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Duluth school district projects $9.6 million fund reserve

The Duluth school district will probably end this year up $6.3 million and next year up $9.6 million, reversing its trend of draining its fund reserve.

That’s thanks both to the recent increase in state education support and the fact that the district is no longer using that reserve, or surplus money, to pay Red Plan debt. The School Board, for the last two years, voted to increase property taxes by 11.9 percent to help pay debt because the surplus amount had dwindled. That money was being used because the original plan to use money earned from property sales hasn’t come to fruition.

“It paints a much healthier picture for the district,” business services manager Bill Hanson said of the surplus.

At the same time, he said, not knowing what lies ahead as far as state funding, for example, means the district should still act conservatively.

The School Board discussed the district’s fiscal year 2015 budget Monday, which projects a $3.2 million surplus. It will vote on the budget next week. Roughly $2.3 million in investments will go before members for approval, including nearly $1.5 million for teachers to help lower class sizes districtwide. Money from the November operating levies is going toward that effort. The board will also be asked to terminate two to three nontenured teachers and all or part of the positions of up to two tenured teachers. In comparison, 18 nontenured teachers were terminated and five tenured teachers were laid off last year.

The district last year had a surplus of just $1.9 million. The fund reserve — once more than $20 million — held $14.7 million in 2010. The district has a policy of keeping a minimum fund reserve of 10 percent of its unrestricted expenditures.

Bringing the reserve back up to nearly $10 million is important, Hanson said, referencing the rating the district was given from the Moody’s bond rating service last year. Moody’s downgraded the district’s credit rating one notch last year because of its lack of reserves and its borrowing activity, among other reasons. The rating — Baa2 — means moderate credit risk to an investor.

Board member Art Johnston Monday questioned putting money into reserves, rather than investing in more teachers.

“If we were to say, ‘I don’t care what Moody’s says,’ how would we do that and how would it be reflected in the books?” he asked.

Superintendent Bill Gronseth said he’d like to add more teachers, but staffing “looks pretty good right now.”

He noted that Denfeld, for example, was able to add back some of the classes that may have been cut with extra low-income funding it receives. In changing the student-teacher staffing ratio, he said, class sizes districtwide will be noticeably smaller.

In elementary schools, classes on average will be about two students smaller at 27.4; at the middle schools, they will be 1.7 students smaller at 32.7 and in the high schools they will be 1.5 students smaller at 34 kids per class.

Member Harry Welty said the board needs to consider the long-term viability of the district. He’s concerned about the possibility of a multimillion-dollar deficit in the next few years, he said, because he doesn’t expect lawmakers to continue to be generous with schools.