BEMIDJI-Bemidji Area Schools is facing a $1.3 million budget deficit.

School district administrators reported Monday that the district's revenue in the 2019-2020 school year will increase $529,000 to about $67.1 million and its expenses by $1.2 million to a total of $68.4 million.

That's a preliminary projection, but, if the district ultimately makes up the entirety of that deficit, it could still mean staffing cuts.

Superintendent Tim Lutz said district leaders would try to do that via "natural attrition"-not filling some jobs left behind by teachers and other employees who retire or resign. He said district administrators are already working on a slate of staffing adjustments to present to board members for consideration at a meeting next month.

Salaries and benefits make up about 80 percent of Bemidji Area Schools' expenses.

"It's hard to make significant adjustments without affecting people," Chris Leinen, the school district's director of business services, told School Board members on Monday.

That $1.3 million deficit projection rests on some key assumptions.

The first is that enrollment will remain flat, which is a tricky proposition because it's risen incrementally in Bemidji for a few years, now, but could be offset by the Aurora Waasakone Community of Learners, a new charter school opening south of Bemidji that district staff worry could siphon as many as 80 students from it.

"I don't think that'll be the case, but we have to assume the worst," Lutz said. Those students would otherwise bring in more than $600,000 to the district from the state, he said.

The second assumption is that state lawmakers will approve a 2 percent hike to Minnesota school districts' per-student funding formula for the upcoming fiscal year, rather than the 3 percent Gov. Tim Walz proposed earlier this year. The funding formula accounts for $48.2 million-about 73 percent-of Bemidji Area Schools' revenue, district staff explained, which is at least partly why a 2 percent bump to it wouldn't cover the 2 percent rise in expenses district staff predict.

"When the state says that they're going to raise revenue by 2 percent, they're actually raising revenue on $48 million at 2 percent because that's what the general education funding formula affects," Leinen said Monday. "Our budget is $66 million. So if you affect a $48 million revenue stream by 2 percent and you affect a $66 million expenditure stream by 2 percent, you have a differential between the two that has to be made up somewhere."

Increasing that $48.2 million by 2 percent would yield another $964,000, and a 3 percent increase would yield another $1.4 million-a difference of about $482,000.

Property taxes, special education funding

Another large chunk of the district's revenue comes from local property tax levies, and School Board members and staff are scheduled next month to deliberate whether they'll ask voters here to renew an existing operating levy in November 2020. Lutz said asking to hike that levy to catch up to inflation is "the logical assumption" but said district leaders haven't hashed it out yet. For now, the operating levy brings in about $480 per student from Bemidji-area taxpayers, which is about half of the state average, district staff told board members.

Also at play is a persistent push in the state Legislature for more special education funding, which K-12 education leaders across the state say they subsidize with funds that could be spent elsewhere. And other districts, many of them rural, are also asking for a transportation funding hike for the same reason. Bemidji Area Schools administrators' Monday report indicated that those two subsidies total about $4.6 million annually here.

Beyond that, district staff said they expect to receive less "compensatory aid" from the state for students from disadvantaged families. Administrators frequently measure student poverty-or lack thereof-by the number who are eligible for free or reduced-price lunches, for which they're eligible if their family's income is at or near the federal poverty line. Bemidji Area Schools staff expect to have fewer students near that threshold, which means less state money-a change they attributed to the newly raised state minimum wage.

School districts across Minnesota typically set their budgets in June. The next fiscal year begins July 1.