When it comes to deficit spending, Hopkins School Board candidate Katie Fulkerson was clear about where she stood.
“I am not for eliminating popular programs like IB (International Baccalaureate) and the foreign language program,” Fulkerson said at Tuesday’s League of Women Voters candidate forum. “However as a School Board director, I would never vote to approve a budget with a deficit and I would never ask the taxpayers for more than we needed unless we were being very specific about where we were spending that money.”
Fulkerson criticized the district’s deficit spending in what was perhaps the clearest split between her and the other candidates—particularly the two incumbents. An audience member also asked the district to defend deficit spending on programs like International Baccalaureate and world language programs, which prompted Fulkerson’s response above.
On its face, deficit spending would seem to be a clear-cut bad decision. But the reality is rooted in more-nuanced policy choices that force officials to balance risk mitigation against the desire to maximize the opportunities they can provide to students.
Examining the Numbers
Fulkerson’s pronouncement that the district plans to spend more than it takes in is accurate. This year the district is prepared to spend about $1.1 million more than it brings in this year. That will cause its general fund savings to drop $738,000.
The trickier part is the context around those numbers. That $738,000 represents a scant .9 percent of the district’s $80.5 million budget.
Still, a loss is a loss, right?
Not exactly. The budget is based on several predictions that have historically been overly conservative. This year’s budget, for example, assumed that the state would increase per student funding by 1 percent. The Legislature actually wound up increasing payments by 1.5 percent.
Rosier outcomes than expected can leave the district with a net gain even in years when it expects losses. Over the past few years, budget plans have had a habit of coming out better than expected. The district has such a pattern of erring on the pessimistic side that the board decided last year to cut the amount it set aside for contingencies.
Finding a Balance
But even when the board knows for certain it faces a loss, that doesn’t necessarily make deficit spending an unequivocally bad choice in the short tem. Education is the sole reason that school districts exist. Money that districts squirrel away in the bank is money that they aren’t using to educate students. School districts must weigh the need to save for a rainy day against the education opportunities they’ll have to forgo by diverting money to savings.
Consequently, schools can actually come under fire for having overly large savings. In 2012, Hopkins’ savings was about 16 percent of its annual expenses—higher than any of the nine districts that it compares itself against. Eden Prairie was at 13 percent. Minnetonka was at 12 percent. Wayzata was at 11 percent. St. Louis Park sat at 9 percent. And Edina had 7 percent.
The size of the district’s savings allowed it to endure the state’s school district funding shift without having to do any of the short-term borrowing that so many other school districts had to do.
But now, Hopkins has actually committed about half its savings to other expenses expected in the future. That includes the $6 million for elementary foreign language programs, to be spent over 10 years, that prompted the question about deficit spending.
In the end, these “unassigned” savings are about 8.2 percent of expenses now and are expected to drop to about 7.2 percent by the end of the next school year.
School Board policy aims for a 6 percent unassigned fund balance and requires staff to notify directors if it appears savings will drop below that. With the total on track to dip below that in the third budget year, the final budget included the required notification. However, directors can—and in all likelihood will—curtail their use of savings when the district is closer to that point.
Hopkins’ Citizens Financial Advisory Committee—a five member-group that helps with financial planning—recommends a 10 percent savings level. The committee advises that anything above that can be used as a one-time investment to spur growth in the district.
That’s exactly what the incumbents in the race—Warren Goodroad and Betsy Scheurer Anderson—said the school district did while crafting this year’s budget.
“That decision was meant to be bold, and we hope for bold results. We put forward a lot of new programs in this last budget cycle, and we’re already seeing the positive results and a larger enrollment than we expected,” Anderson said.
Said Goodroad: “I think that our school district is in excellent financial shape. … We do not have a deficit. We have a fund balance. We have a good fund balance.”
Ultimately, the issue comes down to a question of risk versus opportunity. The district can set aside more money for students—and be more vulnerable the next time a financial crisis arises. Or it can beef up its savings—and have less money to spend in the classroom.
The policy question is one the winning candidate will undoubtedly face after the election.