Serving Northern St. Louis County, Minnesota

District budget explored

Transportation, O&M, spike in employee costs behind district’s new budget woes

Marshall Helmberger
Posted 8/18/16

REGIONAL—Consistently higher expenses for transportation and operations and maintenance, combined with a recent spike in employee costs, have left the St. Louis County School District facing …

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District budget explored

Transportation, O&M, spike in employee costs behind district’s new budget woes

Posted

REGIONAL—Consistently higher expenses for transportation and operations and maintenance, combined with a recent spike in employee costs, have left the St. Louis County School District facing worsening budget deficits, despite increases in local levies and higher state education funding over the past couple years.

While audited numbers for the 2015-16 school year aren’t yet available, preliminary figures point to a $614,000 deficit for the district’s just-completed fiscal year. And the preliminary 2016-17 budget approved last month by the St. Louis County School Board includes an additional $1.5 million general fund deficit. Without cuts or other savings, or higher-than-anticipated student enrollment (which would boost revenue), the district will see its unreserved fund balance dip to $1.39 million, or just over two weeks of operating expenses. The Minnesota Association of School Business Officials notes that best practices require at least two months of operating expenses in government unreserved general funds.

The prospect of a budget turn-around is unclear, at least without reductions in staffing, particularly teachers. A new teacher’s contract approved by the board in March contributed to the higher deficit projected for the 2016-17 school year, and it will add another $300,000-$400,000 to district salaries next year, without staff reductions. The continuing rise in health care costs remains another factor behind the district’s growing budget woes, adding an additional $500,000 to the district’s benefits tab this year alone. School officials are working to reduce those costs, but as of this writing no plan to do so is in place.

Between higher wages and benefits, the district’s employee costs spiked $1.1 million for the upcoming school year.

The latest cost increases have overwhelmed the impact of higher state education funding and three local board-approved operating levies. In total, those levies, implemented without voter approval, raise just over $1.4 million in additional local revenues annually. Combined with increases in state funding, the district saw revenues jump by two million dollars beginning in the 2014-15 school year, a nearly eight-percent increase. The extra revenue helped the district achieve a $1.8 million surplus that year, the largest in many years. But the surplus turned to deficit in the 2015-16 school year, a dramatic deterioration that school officials have refused to explain, despite repeated requests from the Timberjay.

Restructuring provided minimal savings

As school district officials campaigned to win passage of the controversial school restructuring plan in 2009, they argued that the proposed closure of community schools and construction of new consolidated schools would save the district more than $5.6 million dollars annually and put the district on a firmer financial footing for years to come.

But the majority of the savings touted by school district officials and their consultant Johnson Controls never materialized when the district implemented the plan beginning in the 2011-12 school year. In fact, school district budget data shows that district costs rose in key categories, such as transportation and operations and maintenance, despite JCI’s promises that those costs would decline.

The savings shortfall was, perhaps, most pronounced in operations and maintenance. District officials argued that “right-sizing” from seven older K-12 buildings to four new or renovated K-12 buildings plus a renovated elementary school would achieve $1.24 million in annual savings. But the district’s operations and maintenance costs, which averaged $3.7 million a year in the three years prior to implementation of the restructuring plan, spiked to $4.4 million in the first year with the new configuration. At the time, school officials pointed to one-time costs as the district adjusted to the new facilities, but the district’s operating and maintenance costs jumped again the following year, to $4.75 million. While the district, in part thanks to lower fuel costs, was able to trim its operating costs to $4 million in the 2013-14 school year, costs jumped again the following year. Since the restructuring, the district has spent an average of $4.4 million a year on operating and maintenance, according to data submitted to the state Department of Education. That represents a $700,000 annual increase, or 19 percent, in operational costs— far from the $1.24 million in savings that district officials and JCI representatives had touted. The additional cost of maintaining expensive infrastructure, like community water supplies and wastewater treatment facilities, which were required for the district’s new and renovated facilities, only added to the financial burden.

