Duluth Public Schools board moves to develop $7.6 million in cuts after clean audit with material weaknesses

The Duluth Public Schools (ISD 709) School Board on Dec. 17 directed district administration to develop reductions totaling up to $7,600,000 across fiscal years 2025 and 2026 and approved the district's 2024 certified tax levy of $44,959,128.28.

The action followed an audit presentation by WIPFLI partner Michelle Swaboda and a financial review by Executive Director of Business Services Simone Zunich. Swaboda told the board WIPFLI issued "an unmodified opinion on the basic financial statements, which is a clean opinion," but reported two material weaknesses related to audit adjustments/reconciliation of significant accounts and financial statement presentation and disclosure.

Those adjustments and presentation issues help explain why the district moved $5,000,000 from assigned fund balance to unassigned in 2024, Zunich said: "we did move $5,000,000 from your assigned fund balance in 2024 over to unassigned." She and Swaboda told the board that without that transfer the general fund would have shown an unassigned deficit of about $4,000,000. Swaboda and Zunich also presented fiscal-year results showing a general fund deficit of about $4,900,000 for the year ended June 30, 2024, after revenue and expenditure variances and one-time other financing sources such as sale of capital assets.

Superintendent Magus emphasized the need for continued monitoring: "you really gotta keep an eye on that general fund, fund balance for sure," he said, adding that the district has used a planned "stair-stepping" approach to reduce reliance on pandemic relief funding rather than making immediate large cuts.

Board discussion touched on the audit classification and what "material weakness" means for a district. Swaboda said the designation is based on auditing standards and the size of the adjustments auditors had to make; after the adjustments, she said, WIPFLI was "very confident that the numbers are good numbers." Member Mike Sell and others asked clarifying questions about the audit adjustments and the district's controls.

On a separate but related motion, the board voted to direct administration to develop reductions of up to $2,600,000 for FY25 and up to $5,000,000 for FY26 (for a total of up to $7,600,000 across the two years). The motion's text notes the district's fiscal challenges including rising operating costs, unfunded mandates and the sunsetting of federal pandemic relief funds. The motion passed with an affirmative voice vote.

The board also approved an amendment to an American Rescue Plan Act subaward agreement with St. Louis County (described in the meeting as related to "Check and Connect" programming) and accepted other routine resolutions on the consent calendar.

Votes at a glance: - Certified tax levy (Resolution B-12-24-71): set 2024 levy payable 2025 at $44,959,128.28. Motion seconded; voice vote passed. - Budget reallocation and realignment (Board motion): direct administration to develop up to $2,600,000 in reductions for FY25 and up to $5,000,000 for FY26 (total up to $7,600,000). Motion moved and seconded; voice vote passed. - American Rescue Plan Act Subaward Amendment (with St. Louis County): motion to approve; voice vote passed. - Acceptance of donations (Resolution B-12-24-72): motion to accept various donations; voice vote passed. - Board travel/resolution items for conference attendance (SP 12-24-4069 and SP 12-24-4070): motions to pay allowable costs for board members to attend MSBA/NSBA events; voice votes passed.

What this means The audit's clean opinion means auditors did not identify material misstatements in the final financial statements after adjustments; the two material weaknesses indicate recurring control or presentation issues that the auditors said the district should address. The board's direction to develop targeted reductions is its response to projected budget shortfalls and to keep the district above statutory operating debt thresholds. The administration said the $5,000,000 transfer was a planned, deliberate step to avoid an unassigned-fund deficit and to provide time for measured reductions rather than immediate deep cuts.

The district provided numerical details during the presentation: a reported unassigned fund balance of $1,115,000 for 2024 after the $5,000,000 transfer, a general fund expenditure-over-revenue shortfall of about $4,900,000 for the year ended June 30, 2024, and an FY26 budget deficit projection of about $7,500,000 prior to the reductions now directed by the board.

Board members and staff said the district will follow standard procedures for staffing notifications and allow January site- and staff-level processes to inform the specific position-level reductions. Administration and the finance team said they will continue to refine forecasts, pursue grants and lobbying for additional funding, and prioritize maintaining classroom and referendum-funded services where possible.

Sources: WIPFLI audit presentation (Michelle Swaboda), Executive Director Simone Zunich, Superintendent Magus, board motions and votes recorded at the Dec. 17, 2024 Duluth Public Schools board meeting.