Minneapolis Public Schools is anticipating continued enrollment decline and a budget shortfall next year. (Jeff Wheeler, Star Tribune file/The Minnesota Star Tribune)

Minneapolis Public Schools is predicting a continued enrollment decline over the next five years, further stretching the district's budget, which was balanced this year with one-time federal funds.

Conversations about school closures and layoffs are "unavoidable," said Superintendent Ed Graff in a school board meeting on Tuesday.

"The reality is that our financial situation is contrasted against the very real needs of our students and the need to fairly compensate our employees," Graff said. "We will need to face this challenge and we will need to make some hard decisions."

As of Oct. 1, the district had 28,689 students. The city's public schools had more than 33,500 students during the fall of 2019, before the start of the COVID-19 pandemic. The district anticipates enrollment will keep dropping by at least 1.5% each year over the next five years.

Eric Moore, the district's director of accountability, research and equity, said the decline is due to a variety of factors, including the lack of affordable housing in Minneapolis and safety concerns in the city. The COVID-19 pandemic also led families to consider other schooling options, he said. Preliminary numbers show that less than 60% of school-aged children in Minneapolis attend its public schools.

Budget projections suggest that the current cost structure in the district is "unsustainable," and increasing the percentage of Minneapolis students who attend MPS is not enough to solve the decline in revenue that stems from enrollment losses.

Fewer students means less state funding, though operating costs continue to rise, district leaders say. And using one-time funding like the federal relief money to solve budget gaps in the current year only creates a larger deficit in later years, said senior financial officer Ibrahima Diop.

Minneapolis Public Schools is using those federal funds to close the $58.9 million shortfall it faces this fiscal year. But fiscal year 2022-2023 will bring a budget gap of $21.5 million, despite the use of $75 million in relief money, according to district projections.

District leaders repeatedly have said the budget doesn't allow for the requests made by Minneapolis Federation of Teachers over several months of stalled negotiations. The union's members voted last week to authorize a strike against the school district if an agreement can't be reached over a number of issues, including higher wages.

In the presentation to the school board, Diop said the projected budget was created with the understanding that several collective bargaining agreements with district employees have not been settled.

The district will complete school and department budgets in March. After a period of review and revision, the school board will vote on the final budget in June.