Before a hurricane, the National Weather Service communicates forecasts in advance, full of urgent language to match the danger of the coming storm. But there’s no early warning system for public school finances. If you’ve followed the Minneapolis Public Schools board meetings recently, you wouldn’t know the financial crisis that the district is facing. Board members and the superintendent rarely mention it. Public commenters never bring it up. And the administration staff who present financial information to the board do so calmly, without animation that might provoke the type of alarm that signals an emergency. But digging back through several years of the district's pro forma financial statements, typically released in November, the signs are there (Pro forma financial statements are a projection of the district’s finances based on reasonable assumptions about future conditions). Statements like, “Due to chronic enrollment declines, we can expect district revenue to remain flat for the near future while costs continue to rise,” from the 2019 pro forma, hint at what is on the horizon.

School Board Director at-large, and Finance Committee Chair Kimberly Caprini says the district can no longer kick the can down the road. The board can no longer hide from the tough decisions, but must be careful how it navigates through the current challenges.

While the COVID pandemic has exacerbated many of the underlying structural and operational issues for MPS, the arrival of federal COVID relief funds have masked the dire state of district finances. According to the November 2021 pro forma and information shared at multiple district presentations and board meetings, of the $160 million in Elementary and Secondary School Emergency Relief funds the district is receiving over three years, it will spend nearly half, $75 million, on maintaining existing staff and program levels, rather than making cuts to reflect the ongoing declines in enrollment.

The current crisis has resulted from disinvestment in public education by the state legislature and governors, a failure by the state to pay for the mandatory services students need to equitably access public education, and choices by past school boards and Superintendents to increase the district footprint in the face of stable or declining enrollment. Interwoven in these choices by the State and district are both historical and ongoing racism. This has all combined to create a system that suffers from disinvestment and instability, at a time when public schools are one of the only universal supports offered to families with children. Education advocate and MPS parent Sara Spafford Freeman said, “I can’t stress enough the absolute state of emergency facing Minneapolis schools and the kids who attend them.”

The information presented in this article comes from watching years of MPS board meetings, reading public documents from MPS, Minnesota Department of Education, and Association of Metropolitan School Districts, and extensive conversations with MPS parents and education advocates Sara Spafford Freeman and David Weingartner.

MPS budget basics

The big picture:

  • MPS finances can be confusing and relies on funding at the state and federal level
  • The school board aims for an 8-11% general fund balance, which functions like a rainy day fund.
  • Enrollment determines a majority of funding. Less students enrolled, less funding.
  • Staff costs make up the majority of the district’s costs

The details:

“Even for people in finance, public education finances can be confusing,” MPS Senior Finance Officer Diop said at the February 2022 MPS school board Finance Committee meeting. Like any entity, MPS has revenue and expenses, plus a general fund balance, that acts like a reserve fund. The board usually keeps the general fund balance at 8-11% of expenditures. This functions  like keeping an extra hundred dollars in your checking account as a cushion so you don’t overdraw your account.

MPS funding is mostly determined on a per student basis. Thus, almost all of district funding is driven by the number of students attending MPS schools. Funding comes in two basic forms: unrestricted and restricted. Unrestricted funds are general education money received at the state and local level. Restricted funds come from the state and federal government and a portion of the Minneapolis property tax levy.  Restricted funds can only be spent on particular things, at particular schools, or on particular students. The bulk of restricted funds are based on student characteristics, namely qualifying for free or reduced price lunch, special education services or English learner services. The main sources of restricted funding in MPS are federal Title grants, state compensatory revenue, state special education funding, and state aid for English learners.

Staff makes up approximately 85% of district costs. And most of those expenses are for staff that are either in school buildings (teachers, ESPs, principals, school secretaries, special education teachers and aides) or who support school buildings, like bus drivers. A large portion of district staff are in positions covered by union contracts, and their wages and benefits are determined by those contracts.

Current financial statements show healthy district finances because of COVID relief funds

The big picture:

  • The district’s general fund balance is larger than projected due to a higher-than-anticipated staff vacancy rate and one-time COVID relief funds
  • MPS is currently using federal COVID funding to balance revenue and expenditures
  • By 2026, the district is at risk of not having enough revenue to pay its expenses

The details:

In the most recent pro forma financial statements for the district, dated Nov. 16, 2021, the topline revenue, expenses and general fund balance show the district in a good financial position for the current year. MPS has general fund revenue of $653.9 million, general fund expenses of $655.5 million, and the general fund balance at the end of the year is expected to exceed $129.5 million. This general fund balance is projected to be nearly 20% of general fund revenue, which is much higher than the 8% target the board has set in previous years. The balance projection was based on having a 5% staff vacancy rate but the district recently reported a staff vacancy rate of 12%.

