Serious. Frustrating. A somber black cloud.

These are words that Prior Lake-Savage Area School Board members used to describe the district’s 2006-07 budget situation and financial forecast at Monday’s meeting.

 The board thanked Director of Business Affairs Margo Nash for preparing the budget. But board members also balked at the numbers.

Board Member Michael Murray said the debt is frustrating.“[We’re] a million in the hole, and we’d hoped we were going to be positive one dollar,” Murray said. “We’ve got a lot of work ahead of us.”

To what Murray referred was the estimated unreserved fund balance that is negative $928,884. Currently, the fund balance is at negative 1.4 percent.

The School Board adopted in 2006-07, a fund balance policy to maintain a five- to eight-percent fund balance in the unreserved general fund by 2011, and has been working toward this goal.

“That’s the target they’re still shooting for,” Nash said. Along with natural budget increases, Nash said a major increase came with the opening of new schools.

The estimated reserved fund balance for severance pay, learning and development, gifted and talented, basic skills, staff development, operating capital and health and safety that is also a negative $126,873. Nash said this debt will be funded by the property tax levy.

Superintendent Tom Westerhaus said while many good things are happening in the district, “there’s also a somber black cloud hanging over us, and that’s our financial situation.”

According to Nash, several recent factors have led to a negative impact on the fund balance, the largest of which includes decreased special education revenue from the state and the additional costs associated with opening new school buildings.

“Like so many other districts, we are experiencing a significant decrease in revenue for special education as a result of a cap the state legislature placed on funding in 2005,” Nash said.

For the 2006-07 school year, aid has now been capped at 79 percent on regular special education revenue and 52 percent on excess cost revenue.

As a result, the district must cover a roughly $200,000 shortage of special education revenue.

Westerhaus said funding, rather than spending, is part of the problem. “Like so many other districts, we are not receiving adequate funding for education,” he said. “We are continually trying to balance the tremendous growth needs of our district to best serve all our students while at the same time dealing with the ongoing budget crisis in our district in an effort to arrive at a positive fund balance.”

The Legislature approved a funding formula increase of 4 percent for the 2005-06 and 2006-07 school years, but the funding formula has been below the rate of inflation for the last 15 years, Nash said.

“We don’t have an expenditure problem, we have a revenue problem,” said Board Member Sue Bruns. “We have a state funding system that is broken.”

While growth in the district brings in revenue per each student, the cost of housing programs and other expenses have grown, too.

The 10.41 percent estimated expenditure increase is due to a combination of additional staffing due to enrollment growth and opening of new schools, transportation, textbooks, additional retiree severance and special education costs, the report states.

“The challenge of opening a new school while trying to move in a positive financial direction is difficult,” Nash said.

“We’re in for another rough ride this coming year,” Westerhaus said.

While substantial cuts in the 2007-08 are coming, Westerhaus said administrators will meet now to see what cuts can be made in the current budget.

“There’s no time like the present,” Westerhaus said. “We have to improve fiscal responsibility.”

Already Tuesday, administrators met to discuss ways to trim this year’s budget, Nash said.

Ideas for cutbacks will be brought to the board’s finance committee at a Jan. 8 workshop.

Westerhaus added that there will be a need to seek voter approval for additional funding in the next election.

The current referenda are sunset in 2009-10, and would result in the loss of $7 million in revenue for the district. If voters were to support a new referendum in fall 2007, the district would gain funding for the 2008-09 school year.

“It’s very clear to me that we need to seek voter approval for additional funding. I don’t think we can pretend any longer that’s something we’re not going to need to do in fall 2007,” Westerhaus said.

The first step, for now, is trimming the budget, he added.

“We are setting the right budget goals, facing it head on and committing to improving the fund balance so that we can provide quality programs for all students,” he said. 

Less of a levy

Nash confirmed Monday that a reduction to the property tax levy was submitted to the State last week.

“Their recommendation was to approve this levy at this time,” Nash said, of moving forward with the budgeting process.

The board unanimously approved the levy amount Monday that was presented at the district’s truth-in-taxation meeting Dec. 5, with the knowledge that an update of a reduction would be presented by Nash at its January meeting.

The levy is estimated to drop from $22,298,117, a 13.04 percent increase, to under $21.9 million which would be a 10.9 percent increase.

 Joanna Miller can be reached at (952) 345-6375 or jmiller@swpub.com [2].