Lake Superior School District faces first deficit budget in years

Talk about it

Lake Superior School Board members faced a grim budget situation Tuesday during their regular board meeting. There is a preliminary deficit of about $998,000 between revenues and expenses for the 2011-2012 school year.

“It’s a difficult picture to digest,” board chairman Leo Babeu said.

The biggest hit to next year’s budget will be an expected $333,862 reduction in federal aid due mostly to a reduction in economic stimulus aid.

In addition to the large cut in federal aid, the district will likely be losing $162,091 from local revenues in tax collections and levies because of a reduction in district population and enrollment. Transportation funding is also down about $10,000 because of the expected decrease in enrollment.

State aid is also down – $47,467 – and Superintendent Phil Mikkinen didn’t expect Minnesota to raise the amount of education funding for districts in coming years because the education system has seen minimal cuts in past years compared to other state entities.

While the district faces a dark scenario in the coming school year, Babeu and Mikkinen agreed that the district would be much worse off had they not taken some precautionary steps to avoid an even bigger deficit.

“We knew two years ago this was going to be a bad year,” Mikkinen said. “Unfortunately it turned out as bad as we expected it to be.”

Hard salary freezes for all district employees were enacted in previous years with the goal of not reducing staff. This was done assuming the economy would recover quicker than it has. Earlier this year, board members cut three positions, one at the Two Harbors High School and two at Minnehaha Elementary, totaling two full-time positions. Mikkinen said there is not much the district could cut without severely impacting programs schools offer.

The four-day school week, enacted this past school year, has helped keep the district’s deficit down by about $200,000, he said.

With the 2011-2012 preliminary budget in the red, board members unanimously authorized the district to set up a line of credit and the sale of “aid anticipation” certificates so that the district could be prepared to cover shortfalls. District officials are waiting to see what happens with the Minnesota legislature before deciding which method of borrowing to use.

A line of credit offers around a three percent interest rate while using an “aid anticipation” program has a gross interest rate of just above one percent. The interest rate is lower for “aid anticipation” because the money is lent to the district with the understanding that they would be receiving state aid in the near future, allowing the debt to be paid off. The choice the district makes will depend on how much state aid is available after budget negotiations in St. Paul are settled.

Districts across the state are facing similar budget shortfalls. In Duluth, at least two dozen teaching positions are expected to be cut for the next school year.

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