The district is utilizing $72 million in COVID relief funds (GEER, ESSER I and ESSER II) to balance revenue and expenditures this year. Without these one-time funds, general fund revenue would be $581.3 million, significantly below the district’s expenses (by $72.6 million). Some of these expenditures are directly related to the costs of mitigating COVID, and others are a result of expanded programs and services the district has funded to mitigate the impact of the pandemic on students.

Starting in 2023, and again in 2024, MPS has proposed to spend the majority of its remaining COVID relief funds, totalling almost $160 million. These funds will lead to projected general fund balances of $151 million and $137 million respectively. But starting in 2025, when the COVID funds are no longer available, the district projects its general fund balance will plummet to just $80 million. The 2025 general fund balance will still be higher than the 8% target the board has set for the district in recent years, But by 2026 the general fund balance is forecast to decline to 1.6%, which is less than 2.5% of expenditures the state sets as the threshold for statutory operating debt. This means MPS is at risk of having too little revenue and cash flow to be able to pay its expenses.

School building budgets

The big picture:

  • Principals construct their annual budget from what the MPS Finance Department sends them
  • Parents are familiar with school building budgets
  • Individual school budgets are directly tied to state funding

The details:

Every February, the MPS Finance Department sends building principals a budget for the next school year. Principals must construct a building budget that meets district and state requirements for staffing, programming and class sizes. They are advised in the process by the school site council, which is a group of parents, staff and community members who have been selected from the school community. This process is called budget tie-outs. If you’re an MPS parent, this might be the part of MPS finances that you’re most familiar with. Individual school budgets are part of a whole system of budgets for the district. While this process focuses parents on what’s happening in the building where their kids attend, the building budgets are really a reflection of what’s happening at a much broader level.

At the Feb. 15 Finance Committee meeting, School Board Director Sharon El-Amin said many MPS parents have difficulty trying to understand why their school communities continue to face unstable budgets, staffing, and programming. Understanding what is happening at the building level requires us to zoom out and consider the district as a whole. While many are quick to blame the board and superintendent for a lack of funding, much of the district revenue comes from the state and the property tax levy, which is governed by state policies. We have to take an even broader perspective to really comprehend what’s causing changes in district revenues.

The state disinvestment in public education

The big picture:

  • The state government has decreased its public school funding since 2003
  • Tax levy policies limit MPS from proposing a tax levy to make up for the decline in funding

The details:

Some Minnesotans may remember the Minnesota Miracle of the 1970s, when the state invested heavily in K-12 education by enacting policies to equalize funding across the state. The miracle is no more. Minnesota has been disinvesting in the public school system for at least the past 20 years according to an analysis by Education Minnesota.

While the nominal value has increased over time, the real value of the basic education revenue has fallen by 10% when adjusted for inflation since 2003. The proportion of public school funding coming from the state general fund has declined from 70% in 2003 to just 53%. At the same time, local property tax levies have increasingly filled these gaps for districts across the state. But in districts like MPS, the policies that govern local levies have limited the district and Minneapolis tax payers from fully closing the gaps in state funding through local levy increases. Specifically, the state has a cap on the total amount of per-student-revenue a district may have.

Public education students need more services

The big picture:

  • As state funding has decreased by 17%, the percentage of students needing special education service needs have increased by at least 4%
  • Students who qualify for free or reduced price lunch has increased by 7% since the 2000s

The details:

At the same time that general fund and local levy revenue haven’t kept pace with inflation, the population of students served by Minnesota schools has changed, particularly in urban districts like MPS. Under both state and federal law, school districts must provide specific services for special education and English learner students to ensure these students have equitable access to public education. Beyond the legal requirements, it is also a moral imperative to provide these services to students so that they can access public education. Both the state and federal government recognize through their funding policies that students who qualify for free and reduced priced lunch often have needs that require more services from schools. From 2006 to 2017, the proportion of students in Minnesota public schools qualifying for free and reduced price lunch has also increased from 31% to 38%.

But the state legislature and governors have not adjusted its public school education funding to meet the needs of these students. The proportion of students in Minnesota public schools qualifying for free and reduced price lunch has increased from 31% in 2006 to 38% in 2017. In 2020​​ the Minnesota Department of Education reported that 17% of students statewide receive special education services, at MPS it’s 18%. In 2003, 13.4% of students in Minnesota schools qualified for special education services.

