When school district 709’s budget process started a few months ago, the term “perestroika” popped into my mind. I remembered the last leader of the former Soviet Union, Mikhail Gorbachev, attempting (ill-fatedly) to give long-repressed people just a little taste of freedom, just a little access to information. Of course, a little taste inevitably inflames a desire for more, and before long the infamous, hated Wall, dividing East from West in Berlin, was being torn down.
The most recent budget meeting, held 6/6/16, was another testing of long restraints by the long-restrained.
The first thing that caught the attention of the Board’s dissenting inquisitors was the fact that Administration had turned to the budget’s contingency fund as a last resort. Administrators have been working for months to try to find a way to offset a $3.3 million deficit without completely sinking the Ship of State called ISD 709. Realizing that cutting a popular program called zero-hour was almost certainly going to blow a huge hole in the ship’s hull, the Captain–Superintendent Gronseth–ordered an abrupt change of course:
“Steer two points off starboard bow, and get ready to pay the pirates from the cash box!”
The three non-DFL minority Board members were surprised to learn there was a cash box–aka, a contingency fund. “Since I’ve been on the Board, I’ve never even heard of a contingency fund in the budget.” Member Johnston expressed, with a note of dismay. “We could have used that, if we, as a Board, knew we had $600,000 there.”
The fund actually totaled $698,000. I use the past tense, because CFO Hanson was proposing to drop it down to “about $550,000,” which, he added, “is a small fraction of what it probably should be…”
Discussion of the contingency fund went on at length, with the minority members all expressing some umbrage that the Board--ostensibly responsible for fiscal control of the district--had not been informed of the fund’s existence or of how it was being used.
“So, we could use $100,000 (from the fund,) and the Board wouldn’t know that?” Member Oswald asked, a bit incredulously. “We need to know that.”
Member Welty asked Mr. Hanson to differentiate between the contingency fund and the district’s General Fund reserve, which led to a larger discussion about the district’s dwindling amounts of available “rainy day” funds. Member Oswald brought up Board policy 3017, which recognizes “the importance of maintaining financial stability” by requiring the reserve fund to remain at or above an amount “equal to ten percent” of unrestricted General Fund expenditures.
Member Johnston pointed out that every year the Board is kept in the dark about the condition of the reserve for six months, until the annual audit result is released.
Policy 3017 was first violated in the district’s 2012 budget. Administration knew on June 30th, but didn’t tell the Board until the CPA audit was released six months later, in December, that the reserve fund had plummeted by half: from $14 million to $6.8 million. Last year’s audit revealed the reserve had dropped to $1.6 million, only 2% of unrestricted General Fund expenditures. Administrators will know on June 30th how much spare cash the district has on hand for fiscal year ‘17, but again won’t spill the beans to the Board until they have to in December.
For the record, district 709 had a reserve fund of more than $30 million when Keith Dixon first came to town. $20 million could have been blown out of the district’s reserve without crossing the minimal level of fiscal security dictated by policy 3017, but a Board of borderline competency failed to exercise enough due diligence to even manage that.
We Can Do Better.

The Board’s minority members readily acknowledged that things have improved some. They gave Administration credit for trying harder than it has for years to be more open with this budget process, but also unambiguously suggested there is some distance to go yet, before the district climbs back out of the dark, backroom-deal days of Dixon.
Member Welty, who served on the Board previously, two decades ago, pointed out that the Board used to get more information. “Back in the old (pre-Dixon) days, we had a big, thick--two inches thick--folder of the entire school district budget…”
Mr. Hanson admitted that what the Board was looking at this evening was “fairly summarized.”
Superintendent Gronseth pointed out that this summarized report, which amounted to four short tables with an average of 15 items and a pie chart, isn’t all the Board sees. They are also shown different parts of the budget–such as the ten-year Capital Facilities Plan–throughout the budget process.
Member Johnston gave Administration credit for some improvement and some “in-depth,” sharing of information, but added: “I think we can do better.”
