Our view: New Duluth School Board must fix financesTo a candidate, School Board hopefuls this late summer are advocating the need to rebuild trust.
To a candidate, School Board hopefuls this late summer are advocating the need to rebuild trust.
To that the Duluth School Board and district can add the need to rebuild its reserves and its bond rating and to get its financial house back in order.
The latter need came into clear focus late last week when news broke that the Moody’s bond ratings service had downgraded the Duluth school district’s credit rating a notch, from Baa1 (which doesn’t seem all that great to start with) to Baa2. A rating of Aaa is considered best, indicating to investors low risk. A public entity’s bond rating helps determine how much it’ll cost its taxpayers to borrow money. The worse the rating the higher and costlier the interest rate.
Fortunately for the Duluth school district and its taxpayers, the district isn’t looking to borrow any money any time soon that’d be affected by the downgrade. Interest rates for the borrowing it did for the $315 million Long-Range Facilities Plan were locked in long ago. And money the district plans to borrow this week for cash flow will be paid back through guaranteed state aid.
So, “There is no impact, per se,” Bill Hanson, director of business services for the district, said in a News Tribune news story Friday, commenting on the downgrade.
But there is added embarrassment to a district long the target of ridicule and angst. And while a lot of districts in Minnesota have been put in the same unenviable position as Duluth’s of having to borrow just to pay bills due to delays in state aid payments, there is the stigma of a double black eye: the downgrade and having to borrow for cash flow.
And there’s the need, made even more urgent now, to get the district’s finances turned around quickly, certainly before the need to borrow again.
“(The downgrade) is a heads-up and a wake-up call, just something to be aware of, since it doesn’t have any significant implications for the moment or for the foreseeable future,” Thomas Wheeler, president of Wheeler Associates, a financial planning firm in Duluth, told the News Tribune Opinion page in an interview Friday. “So you deal with it and move on. You have an opportunity to do what (you) need to do to improve on it before it does become an issue.”
One thing the district needs to do is sell Central High School and its other unused properties. It had been relying on those sales to make ends meet and to afford the Red Plan. When the sales didn’t happen, the district drained its reserves to make up for the resulting lack of revenue. The reserves stood at $15 million in 2010, but were down to $3.6 million in December.
In addition to property sales, rebuilding those reserves could get a boost from the release to districts statewide of past-due state aid, which the Legislature approved this year. The 11.9 percent tax increase the School Board approved in December also will help. So will whatever financial help the district can get from voters this fall.
Another thing the district needs to do is win back students who live in Duluth but who go to private schools, charter schools, online schools, schools in other districts or to no school at all. Money from the state is determined per student. Fewer students means fewer dollars for education. According to the Minnesota Department of Education, in 2006-07, 9,924 of the district’s 11,223 students attended Duluth public schools. That was 88.4 percent. This past year, 8,509 of 10,441 students, or 81.5 percent, attended Duluth public schools.
Because incumbents aren’t seeking re-election, the seven-member Duluth School Board stands to gain three and possibly four new members in this fall’s elections. It’ll be on them, on this new board, not only to restore the district’s image and its trust with residents but to rebuild its financial footing. A tall order and a tough task, but absolutely critical — and job one.