The district is also spending more on transportation than it did prior to the restructuring. The district spent an average of $1.7 million on transportation in the three years prior to implementation of its school plan. In the first year under the new configuration, transportation costs spiked to $2.1 million and have risen every year since, through the 2014-15 school year, when the district spent $2.35 million transporting students and staff. Transportation costs for the just completed school year are not yet available from the MDE and it’s possible that the significant reduction in fuel prices in the past year helped trim some of the district’s costs. Even so, higher transportation and operating costs associated with the restructuring have added roughly $1.2 million annually to district expenses, and have prevented the district from achieving the financial turnaround officials had sought.

The district has achieved some savings since implementation of the restructuring plan. The district is saving about $200,000 a year in school principal salaries, and between $1.2 and $1.5 million on its teaching staff. How much of that savings is attributable to the restructuring versus the usual staff reductions resulting from enrollment declines is unclear.

What is clear is that the district failed to achieve the administrative savings at its district headquarters that officials had predicted as a result of the restructuring. Wage and benefit costs at the district office jumped by $100,000 in the first year under the new configuration, from $867,000 to $965,000. While those costs dropped back in the second year, to about $850,000, administrative payrolls spiked again the following year, to just under $1 million and grew to $1.06 million the following year. That trend is likely to continue as the district recently added a human resources director to its district office staff, further adding to the cost of administration in the district. School district officials indicated at the time that the additional was made possible by sharing of administrative services with the Mt. Iron-Buhl School District, but St. Louis County Schools Business Manager Kim Johnson said the hiring was not related to any such arrangement. The two districts did approve a sharing agreement last month, through which MI-B agrees to pay the St. Louis County School District $30,000, to cover a portion of the cost of a payroll clerk, but not the new human resources director. The Timberjay did seek clarification of these differing explanations, but district administration refused to provide any clarification, and urged school board members themselves not to respond to the newspaper’s questions.

Enrollment falls short

According to JCI representatives, the construction of new or renovated schools would spark renewed interest from parents and students in the county school district, thereby boosting enrollment. At the time, the district’s total enrollment was hovering at just under 2,000 students. Like most districts in the region, the St. Louis County Schools had experienced years of declining enrollment and JCI officials predicted that the trend would continue for several more years before stabilizing at roughly 1,800 students. With new facilities, however, JCI representatives argued that the district would attract more students, and it projected 2,000 students would attend district schools in the first year after implementation of their plan.

It didn’t work out that way. While the south half saw modest gains in the first year, in the north half, where the plan was extremely unpopular and required long distance bussing for many students, enrollment dropped by an equal amount. And dozens of students had already left district schools in the north half in anticipation of the school closures, and that exodus has continued.

When all the numbers were crunched, the district fell short of JCI’s projected enrollment by just over 140 students, a shortfall that reduced the district’s expected revenues by nearly $1.2 million.

While enrollment in the district grew marginally over the next two to three years (a trend experienced by most school districts in the region), peaking at 1,897 in the 2012-13 school year, that trend has since reversed. The district now, conservatively, projects 1,819 students to attend its schools when their doors open this September— or very close to the number JCI representatives had predicted without implementation of their facilities plan.

Lost in the overall number of students in the district is a very pronounced shift in enrollment patterns in the district. Prior to the restructuring, the four schools in the north half of the bifurcated district served the bulk of the district’s students. In the 2008-09 school year, when the district gave the go-ahead for the restructuring plan, 1,167 students attended one of the four schools in the north. By contrast, only 855 students attended schools in the south half of the district.

By the just-completed 2015-16 school year, however, student numbers in the north had declined sharply, to 853, while projections for the upcoming school year put the number at just 812. If that projection proves accurate, it will represent a loss of 355 students from the district’s northern schools over the past eight years. The south half, meanwhile, has seen considerable enrollment growth. A total of 998 students attended the district’s two schools in the south half this past school year and the district expects 1,006 students to attend there this fall. That’s 150 more students than attended schools in the south eight years earlier.

Key lessons

The enrollment trends speak to the lingering resentment shared by many residents in the north, where opposition to the restructuring plan was most intense. Neighboring school districts from Virginia, to Ely, to International Falls, now claim a larger number of students from within the St. Louis County School District’s north half, than prior to the restructuring, and the resulting lost revenue, combined with minimal cost savings from the facilities changes, have limited any financial recovery for the district. Without significant cost reductions, the district’s financial condition is likely to continue to deteriorate for the foreseeable future.

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