Shakopee Public Schools is facing a $2.5 million projected budget deficit for its 2020-2021 school year.
District officials attribute the shortfall to an increase in employee pay and benefits and a struggle to gain enough funding from the state to keep pace with increases in expenditures.
About 80% of the school district’s general fund revenue — which goes into its unassigned fund balance — comes from state aid. About the same percentage of its expenditures goes into teacher and staff member expenses, like salaries and benefits. The district is scheduled to receive a 2% increase in state aid for the 2020-2021 school year, which Finance Director Bill Menozzi said isn’t keeping pace with the cost of inflation and teacher pay increases.
“Certainly, budget imbalances are something that we’re dealing with in Shakopee, but it’s not exclusive to Shakopee,” Menozzi said. “That’s not just a Shakopee issue — it’s a state issue.”
If nothing is done about the projected deficit, the problem will snowball until the fund balance drops below zero in 2022. According to the district’s estimates, by the 2024-2025 school year, the district’s projected unassigned fund balance will be -$26 million, according to budget details released by the district. Even if the district makes $6 million in budget adjustments for the 2021-2022 school year, its projected unassigned fund balance would be -$2 million by 2023.
“Any time a school district does outyears, the prospect looks bad,” Superintendent Mike Redmond said of the long-term projection of the district’s fund balance, should no budget adjustments be made in the next five years. “We constantly have to make budget adjustments… We have people we employ who deserve an increase in inflation from year to year.”
Redmond added a budget fix will be made for the 2021-2022 school year. By law, school districts can’t have unassigned fund balances in the negative.
Outside of the 2% state aid increase, all other revenue areas are scheduled to remain relatively flat. A nominal decrease in projected student enrollment will account for about $700,000 less in the general fund. The district’s revenue sources include state aid, levy revenue, federal grants and other nominal general fund revenue areas. If nothing changes, the district is slated to bring in about $99 million for the 2020-2021 school year — which doesn’t balance the books when $102 million is projected on the expenditure side.
The shortfall is projected to put the district’s unassigned fund balance at about $1 million at the end of next year, which is $7 million lower than the fund balance the district should be operating under, according to the district’s own fund balance policy, which says the district should aim for a general fund balance that hovers between 8 and 12% of the annual budget.
One option the district is looking at is making $6 million in budget adjustments for the 2021-2022 school year, which would bring the unassigned fund balance above zero until 2024, when it would dip back under. Redmond said the $6 million in adjustments would be a short-term fix, but more action would need to be made if state aid doesn’t amp up its funding in the next few years.
“If the state doesn’t keep up with the rate of inflation, there’s no good choices for school districts,” Redmond said.
The district has not been operating under a healthy unassigned fund balance 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, made transportation adjustments and other budget cuts.
Board members react
The Shakopee School Board was presented with budget deficit information March 9.
School Board Chair Kristi Peterson said over the last three years, the district has been fiscally responsible and has done everything it can to save money.
“We have been going down the right path,” Peterson said. “But you know that’s going to take a long time. You don’t just save a million dollars overnight.”
Boardmember Paul Christiansen reiterated Peterson’s point.
“With all the colorful phone calls I’ve gotten over the weekend, people expect the fund balance to be higher than it is,” Christiansen said. “But Rome wasn’t built in a day.”
Redmond said at the school board meeting 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 the cost for these programs.
Early talk of referendum
At a Jan. 11 school board retreat, the board members discussed how to successfully pass an operating levy increase, which would require a referendum. Operating levy referendums can only fund operating budgets, meaning that money could not go toward facilities maintenance and new buildings.
“Our students and our staff are the most important thing we need to protect,” Peterson said Jan. 11. “And if at all costs we could not do anything else, a levy (makes) the most sense.”
The 2019-2021 teachers’ contract, approved by the Shakopee School Board in a unanimous vote Jan. 6, includes a 1% pay raise and 10% increase in health insurance contributions for teachers during the 2019-2020 school year, and a 3.25% pay raise and 8% increase in insurance contributions the following year. That means the starting salary for a new teacher in Shakopee will go from $39,834 during the 2019-2020 school year to $41,129 for the 2020-2021 school year. Those salaries are a couple years behind the surrounding districts’ settlement contracts.
No numbers were offered at the January school board retreat regarding a ballpark figure for the levy increase, as the board is still considering whether it’s an option it wants to pursue. However, the school board did vote to direct administration to continue preparing for a possible operating levy come November, to take effect for the 2021-2022 school year.
On March 23 and April 13, the school board will look into levy options and budget adjustments, and on April 27, the 2020-2021 draft budget will be reviewed. The final budget adjustment decisions will be made June 22.