District will borrow way out of red

In debt by more than $300,000, Wrenshall schools administration and its school board are expected to begin three rounds of cuts in December.

The first cuts will total $50,000, followed by further rounds of more substantial cuts in January and June.

"We have to right-size the school district by the next budget for sure," superintendent Kim Belcastro said last week during the board's committee of the whole meeting.

On Monday, the board unanimously approved borrowing $500,000 against future state aid to cover the current deficit spending. Spending cuts along with the borrowing figure to work together to lift the school out of its hole, Belcastro said. Long-term, the school needs more students to increase its state-aid revenue, she said.

"If you don't make any budget cuts, it's very likely you'd be in the same position next January [2024] and have to do another borrowing," Steve Pumper told the board last week. He is vice president of PMA Securities, the firm chosen to marshal the borrowing process by contacting local, state and national banks interested in the type of borrowing required by the school.

Pumper described working with 200 districts throughout Minnesota, and said Wrenshall is only the fifth district right now requiring borrowing assistance.

The school will receive the money in January in the form of "aid anticipation certificates." The plan is to pay back the money in September after the arrival of the district's annual tax income and some of its state aid.

"You're in a very low percentage of the number of districts in a situation like this," Pumper told the board, while offering that it's not as bad as it could be. "Any dollar you can save during this fiscal year, if you don't save it's double the cut you make next fiscal year."

With $5.21 million in 2023 operating expenses, the goal will be for Wrenshall to avoid entering into statutory operating debt, an annual borrowing process that requires adherence to a budgeting plan overseen by the state. The Carlton school district spent at least seven years in statutory operating debt in the first decade of this century, but eventually turned its finances around in 2012 thanks to budget cuts and a generous operating levy first passed by voters in 2010.

Declining enrollment was primarily to blame for the current Wrenshall situation. With roughly 350 students to start the school year, Wrenshall business manager Angela Lind said enrollment fell shy of projections.

"The new enrollment numbers were about 20 students less than we budgeted for," Lind said last week.

Each student loss is the equivalent of $10,000 of state funding being denied the district.

A budget committee made up of board members and administrators is meeting regularly to identify cuts. Details are sparse and will be announced in December. Belcastro noted the possibility of consolidating a busing route. There also has been talk of cuts to the kitchen, looking at funds dedicated to the Wrens Club latchkey program, and nursing costs. The board also bandied about the idea of curbing the time buses sit idling to save on fuel costs.

Cindy Bourn voted against the December cuts, saying it wasn't enough. "It's irresponsible not to be making bigger cuts," she said.

Board member Jack Eudy said union contracts with teachers and staff are preventing the lion's share of cuts from being made before the end of the year. "Contracts are the cause of not being able to cut deeper," he said.

Eudy, Bourn and Deb Washenesky were unseated in the Nov. 8 election by newly elected Eric Ankrum, Mary Carlson and current board appointee Ben Johnson. Eudy said the new board that takes over in January will be confronting the budget situation head-on.

"There's going to be some hard decisions coming up," Eudy said. "We need to keep the doors open. We need families. We need kids."

Staffing costs make up three-quarters or more of any district's budget, Pumper said. That's on average with most school districts. Ultimately, no amount of fuel savings or new efficiencies add up as much as staffing cuts.

In voting to borrow $500,000 in aid anticipation certificates, the board approved an interest rate of no more than 6 percent. That cost is offset by interest the money earns once it's deposited into school accounts, expected before Jan. 30.

In forecasting the district budget, Pumper said the first day the district is expected to experience a negative cash balance is Jan. 27. That's a low cash position for most districts, he said, due to debt service payments coming due.

"That's the lowest point for almost every district in the state of Minnesota," Pumper said, adding that Wrenshall will actually reach its nadir in April, when it is forecast to be $321,000 into its negative balance.

The $500,000 is more money than the district needs, but everyone agreed it was wise to incorporate a cushion. "This is not digging a bigger hole for us," Belcastro said. "We know we're not going to need all of this money."

Appointee named

Because board appointee Ben Johnson won election to the school board Nov. 8, he'll need to resign from his appointment as a temporary replacement for board member Alice Kloepfer, who is on extended medical leave. Board chair Misty Bergman said she has asked Kristin Reinsch, who finished with the fourth-most votes in the recent election, to sit in for Kloepfer.

"She did say 'yes,'" Bergman told the board.

"That's fair, because she's next in line," said Eudy, who finished fifth among seven candidates for three seats.

"It's a good choice," Washenesky said.

The board still will need to approve Reinsch, but there will be no requirement for an interview process. In the meantime, Belcastro said she'd spoken with Kloepfer.

"It was good to hear her voice," the superintendent said, affirming Kloepfer's intent to resume her seat at some point. "But she's not ready to come back yet either."

Also Monday, the board canvassed the Nov. 8 election, which saw 2,785 votes cast among seven precincts. Totals were confirmed as follows: Ankrum 634, Johnson 426, Carlson 373, Reinsch 369, Eudy 360, Washenesky 303, Bourn 275, and write-ins 10.