Reprinted with permission from Minneapolis Schools Voices.
Minneapolis Public Schools will use the last of its reserves and then some during next school year if it does not make substantial budget cuts or receive additional state or federal revenue. This is according to the district’s most recent pro forma, a five year financial projection that the district prepares each year, which was presented to the school board’s finance committee on Tuesday evening.
The district is projecting an $84 million budget deficit in the 2025-26 school year, followed by deficits reaching $100 million in the next four years.
At the end of next school year, the pro forma predicts a general fund balance of -$14.9 million, which is -2.1% of the district’s operating expenses. This is just above the -2.5% that would signify “statutory operating debt” and lead to mandated state intervention. If voters approve a $20 million increase in the operating capital levy in November, the -2.5% trigger would still be reached in the 2026-27 school year without additional changes.
The dire outlook comes despite the district making more optimistic assumptions about its revenues and costs compared to previous years. The district assumes enrollment will decrease by one percentage point less each year than it forecasted in last year’s pro forma because of a one-time increase in kindergarten enrollment this year. John Clinton, Minneapolis Public Schools’ executive director of finance, told board members he did not know what the district’s current enrollment is, nor the size of the current kindergarten class, when asked.
The district has had a growing number of new to country students enrolling in the district the past two school years. The district does not track immigration status of students, but last year, the district estimated it had about 3,700 newcomer students enrolled in the district, most whose home language is Spanish.
The district’s funding is primarily based on enrollment, so higher enrollment projections mean higher revenue for the district.
Newcomer students whose home language is not English receive substantial support from the district to learn English. The state requires the district to provide these services but does not fully cover the cost to the district. This year, the district expects to spend $17 million more on support for English Learners than it receives in state aid for the services.
In the pro forma, the district assumes that overall its costs will increase at 2% per year, slower than the 4% rate it assumed in last year’s pro forma. The district also assumes that as enrollment declines, the number of licensed teachers it employs will decline, according to Clinton.
The district assumes that it will have an annual 2.5% increase in labor costs, the same assumption it made in its previous pro forma. The most recent contracts with teachers and education support professionals, the district’s two largest employee groups, included annualized cost increases of approximately 12% over the two years of the contracts, a much bigger cost than the projected 2.5%.
The district anticipates ending the current school year with $69 million in its general fund balance. This assumes that it ended last fiscal year with $154 million in its general fund balance, an amount nearly $13 million more than what the district had expected. In monthly financial statements presented to the school board in September, the district showed its general fund balance at the end of last year was about $90 million. Clinton told the board that the fluctuating estimate of the general fund balance is because of how the district is funded.
The school board reaffirmed its policy governing the district’s reserves last spring. This policy requires the district to maintain 8% of its operating expenses in its reserves. Based on its current expenses, this policy means the district must hold about $57 million in its unassigned general fund balance.
To meet its projected fund balance for the end of this fiscal year will require the district to limit its use of reserves to $55 million this year, and have a 4.75% vacancy rate to realize nearly $24 million in vacancy savings. Vacancy savings are funds the district budgets for, but believes it will not spend because it is unable to hire staff to fill the positions. At the school level, the majority of the currently unfilled positions are for staff who serve special education students and students who attend Northside schools. The district’s most recently reported vacancy rate is 4%.
How the district and school board will balance the budget next school year remains unknown. The pro forma is a financial projection but does not include budget recommendations. The projection sets a baseline for the district administration and board as they develop the budget for the upcoming school year.
