Paul Christiansen said he couldn’t ignore the COVID-19 pandemic.

“I’m really struggling with how I can ask people who have lost their jobs to give us more money,” he said. “I get that it’s going to be tax-neutral for the next few years, but after a while, it’s not.”

On the other hand, Redmond in an interview said increasing an operating levy by $8 million all at once “seems absolutely wrong right now.”

“This is totally uncharted waters,” he added.

Board member Matt McKeand said he felt like giving voters an option to pass a levy was the right thing to do.

“I view it more as a way to empower the voters to vote,” he said. “To use their voice. A referendum is a conversation with the community to see what the community wants.”

A lasting problem without more state aid

Even the budget cuts and levy revenue options provided by the district project a slow burn of the district’s unassigned fund balance after the operating levy revenue wears off. Redmond said it’s not just a Shakopee problem.

The state-mandated Special Education and English Learners programming are underfunded, and the mandate doesn’t cover the costs, leaving individual districts to foot the rest of the bill. The district pays about $9 million per year from its general fund to cover these programs.

Redmond said with the state’s recently-announced $2.4 billion budget deficit in mind, he’s “not expecting much by the way of state aid.”

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