K-W School Board forced to burrow again amid continuing debt

At a special meeting of the board called Jan. 18, board members unanimously approved the issuance of $600,000 in tax anticipation certificates to Woodlands National Bank, a northern Minnesota-based firm owned by the Mille Lacs Band of Ojibwe.

The bonds will mature in September 2022, allowing the district to pay them off with property tax revenues for the upcoming year, along with state aid. Notably, the tax levy approved by voters in 2021 will be coming onto property tax bills for the first time this year.

The $600,000 borrowed at Wednesday’s meeting is in addition to the $900,000 which was borrowed by the board last August, for a total of $1.5 million plus interest due in September. As then, the board brought in Michael Hart, of PMA Securities, to guide them through the process.

After soliciting bids, Hart recommended that K-W’s Board go with the bid from Woodlands, which comes with an interest rate of 4.58%. As noted by Hart, the district is able to get a somewhat lower interest rate than regular borrowers, because its bonds are tax exempt.

In addition to the interest costs, PMA Securities, bond counsel Dorsey & Whitney, and paying agent Northland Trust will receive small cuts of the $600,000. That means that, for these bonds, the district will ultimately pay $618,702 in September for $591,675 in borrowed funds.

The borrowing was necessitated by the district’s ongoing cash flow issues, which led it to slip into statutory operating debt status late last year. Once a district falls into SOD status, the Minnesota Department of Education carefully supervises the school board’s finances.

Outgoing Superintendent Bryan Boysen has expressed optimism that K-W’s time in SOD status could be brief, citing several factors. The most certain source of additional revenue is the $950 per pupil increase in general education funding already approved by voters in 2021.

It’s also possible that the district could receive additional funding from the state. As a rural district with declining enrollment figures, Kenyon-Wanamingo has been hit especially hard by the failure of the state’s general education funding formula to keep pace with inflation.

Another key problem for K-W and other districts across the state has been the “cross-subsidies,” or expensive unfunded mandates the state and federal governments have imposed in areas, including special education and English as a second language (ESL).

While the bulk of their $17.6 billion projected budget surplus may be one-time funding, Gov. Tim Walz and legislative leaders in St. Paul have vowed to provide a big annual increase in school funding by boosting the general education formula and funding the cross subsidies.

A budget agreement to boost education funding by about $1 billion faltered last session, due to partisan disagreements. Yet with DFLers in full control of the Legislature after last fall’s elections, bipartisan agreement won’t be needed now.

Even with those challenges, the district’s fall into SOD status came as an unexpected shock, even to District Business Manager Todd Lechtenberg. He attributed it to larger than expected enrollment declines, as well as unexpectedly high transportation costs.