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Old Duluth Central - Administration Building. Photo credit: Ted Heinonen

On 4/16/19, the Duluth school board took its next step in this year’s budget process.  Every Board member showed up for this meeting, despite the fact that it was a beautiful crystal-clear spring day in the upper fifties after an unusually tough winter.  They all knew they were trading a sweet day for a long, protracted stint in the boardroom of Old Central, and that they were going to be roped in for hours.  First they had to get through the Human Resources Committee and a lengthy debate about employee background checks, then they had to tackle a Business agenda with 336 pages of graphs, charts, contracts and other sundry documentation.  

One important truth has to be acknowledged in my reporting of these meetings: the DFLers running the boardroom do care about education and are earnest almost beyond measure.  

If only earnest were enough

During this meeting, Board members kept thanking the CFO for her “new” approach to the budget, but in actuality this presentation was school finance 101: the general fund.  Instead of shuffling new school board members down to the Minnesota School Boards Association after they are elected, they should first be required to sit through a comprehensive tutorial on district 709’s budget.  The Board IS ostensibly responsible for fiscal control of the district.  How can our representatives exercise due diligence towards that responsibility, and make any credible arguments for resource allocation, without a basic understanding of the various funds that comprise the budget?  

And while the Board’s novices are in their initial learning mode, they should also be taken through the teachers’ contract, which is over 50 pages long, with memorandums of understanding attached.  The Board has to approve that contract.  How much do our representatives truly understand about what is inside it?  

Finally, the governmental body responsible for fiscal control should be fully up to speed about the nearly $300 million ($294,530,425) of debt the district is carrying.  Right out of the gate, new board members should be given a detailed tutorial about a massive capital project that created the debt, and the myriad ways that debt is creating blowback on the budget.

How can you exercise fiscal control and search for solutions to what has clearly been a fiscal meltdown, without a basic understanding of the numbers?  Instead of seeking out answers to what really went on since Keith Dixon came to town, for years the Board majority displayed what the owner of the Zenith News, Jennifer Martin-Romme, once described as their “usual alarming incuriosity about the finer points of facilities finance.”

Ann Wasson, the Chair of the Board who signed the original Red Plan contract, best exemplified the prevalent attitude of the boardroom’s rulers when she meekly observed that the budget is “all so truly complicated, other than to the people who do this,” adding: “it’s too bad the reserve has decreased so much, but you don’t have to have that rainy day fund.”

I think some would argue, including our new CFO, with this claim that you don’t have to have any reserve to back up a hundred million dollar budget.

Cause for hope

It was actually very hopeful to observe our school board representatives attentively learning the basics of their job’s primary responsibility, during this meeting.  The budget process has been a source of aggravation in the boardroom for as long as I’ve gone in there.  It became almost ritualistic: right before the end of the year, the Board was handed a negative dollar figure for a pending deficit, along with administration’s recommendation for cuts and expenditures to balance the budget. 

The cloak-and-dagger secrecy of the process prompted me to once describe the former CFO this way: “Most of the time, looking out from his impregnable fortress of numbers, he may as well be speaking in Greek or Russian.  The majority members usually only grasp the barest inkling of what he’s talking about, but they do whatever he says.  Listening to him, often brings to mind the most famous federal government Sphinx of recent years.  Alan Greenspan once observed that one of his most effective strategies as Fed Chair was to ‘mumble with great incoherence…I spend a substantial amount of time endeavoring to fend off questions, and worry terribly that I might be too clear.’”        

Some Board members, like Art Johnston, argued strenuously that the school board had a right to more precise and clear details about the budget as well as a duty as public representatives to be more involved in the process, but he was routinely branded as a troublemaker and ignored.  At the heart of the problem was the fact that the Red Plan had backfired, and administration--led by Superintendent Gronseth--wanted to repress that factual reality and shape another narrative for public consumption.  

The spin being promoted back then was that all the fiscal problems were due to the shifted payment from the state of Minnesota.  The media was constantly being fed statements like this one, from Judy Seliga-Punyko: “Honestly, financially we are doing great, if only the state would give us the money they’re supposed to.” 

The “borrowed money” figure was peppered into every financial discussion and blamed for everything.  Every cent of that money has been paid back now, for over four years.  Has it made any appreciable difference? 
CFO Erickson, to her credit, has taken an improved approach to flawed past practice.  She included a six-page summary of the general fund in the Business Committee agenda.   To state her method more accurately: she listed the basic numbers and then, during this meeting, led the board through a series of perspectives on the way the budget is laid out. 

Tackling a behemoth 

“We’ll go ahead and get started with our behemoth,”  Business Committee Chair Trnka proclaimed to her colleagues and the few Duluth citizens in attendance, “which is the 336 page Business agenda.”   
Trnka requested the order of the agenda be altered, and that the Board “begin the conversation around our preliminary 2020 budget information (which had been placed near the bottom of the list,) so that our brains aren’t fried by the end of this discussion.”  
After so many years of attending these meetings, I’ve concluded one of the worst forms of eternal damnation would be enduring 336-page Business Committee agendas strung out one-after-another, forever.  Even the devil would cry uncle and repent.    
Obviously covering this behemoth fully in two Reader pages is impossible.  Erickson proceeded page by page through her explanation of the district’s general fund, and I’ll just lay out a few highlights from this part of the proceeding.  
CFO Erickson reminded the Board that she had taken them through what the “budget process looked like” during the last meeting, and now they would be looking at “some of the components of the preliminary budget.”  She stressed that things were in flux yet and subject to “a lot of changes and nuances between now and June.” 

