Duluth school district's reserve drops below $2 millionThe Duluth school district’s fund reserve has dropped to less than $2 million, according to unofficial audit results released Monday.
By: Jana Hollingsworth, Duluth News Tribune
The Duluth school district’s fund reserve has dropped to less than $2 million, according to unofficial audit results released Monday.
The balance — once more than $20 million — was $14.7 million in 2010. It’s been drawn down in the past three years to make Red Plan debt payments when expected revenue from property sales wasn’t realized.
The fund reserve, used for cash flow, now sits at $1.9 million and the district is no longer using it for debt payments because there isn’t enough money left to make them. That’s one reason the School Board will vote next Tuesday whether to increase property taxes next year by 11.9 percent for the second year in a row. It would bring $32 million to the district, up from $28.9 million last year. The increase will mean an additional $61 a year for the owner of a $150,000 home, which includes the operating levy amount approved Nov. 5.
The district’s policy of keeping a minimum fund reserve of 10 percent of its expenditures hasn’t been met for three years. This year, it would have needed about $7 million.
The state auditor says you should keep one month of expenses in your fund balance, said Deborah Medlin, the accountant from Duluth’s Wipfli who presented the private accounting firm’s findings.
“Right now you have seven to eight days-worth,” she said. “Definitely, it is too low.”
She advised the district against deficit spending but commended it for spending over only $154,000 on a $98 million budget.
“There was effort put forth to do that,” she said. “Somebody is watching the store.”
Chairman Tom Kasper said the board has voted to make those transfer payments with fund reserves each year to provide for students and their families. One positive, he said, is the operating levies passed.
“But looking at a $1.9 million fund balance is a concern, and I can imagine it is for much of the district,” he said.
Member Art Johnston asked whether the board would have to choose between using operating levy money for rebuilding the reserve fund or putting it toward what was planned, including lowering class sizes and achievement and curriculum efforts.
Superintendent Bill Gronseth said operating levy money would still go where it was intended. Other state money could eventually help build up reserves, he said.
“We will have a plan for increasing financial stability of the district in the long term,” he said. “It may not happen all at once, but we will have a plan moving forward.”
The Moody’s bond ratings service downgraded the district’s credit rating one notch this year because of its lack of reserves and its borrowing activity, among other reasons. The rating — Baa2 — means moderate credit risk to an investor.
Cash flow is less of a problem now that the state has plans to pay back all of the money it has borrowed from school districts, in turn causing districts to borrow, said Bill Hanson, business services director.
The likely tax increase should help keep the district out of statutory operating debt, which happens when its operating debt is more than 2.5 percent of the most recent fiscal year’s general fund expenditures. Enrollment is stable, which helps with funding, Hanson said, and sales of excess properties would help, too.
But the tax increase, he said, would be “a step in the right direction.”
Member Ann Wasson said residents in November supported an increase of $45 for education and the total levy amount is only a few dollars more (for the owner of $150,000 home.)
“I am in total support of this,” she said. “I think it gives the School Board an opportunity to have good conversations about growing things and getting to where we want to be and need to be later.”
As for the rest of the audit, about $148,000 in differences were found among the nearly $100 million budget. Medlin said they were “immaterial” considering the size of the budget. The district also was found by the audit to have a “material weakness,” which means there were some misstatements in its financial records.