Minnesota has also become a more diverse state, with a growing population of students who need English learner services. The vast majority of public school English language learner students, 76%, are in Twin Cities metro area schools. Data from the Minnesota Department of Education show that in 2019, 8.4% of public school students were English language learners, in 2006 7.5% of students were English language learners.

The state and federal government are underfunding mandated services

The big picture:

  • The federal government only covers 10% of its mandated 40% funding for special education services
  • There is a combined gap of $923 million in state funding for special education and English language learning services, this gap is called cross subsidy
  • Minnesota has a $8 billion budget surplus and Rep. Dan Wolgamott introduced legislation to permanently and fully fund special education services statewide for public schools

The details:

Policy makers are explicitly aware that state and federal funding are not nearly enough to cover the costs of mandated services (i.e. free and reduced price lunch, special education, English language learning). While originally promising to fund 40% of the cost of special education services under the Individuals with Disabilities Education Act in 1975, the federal government currently only covers around 10% of these costs. At the state level, in 2019 the gap in funding for special education services was $828 million, the gap for English learner services was $95 million, and combined this gap was $923 million. This leaves school districts to find a way to fund the gap between the cost of providing mandated services and the funding they receive to provide those services. In education finance circles, this gap is called the cross subsidy.

It remains to be seen whether eliminating the state-level funding gaps will be addressed this legislative session, as the state decides what to do with a nearly $8 billion budget surplus. State House Rep. Dan Wolgamott introduced legislation to permanently and fully fund special education services statewide for public schools. It is unclear whether this bill will pass and be made a priority in the ultimate negotiations between Gov. Walz, Speaker Hortman and Majority Leader Miller at the end of session.

State education funding policies negatively impact MPS

The big picture:

  • The state allows charter and non-MPS district schools to bill MPS for the cost of special education services they provide to students who live in the MPS district
  • To address the additional needs of students who qualify for free and reduced price lunch, the state provides districts and schools additional funding called compensatory revenue
  • Many MPS families have stopped filling out the free and reduced price lunch paperwork, which impacts compensatory revenue

The details:

In addition to the explicit funding formulas at the state and federal level, there are also policies the state has adopted that adversely impact MPS finances. One policy the school board does occasionally discuss is the special education tuition adjustment provision. This allows charter schools and other districts that educate residents of MPS who attend non-MPS schools to bill MPS for the cost of special education services they provide but that the state doesn’t fund. While the state reimburses districts for about 56% of the cost of special education services for their own students, the state requires MPS to reimburse other districts and charter schools for 80% of the remaining cost, and the state pays those districts an additional 10% of the costs. Even when MPS could provide equivalent special education services for a lower cost for these students, MPS must pay non-district schools their higher cost.

To address the additional needs of students who qualify for free and reduced price lunch, the state provides districts and schools additional funding called compensatory revenue, using a per student formula. About 60% of MPS students qualify for free and reduced price lunch. These state funds make up a large portion of building budgets for many MPS schools, but they come with strict limitations and paperwork requirements for the schools, according to Spafford Freeman. In addition, the funds rely on families completing free and reduced price lunch paperwork. Because of federal immigration policy changes starting in 2017, many families who qualify for free and reduced price lunch have stopped completing this paperwork. This has been exacerbated by pandemic relief that has provided free breakfast and lunch to all public school students nationwide, so families who qualify for free and reduced price lunch haven’t had an incentive to complete the paperwork to access these meals. The decrease in people filling out free and reduced price lunch paperwork has negatively impacted district finances because the state hasn’t changed the way it determines compensatory revenue.

Gaps in funding and the declining value of state general education funds disproportionately impact the MPS budget

The big picture:

  • MPS has the highest funding gap, or cross subsidy, in the state for special education and English language learning services
  • At MPS, 27% of the state’s general education fund per student is being used to pay for unfunded special education and English language learning services

The details:

In MPS, the state general education revenue and the local tax levy are the main sources that can be used to cover the unfunded costs for special education and English learners. According to an analysis by Association of Metropolitan School Districts, in 2020, in MPS the special education cross subsidy, or funding gap, was $50.9 million, and in 2019, the English learner cross subsidy was $13.8 million. In its most recent pro forma, MPS reports that the special education cross subsidy is $40.4 million for 2022.

