VIRGINIA — At its meeting Tuesday, the ISD 2142 School Board got a sobering dose of fiscal reality: The district is projecting a $2.5 million general fund deficit for the 2025–26 school year, despite cutting staff for next year, and will have to borrow money to pay its bills.
Finance director Kim Johnson pointed to a sharp decline in student enrollment and the state aid that disappears with it as cause for the deficit.
The biggest pressure is coming from the unassigned fund, which pays for most teaching and staff salaries. That fund alone is projecting a $3.7 million shortfall, with projected expenses of $32.1 million for the year.
“Unassigned or unobligated fund balance is what you have for cash flow – what’s left over after you’ve paid your bills,” Johnson said.
Although positive balances in some restricted sub-funds help reduce the overall general fund deficit, those dollars can’t legally be shifted to shore up the unassigned fund.
Enrollment drop
The heart of the revenue decline is enrollment. The district has lost more than 200 students since before the COVID-19 pandemic. Because state funding is awarded on a per-pupil basis, that drop has a direct financial consequence.
“From pre-COVID to now, we’ve lost over 200 students,” Johnson said. “That’s $2 million in state aid, annually, that we don’t get anymore.”
While the district continues to wrestle with declining enrollment, Superintendent Reggie Engebritson said open enrollment has helped blunt some of the impact.
“We do have some students coming in. I think it was like 26 that we gained through open enrollment,” she said. “But we also had 20 that indicated they were going to be enrolling out.”
That modest net gain, while small, suggests a potential bright spot as the district looks to stabilize its student count.
More cuts ahead
Johnson reminded the board that the budget reductions for the upcoming 2025-26 year have already been made. But unless further cuts are identified for the following year, the financial outlook for the unassigned fund remains bleak.
“We’re going to have to look at making reductions,” she said. “That’s what we’re going to be doing this coming year, is deciding what those reductions are.”
Given that personnel costs are the largest portion of the unassigned fund and staff reductions were a part of this year’s budget cutting effort, it’s likely that personnel decisions will be on the table again for the 2026-27 budget.
Borrowing
With the state of the approved 2025-26 budget, the district will have to borrow to manage its cash flow in the year ahead.
“That’s already in our budget,” Johnson told the board. “But this level of deficit can’t continue.”
Board member Ron Marinaro voiced concern about the strategy: “We’ve got to get away from borrowing all the time.”
On the brink of SOD
Under the district’s approved budget for 2025–26, ISD 2142 is expected to exceed the threshold for Statutory Operating Debt — a designation that occurs when a school district’s general fund deficit exceeds 2.5 percent of its expenditures.
Under SOD, the district must create a financial recovery plan that is approved by the Minnesota Department of Education. The district maintains control over how to make adjustments, but the plan must be monitored and followed until the deficit is resolved.
“If your fund balance goes negative, that’s statutory operating debt,” Johnson said. “The state comes in, and then it’s a whole new ballgame.”
Other business
In other business the board:
• Heard a report from Check and Connect Coordinator Lisa Perkovich about the program, including a review of performance data and video testimonials from program participants.
• Approved a calendar revision for next year that will have seniors dismissed a week earlier at the end of the year than the rest of the students. The move will facilitate having graduation exercises on a Friday, rather than a Thursday as had been originally planned.
• Hired Ruth Porter as a special education teacher at North Woods.
Hired Paul Zollinger as a science teacher at Northeast Range.
• Hired Dawn Merrill to a split part-time position as a language arts teacher and elementary media specialist at NER.
• Hired Alli Stone as a special education teacher at Tower-Soudan.
• Recalled half-time staff Amy Nelson at NW and Britt Aselsson at NER, in accordance with the master agreement.
• Hired John Starkovich as a part-time custodian at T-S.
• Accepted resignations from T-S paraprofessional Carolyn Sharo, NW softball head coach Dee Ann Sandberg, NW volleyball assistant coach Jennifer Burnett, NER special education teacher Ethan Stachovich, and NW teacher Makenzie Pierce.
Johnson emphasized that all of the positions filled were vacancies that already existed in the approved budget for next year and do not represent additions that would increase staffing costs.