The Shakopee School District’s budget crunch may have recently caught residents by surprise, but the district has been hemorrhaging money for several years.
The extent of the problem burst into public view during a heated school board meeting last week, when Shakopee residents angrily demanded to know why the school district had a $4.5 million “budgeting error.” They got few answers, but got more during another meeting Monday night.
The school district’s financial statements make it clear this budget problem wasn’t just the result of a recent error. Since 2012, the district has steadily chipped away at its cash reserve, causing it to dwindle from $13.4 million in 2012 to $2.5 million last year.
Superintendent Rod Thompson said in a March 10 email to staff the fund balance will be at $1.7 million when school starts next year — as though that’s a good thing.
Shakopee School Board Chairman Scott Swanson has assured residents the district will end the year “in the black,” but the district’s financial cushion is nearly wiped out. Those shrinking reserves led Moody’s to downgrade the district’s bond credit rating one year ago. The school district attributed the downgrade to the additional debt being taken on to expand Shakopee High School, and that was part of the reason, but Moody’s also cited “the district’s narrow reserve levels and recent, large negative budget to actual variances in the general fund.” In other words, the district was spending more than it budgeted.
And just as with consumers, a lower credit rating translates into higher interest rates when it comes time to borrow money.
And that downgrade was based on the district’s 2015 performance.
“I can only imagine what Moody’s or any other rating companies are going to do with this [mess],” said Mike Renner, a Shakopee numbers lover who managed multi-million-dollar budgets for a large restaurant chain. He says he would have been fired for handling the school district’s finances this badly.
“If I had even done a tenth as bad as it appears the school district has, it would’ve been grounds for termination,” he said. “There’s just no tolerance for that whatsoever.”
He likens it to a person not writing down checks in their checkbook ledger, and then ending up with millions of dollars less than expected in their account. He said the district’s budget is filled with miscoded salaries and expenses, which is sloppy bookkeeping, if not negligent. And most of the budgeting errors were overspending, not under-spending.
According to its annual audit, last year, Shakopee’s general fund jumped 9 percent over 2015, or $7.6 million.
“They went on a spending spree,” Renner said.
Administration went $775,432 over budget, elementary and secondary instruction was $2.3 million over budget largely due to new positions and salary increases from a new contract — which should have been estimated and plugged into the budget.
In the private sector, the budget would be reviewed weekly, monthly or quarterly to compare projected with actual spending, Renner said. Unexpected expenses pop up, sure, but things like software expenses and salary increases should have been projected, and weren’t.
Renner said it seems like the school board is trying to blame Finance Director Mike Burlager, who announced his June retirement at the same December meeting where the “budgeting error” was first disclosed. And maybe he should bear the brunt of responsibility, Renner said, but the school board didn’t bat an eye when the error was mentioned in December.
“You’d think it would spark the curiosity of one or two of them,” he said.
Thompson makes it sound like budget swings of 2 to 3 percent are normal, “but they’re really not,” Renner said.
“This is not normal,” he said.
Some people seem to think that $4.5 million went missing, but that’s not the case.
“It’s just like somebody in the house going to buy more groceries than they’re telling people,” he said. “Or using the gas card and not writing it down.”
It’s not that the school district isn’t taking in enough money: Since 2012 the district’s general fund has grown from nearly $67 million to nearly $84 million last year. Meanwhile, the amount of money spent per student shot up from $8,422 in 2012 to $11,177 last year, which is about average statewide, according to the audit.
One good indicator of a district’s financial health is the amount of money left over in the general fund, as a percentage of the total budget.
“If you spend $100 million, they’d like to see $20 million left over in a cash reserve,” Renner said.
The district’s 2016 audit shows those reserves have fallen far below the statewide average since 2012, when it nearly mirrored other Minnesota school districts’, at 22 percent. Just two years later, Shakopee slid to less than 15 percent, and last year it dropped to just 3.7 percent.
The Minnesota Association of School Business Officials recommends districts be at about 17 percent, minimum.
While the school district did not respond to a request for comment, school district spokeswoman Ashley McCray previously told the Shakopee Valley News the school board’s goal is to restore the fund balance to 7 percent of the general fund budget as soon as possible.
“However, the details of how that will happen and how long it will take is still being discussed,” said McCray. “There are several moving parts, including funding from the Legislature, funding for Q Comp and impact of student enrollment.”
Renner is dubious about that.
“He’s forecasting this monumental comeback,” he said of Thompson.
Renner says he plans to attend the school board meeting tonight.
“I can’t wait to see what they have to say,” he said.
See the school board and superintendent answer questions about the budget issue at the March 20 budget forum below: