Anoka-Hennepin CFO presents FY26 preliminary budget showing $26M operating gap before one-time offsets

Michelle Vargas, the district chief financial officer, presented the preliminary fiscal year 2026 budget at the May 19 board meeting and summarized assumptions, risks and next steps ahead of final adoption later this month.

Key figures

- Proposed all-funds revenue: $746,000,000 - Proposed all-funds expenditures: $775,000,000 - Revenues projected to increase by 1.1%; expenditures projected to increase by 2.2%. - A preliminary operating deficit of approximately $26,000,000 was reported; staff said $9,400,000 of that amount represents strategic, one-time investments already planned, which produce a net operating shortfall of roughly $16,700,000. - The district's unassigned general fund balance was projected at about $45,900,000 (about 8.3% of expenditures); the district goal is roughly 10%.

Assumptions and drivers

Vargas described major revenue and expenditure drivers: a projected decline in average daily pupil units that lowers property tax revenue, a roughly $5.2 million increase in general education aid tied to the state CPI adjustment, and a projected roughly $6.9 million change in special-education reimbursements. She noted the end of federal/state unemployment aid would subtract roughly $2.1 million unless the legislature extends funding.

On the expenditure side the budget assumes average salary increases (aggregated around 2.5% in the model) and a roughly 5% increase in benefit costs; Vargas also flagged a projected $10.3 million increase in contracted transportation and utilities and a new estimated employer cost for the Minnesota paid leave program (about $900,000), among other items.

Staff noted the district has already approved $9 million in phase-2 budget reductions; the preliminary numbers are intended to set a planning target ahead of decisions later this year. Vargas told the board the operating deficit number should be viewed as the starting target for next year's reductions if the legislature does not change funding levels.

Other funds and highlights

Child nutrition: revenues proposed at about $26.9 million with a projected operating deficit of about $3.8 million as the program spends down fund balance used for kitchen upgrades and to offset pandemic-era revenue gains.

Community education: revenue and expenditures projected to grow modestly, driven by program fees, levy increases and expanded adult-education contact hours. Debt service and OPEB trust fund projections were also presented; Vargas said the OPEB trust remains fully funded in actuarial terms and offsets some health-insurance costs in the general fund.

Next steps

Vargas said the legislature's final actions could change assumptions and that staff will update the budget for the board's final approval on June 23. Board members asked clarifying questions about how staff would develop reduction options and whether the board preferred different analytic approaches (for example, a bottoms-up/zero-based budgeting review). Vargas said staff would meet with the board during the summer to outline any changes and to return with refined options.