He vacillated between describing the process as being both too abbreviated, and too cloudy and disjointed for such a complex matrix of numbers. “We, as a school board members, are given a thousand-piece jigsaw puzzle that’s kind of dumped on our desk, and told, ‘Ok, put it together!’ and we don’t even know what the picture looks like. In June (the next regular Board meeting,) we’re going to get a little packet about 25 pages long, and almost all of it is going to be nothing that we’ve talked about here at all. I’m uncomfortable with that process.”
After considerable debate about the process, some of the specifics of Administration’s final recommended budget cuts were discussed. Much of the budget was unchanged from the last proposal, and many of the same concerns were expressed by the Board. The primary concern boiled down to worries about vulnerable segments of the student body being denied the help they need to succeed. Eloquent statements made at the last Board meeting by students about two suicides in this year’s East graduating class seemed to draw out even more concern about eliminating some mental health worker positions.
“We’re taking away resources from kids who have to have these resources in order to succeed.” Member Oswald pointed out with matter-of-fact succinctness.
Member Sandstad asked for more details regarding a $50,000 cut from American Indian Education programming. The Board seemed somewhat placated by Administration’s claim that the cut wouldn’t hurt the program, because of boosts in other funding sources.
As always, the majority members bridled a bit at the minority raising too many concerns and grilling Administration too toughly. “A lot of work goes into this (the budget proposal being presented by Administration.) It’s a lot of work.” Member Kirby pointed out. “I think we should have some faith in the staffing that we have…I’m not saying we shouldn’t ask questions, but I do appreciate the work that was put in.”
Mr. Kirby then asked a question that has become a hot-button subject, since Edison Charter’s offer to buy the vacated Central High School property. The essence of the question was: can we pull resources from our charter rivals, who seem intent on robbing poor ISD 709 of its money and its students? The actual question, in Mr. Kirby’s words, was: “Is there anything we can do immediate or in the short-term about the special education funding we pay for the charter schools? That would go a long ways towards solving our budget issue…”
Superintendent Gronseth pointed out that the money paid out to the charter schools is mandated by the State. Administration and the Board’s controlling majority have argued relentlessly that the special education money paid by the district is in effect all lost money, and that their fiscal problems would be solved if the charter schools weren’t siphoning off the funds. Member Welty challenged that premise, by asking:
“If those special education students were in ISD 709, we would be spending that money (on them,) is that correct?”
The Head of Edison charter school, Bonnie Jorgenson, informed me in an email that “it would cost district 709 the same (even more) to provide these services themselves.” Last year, for example, ISD 709 paid Edison $1,569,109.07 for special education expenses, but it cost Edison $2,690,177.79 (58% more) out of its budget for the special education services provided in its school.
So why is ISD 709 in this spot again?

The public school district has had a huge influx of funding over the past few years. The local levy went up by 11% two years in a row and there’s been a lot of State largess–sizeable increases in the basic education formula and a $1.1 million dollar State matching grant. The State also started picking up all-day kindergarten, freeing up the money the district had been paying for this program, and repaid all the money that had been deferred from school district budgets--long claimed by Judy Seliga-Punkyo and other Red Plan backers as the district’s sole fiscal problem. This is the claim Judy S.-P. made repeatedly, in her own words: “Honestly, financially, we are doing great, if only the State would give us the money they’re supposed to.”
All the money’s been paid back for going on three years and district 709 is still looking at a $3.3 million deficit. Clearly, there are a few other problems.
During this meeting, member Johnston pointed out one reason for another district deficit: “Enrollment has dropped 20% in the past ten years.” As of last month, ISD 709 appeared to be on track to lose another 150 students or so. The Red Plan predicted district enrollment would “stabilize” at 9600 in 2022. Last month’s WADM report had enrollment at 8190. Obviously, when an investment of hundreds of millions of dollars fails so dramatically to meet one of its key projections, there is serious fallout. We would have to stop losing 150-250 students a year and start gaining 300 from this point on to make the projected 9600 mark.
To ensure any real chance of Red Plan success, Duluth’s water supply should have been doctored with hormones and the vacated Central campus transitioned into a free fertility clinic, starting about six years ago.
Adding more concern to this entrenched problem: a major competitor seems quite determined to open a new high school in a year, which will accelerate student loss by another 100-150 students annually, for four straight years.
