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Board hears midyear budget amendment and preliminary FY26–27 projections; staff estimates $16M reduction target for FY27
Summary
CFO Michelle Vargas presented a midyear FY25 budget amendment that raises revenues by about $20.2 million and expenditures by about $15.7 million, and a preliminary FY26–27 outlook that shows a possible $15–16 million operating shortfall in FY27 under current assumptions.
Chief Financial Officer Michelle Vargas presented the district’s midyear fiscal-year 2025 budget amendment and a preliminary outlook for fiscal years 2026–2027 at the Feb. 24 board meeting.
Midyear FY25 amendment (first read) Vargas said the proposed midyear amendment reflects an overall revenue increase of about $20.2 million (2.8%) and an expenditure increase of about $15.7 million (2.1%), driven primarily by updated state aid calculations, special-education reimbursements, contract settlements and an accounting entry required to record the English-learner cross-subsidy. Vargas said the English-learner entry necessitates a transfer-in and transfer-out accounting treatment (approximately $10.4 million) to align with Minnesota Department of Education accounting guidance; she emphasized this is an in/out transfer that does not change fund balance itself.
After the amendment Vargas projected the general fund unassigned balance at roughly $57.5 million, or 10.8% of expenditures. She said the amendment reduced the district’s expected operating deficit for FY25 when compared to the adopted budget and that the amendment will return in March for a second read and a vote.
Preliminary FY26–27 outlook Vargas and staff presented preliminary assumptions for FY26 and FY27. Key assumptions included an FY26 revenue increase of roughly $3.9 million from state general education adjustments and other categorical updates, a projected pupil-unit decline (about 450 pupil units), and contract roll-ups including step increases and benefit costs. Special-education reimbursements and the new English-learner cross-subsidy entry increase forecasted revenues across the two-year window.
On the expenditure side, Vargas noted contractual cost increases (paraeducator and office professional settlements already negotiated), inflationary pressure on utilities and transportation, and state-mandated employer costs such as Minnesota Paid Leave (first-year half-year cost estimated at $900,000; full-year impacts in FY27 estimated at about $1.8 million). The presentation included a range of assumptions (2.5% salary rollups for unsettled contracts, 5% insurance growth, transportation and charter costs pressures).
Under the current assumptions Vargas presented an operating deficit target of about $15.1 million in FY26 and a comparable ongoing pressure that produces a FY27 operating shortfall around $15–16 million (Vargas used $15.9M as a working figure), which staff said would require roughly $16 million in reductions to maintain the district’s reserve near current target levels. Vargas and district leaders emphasized the forecasts are sensitive to final legislative outcomes and that the district will continue to monitor state action during the legislative session.
Board members asked clarifying questions about the English-learner accounting entry, the projected 10.8% unassigned fund balance after the amendment and the drivers of special-education and transportation cost increases. Superintendent McIntyre noted the district’s advocacy efforts at the Capitol and said staff will update projections as the legislative session concludes. The board did not vote on the amendment or the FY26–27 preliminary projections; the amendment will return to the March meeting for final action.
