by ALEXANDRA RETTER
Winona Area Public Schools (WAPS) may dip into its limited reserves to cover a deficit in next year’s budget — or an increase in state education funding may wipe out the deficit entirely.
On Thursday, School Board members unanimously approved a 2021-2022 budget with a deficit of about $422,000, money that would come out of the district’s tight reserves, or fund balance. The budget also includes some staffing reductions, such as a decrease in teaching positions equivalent to about three full-time positions and a decrease in educational assistant positions equivalent to about five full-time positions.
The budget approval comes as School Board members and district leaders prepare to discuss the possibility of pursuing another multi-million-dollar building referendum at a work session later this month. Decreasing reserves could lower the district’s credit rating and increase the cost of borrowing money to upgrade school buildings. By policy, WAPS is supposed to keep reserves equal to 10 percent of its annual operating budget, but next year’s deficit is projected to drain the actual reserves to 6.2 percent.
State lawmakers could save the day, however. If the state legislature approves a 1-percent increase to the amount of funding WAPS receives per student, the deficit would drop to about $251,000, WAPS Finance Director Kristy Millering said. If the state legislature approves a 2-percent increase in the school funding formula, the deficit would decline to approximately $80,000. There are a few other revenue sources the legislature is considering for districts, as well, she said, such as an increase in special education funding.
Superintendent Annette Freiheit said the legislature has also discussed a 3-percent increase next year and a 1.5-percent increase the following year. After previously backing a zero-percent increase in the school funding formula compared to Democrats’ two percent, Senate Republicans have now proposed a three-percent increase. That amount would likely turn WAPS’ deficit into a surplus.
Even if that state funding increase doesn’t come to fruition, School Board member Karl Sonneman said he was not worried about covering the deficit with reserves. “I think under the circumstances, with what the legislature has left us to do, setting a budget with the deficit we have … it certainly doesn’t disturb me at all,” he said. “I tend to view the fund balance as a fiction. It’s something the legislature desires the districts use because the legislature doesn’t know how else to control what we do.”
The Minnesota State Auditor and credit rating agencies recommend minimum fund balance policies to ensure organizations can survive financial disruptions and pay their debts.
Sonneman continued, “I will vote for this budget, because I think it has been put together well. The deficit very likely is going to be eliminated or significantly wiped out, once we know what the legislature approves for biennial funding for education.”
Freiheit agreed in an email. “I do feel we are in a good position that once the legislature has approved the state budget, we will be able to bring the projected deficit down quite a bit and may possibly zero out the need to dip into our fund balance,” she said. “As we do every year we will continuously revise the budget throughout the year to reduce the amount we may spend out of the fund balance.” She acknowledged that using the reserves could affect interest rates for borrowing in the future, but said “that is not a definite possibility.”
Like Sonneman, School Board Michael Hanratty said he thought staff put the budget together well. “I particularly think it’s a prudent strategy, given the current legislative situation up in St. Paul,” he said.
School Board member Steve Schild, who expressed concerns this spring about feeling he did not have enough information to decide between dipping into the fund balance or making cuts, said he did not question the professionalism of staff who put the budget together; however, in contrast to Sonneman and Freiheit, Schild did not like cutting into the fund balance, and he felt the budget represented a state-level structural funding issue. “We have got a funding formula based on a reality that no longer exists,” he said. He said that he apologized to staff who felt his comments threw stones at them. “What I do not like, though, is our having very little alternative but to say, ‘Well, we’re going to make education, staffing or programming smaller for kids and families, or we’re going to cut into the fund balance, which, if we need to borrow money … or bond for money to take up our facilities needs, may cost us more money,’” he said.
Hanratty said he was concerned about the staffing reductions in the budget and how they may raise class sizes. The reductions included decreasing the number of kindergarten and fourth grade classes at Washington-Kosciusko Elementary School from three sections for each of those grade levels to two, based on projected enrollment. “I think we’re at a fine line with some of those target class sizes,” he said. “I can see this fall that when the dust settles, that some of those classrooms may be on the higher end.”
In the next two years, Sonneman said, he believes there will be positive action in the district with aspects of school such as enrollment and programming, but he feels WAPS could not make more cuts in the near future and move in that positive direction. “We won’t bring students back into the district unless we give them a positive reason to come,” he said. He added, “In this market today, people have expectations and desires that go well beyond what is bare bones.”