With its voter-approved operating levy set to expire next year, an Owatonna Public Schools referendum will be back on the ballot this fall, as the district look to expand or at least renew local revenue.

Citing the fact that state funding hasn’t kept pace with inflation, the School Board is exploring ways to increase its levy while factoring in the burden COVID-19 has placed on many in the district.

At a Wednesday work session, administrators laid out the situation for officials, noting with the current seven-year levy expiring in June 2021, this fall is the last chance to renew that funding before facing serious cuts. Options for the November ballot include a straightforward renewal of the current levy, an annual increase of roughly $600 per student off the bat, or a one-year reprieve and then gradual increase of taxpayers’ contributions through what the district terms a shared approach.

The latter option, which currently seems to be favored by most board members, a property valued at $175,000 would see a $120 annual tax increase starting in 2022. In the back half of the proposed 10-year levy, that would double — meaning a $240 yearly increase over the current levy payment. This would translate to an additional $300 per student in years two through four, working its way up to the desired $600 per student increase in years five through 10.

While School Board members have until June 29 to decide which option they prefer and how they would like it presented, there seemed to be unanimous this week on a two-question ballot — asking first for a renewal and then for an increase, in hopes that at least the renewal would pass in November.

If the renewal itself fails, the district will lose roughly $483 per student and, according to district finance director Amanda Heilman, would need to make $8.5 million in cuts over the next three years to offset those losses. Currently, the district receives $1,207 per student from taxpayers each year. It’s able to levy a base amount of $724 without going to the voter, and then combine it with the $483 per student approved under the current voter-approved levy.

In either case where an increase is not approved, Superintendent Jeff Elstad said the district would need to return to voters again in the coming years to seek a larger levy.

“Let’s say the renewal were to pass but the increase wasn’t approved, the cuts probably aren’t as drastic in one year’s timeframe as they would have been if the renewal didn’t pass, but the cuts will still happen,” he added. “It’s just a slower bleed for the district.”

Building bonds took precedence

If only the renewal passed, Heilman estimated the district would have to go back out to voters for an increase in 2023, at the latest. Both she and Elstad termed this upcoming ballot question a “last-chance levy,” with the current funding source in its last year. While she said it’s possible to renew before a levy’s term is up, building projects in the district have taken precedence in the last five years over trying to increase operating revenue.

In both 2015 and 2019, district taxpayers approved two building bond referendums — first for security measures and building additions, and most recently for a new high school set to open in 2023. Distinct from operating funds, this money can only be used for the designated facilities projects and isn’t able to be transferred to help cover the cost of operations. Relatedly, agricultural land is taxed differently in building and operating referendums. For an operating levy, only the house, garage and 1 acre are taxed.

If only a renewal were to pass, Heilman forecasted that the district would have a negative fund balance by 2026 — meaning this emergency funding source wouldn’t be able to cover any portion of the district’s annual expenditures. If the renewal itself were to fail, even with significant cuts, the balance could reach -10% by the end of this decade without further action.

“Why having an unreserved fund balance is necessary is, in the event that we would have some sort of tragedy or emergency where we’re not able to get funding from the state, that reserve is there to protect us, to pay our bills and pay our employees for a short period of time,” said Elstad.

State funding gap

The proposed increase for local taxpayers is due in large part to the fact that funding from the state hasn’t kept up with inflation over the last decade and beyond.

“There’s currently a $583 per pupil unit gap because the state funding formula is not keeping pace with inflation,” said Heilman. “With the fact that [the state] is projecting a $2.4 billion deficit, I’m not seeing that that’s going to improve any time soon. We’ll likely see some additional gaps going forward.”

Heilman added that most districts’ expenditures are going up by roughly 3% each year due in large part to inflation, while state funding is not matching that percentage. In Owatonna, roughly 80% of the district’s revenue comes from the state.

Each of the three proposed plans also includes cuts on the district’s part. With the $600 annual per pupil increase, Heilman projected that the district would still need to make roughly $4.5 million in reductions over the next three years to keep reserves healthy. With the shared approach, this number would rise to $5.25 million.

Board favors gradual approach

After discussing the issue at Wednesday’s work session, board members will have until their June 29 regular meeting to think about which option they prefer — asking for the full increase from the start, gradually working up to it through the shared approach or seeking only a renewal.

“I think we need to just ask for the renewal first, just because the consequences of not renewing are so drastic,” said Board member Timothy Jensen, “and then whatever we choose as a second question makes sense to me.”

After deciding which option they’d like to see on the ballot in June, district staff will finalize the language and it will be back up for a last vote from the board in July. Once the questions are set, district residents will vote on the referendum this fall in the Nov. 3 election.

Reporter Bridget Kranz can be reached at 507-444-2376. Follow her on Twitter @OPPBridget. ©Copyright 2020 APG Media of Southern Minnesota. All rights reserved.

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