When the gap in special education funding is spread over the roughly 29,000 MPS students, that’s about $1387 in general education funds per student that are allocated to special education services not funded by the state and federal special education aid. This is the highest special education cross subsidy in the state. An additional $378 per student in general funds is used to cover the unfunded English learner services the district provides. For comparison, the cross subsidy for special education services in nearby school districts is $1139 per student in Richfield, $844 per student in Edina, and, the lowest in the metro, $423 per student in Minnetonka.

The state’s general fund per student is $6567. For this year, a combined 27% of the state general fund per student is going to the state’s unfunded mandated services. MPS schools must use 21.2% of general funds per student to pay for unfunded special education services, another 5.8% to pay for unfunded English learner services.

The district projects that by 2027, the special education cross subsidy will increase to $52 million. Accounting for the expected drop in MPS enrollment, plus assuming the state continues to increase the general education fund formula only 2% per year, the special education cross subsidy alone in MPS will grow to about 27% of general education funding in 2027. Twenty-seven cents of every general education dollar sent to MPS by the state will be used to cover the state’s unfunded special education services.

The vast majority of students who qualify for special education services and English learner services spend the majority of their days in general education classrooms. The cross subsidies impact every single student in MPS.

The district’s own choices

The big picture:

  • MPS enrollment has dropped 40% over the last twenty years
  • The 2021-22 Comprehensive District Design has led to less integration in Southwest schools, not more
  • MPS currently operates more schools buildings than in 2010 when enrollment was higher
  • The current district footprint could accommodate nearly 40% more students

The details:

The financial challenges faced by MPS don’t just come from the budget and policy choices outside its control at the state level. Over the past two decades, MPS has lost nearly 40% of its students. While the population of school-age children in Minneapolis has stayed relatively consistent at around 50,000 kids, the proportion choosing MPS schools continues to fall. Disenrollment is driven by families who choose to enroll in other districts, charter schools, private, or religious schools. These individual choices compound to have a negative impact on the MPS system as a whole.

Enrollment in MPS started to decline in 2018 after holding steady at around 35,000 students from 2012-2018. The district faced an unexpectedly large decline in enrollment in 2021-22 following the COVID pandemic and the implementation of the Comprehensive District Design  or CDD. The combination led to a nearly 7% drop in enrollment. This came on top of a 6% drop in enrollment in the 2020-21 school year.

The CDD set about to equalize enrollment across district schools through three main changes. First, neighborhood school boundaries were changed. Second, the district’s magnet school program was re-designed to move from a zoned system to a citywide system of magnet schools with buildings located in the northern part of the city and along the central corridor. Third, the district eliminated the option for families to open-enroll into any neighborhood school that had space, regardless of their address. Families can now only choose their neighborhood school, based on their address, or one of the citywide magnet schools.

The CDD was a transformation of the previous placement model that was intended to bring integration into the district’s predominantly white Southwest schools. But in reality, white families across the district used the placement policies to leave integrated neighborhood schools for more racially and economically segregated, whiter schools, according to the district’s 2019 analysis done as part of the Placement Policy Equity and Diversity Impact Assessment.

As enrollment has declined, the district hasn’t changed its footprint to adapt. After a contentious round of school closures in 2010, under the Changing Schools Options plan, that was meant to right-size the district footprint, the district spent the next five years closing, opening, and reconfiguring school buildings across the district to accommodate a brief surge in enrollment during the Great Recession and the changing distribution of students across the city. Regardless, the smaller footprint envisioned by the Changing Schools Options plan ended up in an increase in school buildings after 2010. According to an analysis done by David Weingartner, in 2011 the district had 52 school buildings, with an enrollment of about 33,000 students. Currently, the district is operating 58 school buildings, with an enrollment of around 29,000 students.

Estimates by Spafford Freeman and Weingartner are that the district has excess capacity for 12,000 students, or about 10 buildings. The majority of this excess capacity is at the elementary school level, which are also the district’s most segregated schools. Their estimates are that the district footprint could accommodate nearly 40% more students. These numbers seem astonishing, particularly given that the board rarely publicly acknowledges the oversized footprint in its public meetings.

Racism exacerbates everything

The big picture:

  • Due to low enrollment at MPS schools with predominantly students of color, those schools appear to be getting more money per student, but that is a fallacy
  • The schools in North and Central Minneapolis are concentrated with students who often require the most services due to trauma, poverty, and education needs

The details:

The disinvestment by the state and the excess capacity in the MPS system are exacerbated by the racial and economic segregation that exists within Minneapolis and particularly within its elementary school boundaries. It's not uncommon to hear comments from those outside MPS, or even some of the wealthier white parents in MPS, about how much funding, per student, the predominantly Black, Latino and Native American schools on the city’s north side and central corridor receive.