Then Erickson launched into her tutorial, beginning with the revenue side of the ledger. “Revenue is a critical piece, because what we have is what are resources are that helps us make decisions on what we’re going to spend.”
The point was somewhat muddled by a roundabout sentence, but generally how much money you have is central to determining how much you spend, unless you’re the Federal Government.
“If I get too nerdy,” Erickson told the Board, “stop me and ask for clarification.”  Painting a broad outline, she said the district classifies the general fund as Fund 1, but that the State of Minnesota recognizes it as also including Fund 3, Transportation, and fund 5, the Capital Operating Fund.  

“Inside of each of these funds, there are different types of revenues…We’ll look at those different revenues in different ways, so you can see what they mean to us.” 
General Fund total revenues for next year, our CFO informed the Board, is currently estimated to be $109,593,402.27.  Erickson broke these revenue streams down to 5% Federal money, 20% local money and 75% State money.  In actual dollars, the categories break down to: $5,383,065, Federal; $82,218,929, State; $21,991.408 (and 25 cents), local.  

It’s important to note that this is just the money available for district operations, through the unrestricted part of the General Fund.  Local taxpayers will pay a total levy of $39,837,624 (and eleven cents) to our school district in 2020.   
Erickson said most “categorical revenues” were being estimated at 2019 levels until new information is known.  She told the Board that Federal Title funds were expected to drop off by 10%, because of a reduced number of students being eligible for free and reduced lunches.  A lot of Federal money is based on this eligibility, and the loss will hurt, but it was of course good news to hear that fewer students in Duluth will need this help. It was also good news to hear the district has raised its enrollment projection by 30 students: to 8146.  

Much of State aid is calculated from enrollment numbers.  The base formula is currently $6312 per student.  During this meeting, CFO Erickson, who had been projecting an increase in the formula of 2%, downgraded her estimate this way: 
“Right away, (after he was elected,) we heard from our Governor that he was supporting a 3% increase on the base formula allowance, which I think (brought) cheers from school districts all over the State.  That was a great message to hear.  The State House followed, when they did their omnibus bill and included 3% in fiscal year ‘20 and 2% in fiscal ‘21.  And then, not that long ago, our friends in the Senate--we heard they are at .5%.”    

Erickson told the Board she had been expecting the Senate to put 1% on the table and subsequently was projecting a 2% increase as a “happy medium.”  For the moment, however, she has downgraded this projection to a less happy 1%.
A 1% increase in the base formula allowance would increase operating revenue by $560,000 for the Duluth district.  The levy increase approved by the public in last year’s election will add more than $5 million ($5,089,000) in operating revenue.  
Erickson also listed some revenue that will be lost between this year and next, such as nearly a million dollars ($948,000) less in compensatory funding from those fewer students receiving free and reduced-price lunches and a $907,000 “negative adjustment” required from a “pupil count error” dating all the way back to 2015.

The district’s general fund operating revenue for next year is currently estimated to be a net gain of $4.8 million over this year.  
       
Expenses
      
Erickson told the Board that the “majority of general fund expenses are tied to salaries, wages and benefits.”  She showed members a pie chart from fiscal year 2018 and said next year’s expenses would have a similar breakdown.  There were only two pieces of pie on the chart: one was large--78%--representing labor; the other was much smaller, representing the 22% of expenses that are non-labor related.  Of the 78% of labor expenses, 71% consisted of payroll; 29% employee benefits.  

Erickson laid out some of the district’s needs, including the fact that the replacement schedule for school buses is “behind by at least 3 vehicles.”  One bus is added to the transportation department in this budget.  The conscientious CFO also pointed out that $350,000 of maintenance staff salary will be shifted back as an expense to the general fund. The district has been robbing $1.5 million of maintenance money to pay salaries instead of fixing buildings, in a shell game to stay afloat.  

The depleted reserve fund, under this budget, will be bumped a tiny bit further into the black with an allocation of half a million dollars.
Erickson said part of the process for calculating expenses also required that they “build in the contractual salary and benefits increases” for staff. The district’s cost-out estimate for next year’s salary and benefits increases, just for the teachers’ contract alone, is nearly $1.5 ($1,486,637) million.    

Total expenses for next year’s general fund budget, at this point in the process, add up to $110,868,402--leaving a current projected deficit of about $115,000. 
One part of this budget discussion centered around monies that are earmarked for particular usage.  Several terms are used for monies that are set aside and channeled for specific expenses under different categories: “assigned,” “committed,” “restricted,” “designated.”
“Maybe I’m not totally understanding,”  Member Sandstad said at one point, “you just said ‘unrestricted’ doesn’t mean ‘unrestricted.’
“Unrestricted’ doesn’t mean it might not have strings attached, or usages (attached to it,)”  Erickson explained.  “It just means it doesn’t have a reserve at the end of the year.  So, in the sense of ‘restricted,’ if we have any unspent dollars, they must be dedicated and set aside.  Other (money) that doesn’t have restrictions…you get paid on what you spend.  So, even though it has strings attached to it, there is no reserve because you only get the dollars that you’ve proven that you’ve spent.” 

“It’s like a grant?” Sandstad asked.
“It’s an entitlement — yep.” 
One of the most important distinctions between government and private ventures is that a government organization often HAS to spend dollars, or it loses those dollars. 
“It was very hard for me to contain myself to just six pages,”  Erickson said about her remedial budget lesson.  She told the Board her objective was to lay out “the things that have reserves,” and show how all these funds “relate to our unreserved, undesignated fund balance.” A few minutes later, she added this wry remark: “Six pages doesn’t even begin to talk about the joy that you’re going to have talking about this budget, coming up in the next several months.” 

School board meetings are open for any citizen who wants to share in the joy.