The Duluth school district’s fund reserve, $6.8 million a year ago, has sunk to nearly half that total. Avoiding further loss is the impetus for the School Board’s vote next week on an 11.9 percent tax increase.
The unofficial audit of the district for its most recent fiscal year, ending June 30, was presented to the board Monday by independent auditor Wipfli, formerly Eikill & Schilling of Duluth.
About $3.6 million remains in the reserve fund, which is used for cash flow. Reserves have been drawn down in recent years to help make debt payments for the Red Plan when expected revenue from selling closed schools and other properties didn’t materialize. Schools, including Central High School and the Secondary Technical Center, have not attracted buyers during a slumping real-estate market.
A school sale in the next few months could help change the district’s course, Superintendent Bill Gronseth said.
“The board vote is a temporary way to cover the district until the buildings sell,” he said.
Without property sales, the district can’t rely on the fund reserve for long. “Making this levy increase ensures us we have more time to work with before going into statutory operating debt,” he said.
A district falls into that category when its operating debt is more than 2.5 percent of the most recent fiscal year’s general-fund expenditures.
Board member Art Johnston said he is concerned about the possibility of landing in such debt.
“I think we’re getting dangerously low in our reserve fund,” he said, noting that statutory operating debt could be less than two years away.
Board Chairwoman Ann Wasson said the board is fortunate to have the fund in place, because some districts don’t have reserves.
“I don’t want people to think if we spend it down we will be in SOD,” she said.
Taxpayers in recent years have seen increases in the 5 percent range for the school portion of their property taxes. The 11.9 percent increase comes at a time when St. Louis County is asking voters for a 1.5 percent increase and the city of Duluth is asking for a 2.82 percent increase for their portions of property taxes.
The money from the school tax increase will help the district pay off debt and avoid taking from the fund balance.
“No one likes to see their taxes go up, but most people I talk to understand,” Gronseth said.
Deborah Medlin, who presented the audit to the board, noted the district has lost a “substantial amount” of its general-fund balance in the last two years, dropping from $14.7 million in 2010 to $3.6 million in 2012. She also noted that the district hasn’t met its minimum fund-balance requirement of 10 percent of the unrestricted budget for two years.
“You have to have money to pay the bills during the year, especially during these economic times when the state is withholding more of the money they owe you because they don’t have the money to pay you,” Medlin said, “and you have to go out and issue short-term debt to have cash to make payroll next month.”
She noted the state auditor would say one month’s worth of expenses — about $8 million — should sit in the fund balance.
As for the rest of the audit, about $131,000 in differences were found among the roughly $100 million budget, which Medlin said were “immaterial” considering the size of the budget.
The audit, Gronseth said, “speaks to the integrity of the finance and business department. It’s an unqualified audit and it doesn’t get any better than that.”