Despite ‘imminent financial crisis,’ Minneapolis school district says it can avoid state intervention

The state’s third-largest school district has admitted it is facing an “imminent financial crisis” but that it will find cuts to balance the budget, reported Deena Winter with the Minnesota Reformer.

“The state is not taking over Minneapolis Public Schools,” said Ibrahima Diop, the district’s senior officer of finance and operations. “And I don’t think that that should be anybody’s hope or wish.”

Diop’s remarks come as district leaders seek “to assure the public” that the district will make budget adjustments to avoid intervention by the Minnesota Department of Education. As Winter previously reported:

If a district’s reserves — which are akin to a savings account — drop into the red too far, the state would determine that the district has fallen into what’s called “statutory operating debt.” At that point, the district must submit a plan to the state showing how it plans to get back on track or risk losing crucial state funding. The loss of state funding would put the district into a fiscal death spiral, since it accounts for more than half of its general fund revenue. 
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The Minneapolis school district has balanced its budget for the past three years with the help of nearly $262 million in federal pandemic funds, but that money runs out late next year, leaving a huge budget hole that must be dealt with by an inexperienced school board.

That huge budget hole is a $77 million annual gap in funding.

School district officials plan on reducing the gap by “tapping the fund balance and through expected vacancy savings [of] $50 million to $60 million,” reported Winter.

A five-year budget projection report predicted an “imminent financial crisis” due to declining enrollment and a failure to cut costs, wrote Winter.

If the district’s leaders continue with the existing “footprint, practices, policies, and priorities… we expect the district to confront an unprecedented fiscal crisis in the 2024-2025 school year,” the report said.

If no action is taken, the general fund will be depleted sometime in 2025 and the district will quickly descend into the red, triggering state intervention.

“Without significant changes, MPS will run out of money during the 2024-2025 school year and be unable to operate as it does now,” the report said.

The district’s financial woes are “particularly striking,” Winter continues, “given the relatively healthy local economy and increase in education funding recently passed by the Legislature.” Even back in 2020, when the legislature allocated more than half a billion in new education money, the district was $27.6 million in the red.

During the 2023 legislative session, lawmakers passed $2.26 billion in new funding for schools. For Minneapolis, the district is forecasted to receive $35.8 million in new money for FY2024 and over $42 million for FY2025. Currently, the district reports spending more than $20,000 per student.

The Minneapolis teachers’ union strike in March 2022 did not help the district’s financial hole, as the union demanded — and won — unsustainable pay increases, which my colleague Bill Walsh reported on here. And as he wrote about here, “the whole strike was an attempt to blackmail the rest of the state to help Minneapolis recover from their own self-inflicted wounds.”

Student enrollment in the district has dropped 17 percent over the last five years and is anticipated to decline to under 23,000 students by the 2027-28 school year — the district is outfitted with buildings to serve 40,000 students and currently enrolls around 28,000.

As of 2022 Minnesota Comprehensive Assessment results, over 67 percent of students in the district can’t read at grade level, and nearly 58 percent aren’t at grade level in math. School safety has also become a top concern among parents in the district.