It’s a message that Spafford Freeman has been trying to counter with parents, students and the community for a few years now. “I call this the ‘Per Student Dollars Fallacy,” Spafford Freeman said. “Because of low enrollment, a school's total budget divided by its number of students produces a higher number per student than it does at schools with a higher denominator enrollment. But this is the result of a low denominator not the reflection of a school’s spending power or budget health.”

Spafford Freeman said the schools in North and Central Minneapolis are concentrated with MPS students who often need the most services. They are more likely to endure the trauma of gun violence in their neighborhoods. They experience poverty, food insecurity, and housing insecurity at much higher rates than the predominantly white middle-class students who attend Southwest schools. A disproportionate number of students in the predominantly-students of color schools require special education and English language learning services. “And no amount of need-based funding makes up for this disparity,” she emphasized.

Prepare to see more school closures and cuts in building budgets

The big picture:

  • MPS estimates it needs to reduce the number of full-time teachers
  • North Minneapolis is poised to see the a disproportionate loss of teachers due to low enrollment
  • The MPS board was aware families would leave in higher numbers after the changes from the CDD

The details:

As the district itself noted in its November 2021 pro forma, the current financial challenges can’t be overcome by increased enrollment or even an unprecedented influx of state-funding. The district will have to make cuts soon. MPS estimates it needs to reduce the number of full-time teachers by 134. Due to the disproportionate low enrollment in North Minneapolis, it will be a challenge for the board to make those cuts equitably and without harming its most vulnerable students.

Disruption and change tends to lead to further disenrollment in MPS schools. The district has already faced decades of the trickle of families leaving for non-MPS district schools and charter schools. This was exacerbated by the COVID pandemic, when MPS schools stayed in distance learning longer than many other schools in the area, including private, religious, charter, and suburban district schools. The MPS board was aware families would leave in higher numbers after the changes from the CDD. It's likely that some families disenrolled because of the pandemic on top of the CDD changes.

What can the community do to support our public schools?

The big picture:

  • Reach out to state representatives, state senators, and Gov. Walz and ask for the $8 billion surplus to be used to fund MPS and to prioritize permanently fixing the special education and English language learning cross subsidies
  • Consider the impact of disenrolling and/or maintaining the homogeneity of white, middle-class students’ education
  • Donate directly to North and Central Minneapolis schools through Achieve Minneapolis

The details:

Without a shift in how state legislators and the governor decide to fund public education in the long term, the district will continue to face challenges. There are many people who care deeply about MPS students, staff and schools, and recognize what a valuable asset our public schools have been, and can continue to be. To get through these current challenges, Spafford Freeman has four recommendations. First, she says people need to call their state representatives, state senators and Gov. Walz. and ask for the state’s surplus to be used to prioritize an investment in public K-12 education. She said Minneapolis representatives, including Jamie Long, Scott Dibble and Frank Hornstein, need to take a leadership role in bringing the needed funding to the district. The Chamber of Commerce reports Minneapolis taxpayers send $4 to the state for every $1 they get back in state services. “Some of that money should be coming back to MPS,” Spafford Freeman said.

Second, she says we should ask our legislators and the governor to prioritize permanently fixing the special education and English language learning cross subsidies. In particular, Rep. Wolgamott’s bill to eliminate the special education cross subsidy should be prioritized in any end of session deal. Third, she says the state should update the general education funding formula to account for the students public schools are serving now, not those they served 30 years ago.

Third, Spaffod Freeman suggests that Minneapolis parents, especially white parents, should consider the impact of their individual school choice decisions on the system as a whole. When families choose private schools, the state funding simply disappears from the system. When families choose to enroll into other districts, their students' funding goes to those other districts, not MPS. She notes very few Southwest families have enrolled in the new magnet schools in North Minneapolis, and this is another place where Southwest families could make an impact. These schools have significantly lower class sizes and additional thematic programming compared to many of the schools in Southwest.

Fourth, she recommends that people should donate to Achieve Minneapolis, which directly supports North and Central Minneapolis schools. Donators should earmark their contribution for a specific school. These unrestricted funds help students in those schools access many extras, like field trips, that they currently lack because a lot of their building funds are restricted.

The outcome is uncertain

It is unclear if the district can weather the combination of decades of underfunding, enrollment declines, and a global pandemic to come out on the other side with public schools that continue to provide the crucial services students and families need. To do so, the district will need funding from the state, commitment from Minneapolis families, and prudent choices by the school board and the district administration.