Another fiscal issue for ISD 709 has been the Board’s failure to hold the line in contract talks. In light of the district’s financial picture, the Board needs to take a tougher stand in the next round. The entire Board is supposed to be the negotiating committee and the entire Board has to be more involved. To be fair, member Welty tried to participate in the last negotiation, but was physically barred from the room.
(Fuming by himself in the lobby, Mr. Welty reportedly kept himself occupied by reading a paperback copy of: “When The Wall Came Down.”)
A key district bargaining position in the last contract talks was to have single-payer employees, which currently pay no healthcare premium costs, start paying 20%. The sole Board negotiator allowed in the room–Rosie Loeffler-Kemp, a staunch union backer–completely caved. Subsequently, the district is still picking up the entire premium cost for single-payer employees--a million dollars more a year. On top of that, healthcare costs (both premium costs and HRA contributions) are jumping by $1.3 million. Throw in a million dollar pay raise, and you have another systemic fiscal problem.
(Handing out wage increases and benefits when facing an impending deficit violates a very basic, commonsense rule: if you ever find yourself in a hole you’re having trouble getting out of, stop digging!)
The third problem is the money being drawn out of the General Fund to pay Red Plan debt. A huge part of this debt–in the form of the 2009a lease-levy COP–has already been shunted onto the backs of Duluth’s taxpaying serfs, but $3.4 million to cover payments for three lease-purchase COPs is still being appropriated annually out of the General Fund.
A June 16th meeting has been set up with the district’s bond counsel and the company that’s been handling the Red Plan financing to see what, if anything, can be done. The Board will finally be able to grill the money people about any possible savings from refinancing, or the possibility of restructuring the debt into building bonds, or (the most viable option) extending payments out another ten years. An extension would cost more, but reduce stress on the budget by bringing withdrawals from the General Fund more in line with the reality of the Red Plan.
Needless to say, transitioning the debt into bonds and hitting the taxpayers again would be the most unfair solution. The people of Duluth have already been hammered badly enough by this scam. The public school levy was $12,887,713.38 when Dixon stepped into Duluth. It has now risen to $33,149,546.00. The district should have to learn to live with at least part of the mess it’s created.
Every free-money funding mechanism of the Red Plan has fallen into discredit. Project investment earnings dropped by $10 million after the financial collapse of ‘08, only $3.6 million of $26 million promised in property sales have materialized, and the State Auditor’s Office described projected savings claims of $5.3 million a year as “skewed.” Subsequently, despite Administration denials, and the Board’s generally dissuaded majority, the money being drawn out of the General Fund to pay Red Plan debt unquestionably remains a persistent budget problem.
To add insult to injury: the sales tax exemption for the Central property, initially estimated at $950,000, has now risen to $5 million. If Governor Dayton signs the current tax bill, the taxpayers of Minnesota will stand to lose five million dollars to sell a piece of property we already had, in effect, sold for $14.2 million.
Just smile and have faith.

During the meeting, Clerk Loeffler-Kemp articulated the see-no-evil, hear-no-evil motto that has been the prevailing attitude of the DFL Board leadership for over a decade.
“I guess I’m just, I’m hoping that, I’m going to wrap up and I want to make a statement: we’ve been kind of going all over the place (sort of like this sentence,) about people leaving the district, and kids not choosing our district, and in the next four days we’re going to be going to graduations, and we’re going to be celebrating hundreds of kids who have successfully met the requirements to graduate. I’ve already gone to lots of graduation parties and will be going to more in the next couple of weeks. And I’d encourage us, as Board members, to take the time and ask some of the kids: what has helped make you successful? And–you know–I hope you (my fellow Board members) take the time and kind of go into the next four days with a look at not that we’re failing kids, but we’re celebrating the successes of our kids…”
“I will be celebrating our graduation.” Member Oswald responded in her soft, firm voice. “This (meeting) has a different purpose than a graduation.”
A $3.3 million deficit! You rock, 709! Let’s celebrate!
The heart of Gorbachev’s perestroika movement in the now-defunct Soviet Union was called glasnost. It meant “openness,” in Russian. The Wall can’t stay up forever…