SCHOOL BOARD: Dealing with a deficit
BEMIDJI -- When the Bemidji School Board earlier this year approved the hiring of new specialists aimed at closing achievement gaps in student performance, board members knew that action would have an effect.
On Monday, the effects were evident as Chris Leinen, director of business services, presented preliminary budget information for the 2014-15 school year, indicating that the district is facing a deficit of nearly $900,000.
Leinen told the School Board it could opt to either cover the deficit from district's fund balance, or, as he recommended, take advantage of a new state option that would match $724 per pupil through equalization.
"The Legislature passed a new law that will allow you to effectively partner with them," Leinen said. "They have put forth an additional $724 per pupil in revenue that a school district can avail themselves of if they have have an operating levy. You do (have an operating levy), but it's not $724."
Bemidji Area Schools has an operating levy of $501 per pupil. In order to tap the new state funds, the district would have to levy the difference between $724 and $501.
"This is going to provide an opportunity for you to effectively partner with the state to take some of the equalization funding they are offering and bring your budget back into balance," Leinen said.
The School District must adopt an operating budget for the next fiscal year in June. Leinen was not seeking action during Monday's School Board meeting but wanted assurance that if he presented a budget next month with this plan in place, that the School Board would support it.
After all, he said, board members knew in January, when they approved the hiring of new specialists, that those funds likely would have to come from the district's fund balance.
This is an alternative plan, to balance the budget without having to dip into those funds, he explained.
"While action isn't necessary, I wouldn't want to incorporate a revenue of roughly $900,000 if it's not going to (be supported)," he said. "It is my recommendation you do avail yourself of this new tool and get the state aid that is there.
"Unfortunately, you can't have the aid without the local levy, that's just the way it works."
Why a deficit?
The preliminary budget predicts a deficit of $879,252 based on $57,020,361 in revenue and $57,899,613 in expenses.
On the revenue side, the district is expected to increase by another 56 students, generating $325,000 in more revenue. Plus, the state increased the per pupil funding formula by 2 percent per pupil, and contributed an additional $900,000 for all-day, every-day kindergarten.
The total increase in revenue is nearly $2 million, at $1,922,830.
On the expense side, contracts settlements were "back-loaded" into the biennium to follow legislative funding increases. Those represent 5 percent, or $1.9 million in increased expenses. Add that with the $750,000 in efforts to close achievement gaps and the district is looking at nearly $2.6 million in increased expenses.
While the School Board could opt to cover the deficit with its the fund balance, Leinen pointed out that doing so would drop the district below its policy of keeping 10 percent of all expenses in reserve.
"The purpose of the Fund Balance Policy is to insure the financial stability of the District, to provide a sound basis to justify a strong financial rating and to provide a reserve enabling the District to deal with unforeseen budget expenditures and revenue shortfalls," Leinen wrote in a memo to the School Board.
School Board reaction
While the board appeared amenable to Leinen's recommendation, members did ask for more information.
Whereas Leinen said he would suggest the two options -- dipping into the fund balance or tapping the state equalization funds -- select board members also asked for a report on what might be cut to make up the difference.
"It's a big budget, are there places that we can make adjustments -- prudent adjustments," said board member John Pugleasa. "Obviously, we've made some commitments to some things related to closing the achievement gap as well as commitments we've made to additional students who are showing up in our district ... but it seems that we should at least have a balanced discussion of both expense and revenue."
Board member Ann Long Voelkner added that she expects district taxpayers will want to know why the district had to seek additional revenue on the heels of the Legislature's funding of all-day every-day kindergarten.
Board member Jeff Haack agreed, stating he would like to know what the alternatives would be in response to potential questions from the public.
"I'm not suggesting we cut ... but people will ask, 'What was the option?'" he said.
Superintendent Jim Hess said the information may be best presented in a work session, in advance of the June meeting when the School Board would be expected to adopt a 2014-15 budget.
"I think we need to continue to have this discussion and continue to look at ways to enhance revenues and look at our expenditures very carefully," Hess said. "We take several different views of the budget throughout the year. We look at it in May, we approve it in June, there's going to be some changes and adjustments made in October, and then we set the levy amounts in December. So it's a continuous process."