Budget pinch looms for Minnesota schools as $1.3 billion federal COVID relief money ends

The federal COVID relief funds that have helped keep the state's school districts afloat run out in September 2024, and now they are figuring out how to adjust to life after the $1.3 billion windfall.

Richfield Public Schools isn't expecting much pain from the so-called "fiscal cliff" that has been on the minds of many.

The district dedicated its $3.5 million a year in pandemic aid to protecting class sizes and addressing student mental health needs while at the same time adjusting for enrollment losses in each of the past three years, Superintendent Steven Unowsky said.

Then, Richfield went to voters this month with a proposal to raise its operating levy by about $4.5 million a year — and secured overwhelming support.

Not everyone has been so lucky.

Farmington, Thief River Falls and Crosby-Ironton are among 15 school districts that not only must prepare for the drying up of federal American Rescue Plan (ARP) COVID funds, but also must do so without the help of local funding increases — each having suffered ballot losses this month when they asked voters to pitch in.

St. Paul Public Schools is projecting a $150 million hole in its general fund budget as teachers march with picket signs aloft and chant, "More money," in a bid to strengthen their position in the latest round of contract talks.

The state's second-largest district received a total of $319 million in pandemic relief funds — the largest amount for any school system in the state — and has used it to hire and retain teachers, offer staff retention bonuses and boost literacy among young learners through "science of reading" techniques, among myriad purposes.

In recent "Budgeting 101" sessions with community members, Andrew Adams, the district's executive director of financial services, attributed the projected $150 million shortfall in 2024-25 to a combination of $114 million in expiring ARP funds and a $36 million withdrawal from district reserves.

The district is ratcheting up its community engagement efforts as it works to determine what goes and what stays among initiatives new and old. It is pledging to provide data to show what's worked, but there was none yet on display in a recent session at Como Park High School. What is certain is St. Paul must think in new ways, said Dana Abrams, the district's family engagement director.

"We have to value your opinion," she told the dozens of people in attendance.

"You could easily leave us," Adams said.

"That's not what we want," said Abrams.

In Thief River Falls, Superintendent Christopher Mills said the district's leadership team will be reviewing $1.2 million to $1.4 million in budget-reduction options after its ballot defeat and before the loss in federal funding.

Among the ARP expenditures he hopes can be continued: On-site mental health supports and academic intervention positions in math and reading.

Farmington Superintendent Jason Berg said his district faces a deficit of about $3 million and has realigned its budget to continue providing mental health and behavioral supports, which has been a "great value," he added.

"If the funding was available, we have a need for more of these positions," he said.

Crosby-Ironton lost its bid for $975 per pupil, or $1 million per year for 10 years, by just 35 votes, and sees no need to convene a process to determine which ARP-funded positions or programs to continue in 2024-25, Superintendent Jamie Skjeveland said.

That district's 9,000-plus community members were informed before the election that class sizes would increase and that high school electives, extracurricular activities and mental health services would be reduced if the ballot measure were to fail.

"Eliminating up to nine teachers from a staff of 75 teachers is going to have a serious impact on our ability to continue to provide a world-class education," Skjeveland said after voters rejected the request.

Minneapolis Public Schools used its federal money to fund ongoing operations, allowing it to increase its rainy-day fund by $37.8 million in 2020-21 and 2021-22, Budget Director Thom Roethke said during a recent school board meeting.

In addition to having to determine which services to continue when the ARP funds run out, Minneapolis faces another major challenge. According to Roethke, the district is set to run out of its rainy-day reserves in 2025-26, putting it in statutory operating debt if it does not address issues such as having too much space for too few kids.

Unowsky of Richfield said his district is seeing improvements in student mental health and social-emotional learning, and may shift more of its voter-approved revenue to academic supports in areas like math and reading.

He prefers not to think in terms of deficits when it comes to budgeting, but instead about "right-sizing" and making reductions when needed. If a district has fewer kids, Unowsky said, it should have fewer staff members, too, or fewer classrooms.

"It might set us apart," he said. "But that's the way we've tried to manage through COVID."