Audit: MPS cut spending, increased revenue in 17-18

District used $12.7 million less in reserve funds than School Board authorized

Minneapolis Public Schools cut general fund spending by $12.3 million and increased general fund revenue by $8.1 million in the 2017-18 school year compared to 2016-17, according to an audit released Nov. 29.

The school district received $589.8 million in general fund revenue in 2017-18, up from about $581.8 million in 2016-17, and had $593.6 million in general-fund expenses, compared to $605.9 million in 2016-17, the audit said. District leaders used $3.8 million in reserve funds to cover the remaining shortfall, $12.7 million less than what the School Board authorized them to use.

The audit’s publication came about 21 months after Superintendent Ed Graff told the School Board the district faced a projected general-fund budget gap of $28 million for the 2017-18 school year. District leaders responded by making cuts to central services and reducing school allocations by 2.5 percent, eventually reducing the projected deficit to $16.5 million. They planned to use unassigned reserves to cover the remaining deficit, but Graff also said the district would work to be judicious about spending.

School Board Audit Committee Chair Jenny Arneson said the audit aligns with the financial information district staff have been giving the board over the past year-plus. She said the district’s financial theme for the past year and a half has been to get a clearer picture of its financial situation and live within its means, trends the audit demonstrated.

“It reconfirms the information that has been out there,” she said. “This is good news.”

At the School Board Audit Committee meeting Nov. 29, Graff said the district had “initiated a series of cost-savings practices” in 2017-18 and actively pursued additional revenue, both at the state and through competitive grants. He noted how the district received $4.9 million above what it budgeted in general-fund revenue and spent $7.4 million less than budgeted on elementary and secondary instruction. He ran through a list of categories in which the district saved money in 2017-18, from transportation to standardized testing to textbooks.

The audit said that regular instruction expenses came in $7.4 million underbudget due to “budgeting conservatively for possible increases in costs.” It also said there were “less funded program activity during the year” and a change in the “coding of certain technology expenditures from regular instruction to district support services.”

The audit also said that special-education expenses came in $6.7 million underbudget due to “budgeting conservatively” for tuition-related expenses, which were less than anticipated. The district spent over $970,000 more than it budgeted on district and school administration, the audit said, though spending on administration decreased by over $1.9 million compared to 2016-17.

According to the audit, the district’s weighted average daily membership, an enrollment figure that gives more weight to secondary students, decreased to 37,978 in 2017-18 from 38,462 in 2016-17. The total number of public-school students living in the district decreased to 51,874 in 2017-18 from 52,094 in 2016-17, the audit said.

Still, the district’s revenue from state sources increased about $5.5 million in 2017-18 from 2016-17, mainly due to an increase in the per-pupil formula allowance and an increase in special education funding, according to the audit. Revenue from local property taxes increased by nearly $5 million as a result of an increase in the “general fund’s share of the levy,” the audit said.

“Other” sources of revenue decreased by nearly $2.5 million due to a decrease in funded programs and rent revenue, the audit said.

The district ended the 2017-18 million school year with $62.5 million in fund balances, including $31.6 million in unassigned fund balances, or reserves. The $31.6 million in unassigned fund balance represented 5.3 percent of 2017-18 general fund expenses. District policy calls for unassigned fund balance to represent at least 8 percent of general fund expenses.

Other district funds continued to stay in good shape in 2017-18, the audit showed. Revenues in the food service fund were about $251,000 over expenses, bringing that fund’s reserves up to $3.1 million. Revenues in the community service fund were nearly $272,000 over expenses, bringing that fund’s reserves up to nearly $9 million.

The audit presentation came about five months after the School Board passed a 2018-19 general-fund budget that includes $604.4 million in revenue and $604.4 million in expenses. District leaders initially projected a $33 million budget gap for the 2018-19 school year, so they made $33 million in cuts to balance the budget.

More recently, the district has received several million dollars in grants, according to finance staff, and it plans to submit a budget amendment to the board to account for the additional revenue.

On Tuesday, the School Board is expected to officially accept a document that laid out the district’s preliminary revenue and expenditure assumptions for 2019-20. The pro forma document says the district expects to receive $620.6 million in 2019-20, despite a projected decrease of 414 students. It says the district expects to maintain general fund staffing levels and balance its budget without using reserves.

The revenue projection assumes the state’s general education formula allowance will remain unchanged. It includes an additional $30 million in revenue that voters approved in a pair referenda last month.

Arneson said the audit demonstrates that the district is well positioned to be intentional about how it uses its referenda dollars. She also said that a large part of the district’s financial issues are due to education funding not keeping up with inflation over the years.

Over 90 percent of Minnesota’s 330 school districts receive less per pupil aid today than they did in 2002-03 after adjusting for inflation, according to the progressive North Star Policy Institute. The loss exceeds 10 percent per pupil in nearly half of the districts, according to the institute.

District leaders expect to meet to review budget plans in late January, according to a budget timeline document. They plan to present the 2019-20 budget to the School Board Finance Committee on Feb. 12, the document says.

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