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"Tonight I'm telling you: you will not deficit spend or someone will shut off your aid," said Charles Speiker, a former superintendent who now coordinates with school districts in statutory operating debt for the Department of Children, Families, and Learning (CFL), to the school board on Tuesday, Jan. 22.

The school board approved a statutory operating debt plan at that meeting. Without having a statutory operating debt plan approved by the CFL by the end of January, or having gotten an extension to revise a plan, state aid to the district could be cut off immediately.

The plan approved by the board calls for $500,000 in cuts this winter, to take effect in the 2002-03 school year. "Make no mistake: school is a business," said Speiker. "I know it's about kids. I know it's about education. But when you forget it's a business, education doesn't happen either."

The goal of the district's plan is to have a three percent balance by 2003-04 and eventually an eight percent balance. Just not having the grief of statutory operating status is worth having a fund balance, according to Streiker.

"The sooner we can get there, the better off the district will be in the long run," agreed superintendent Howard Caldwell.

Streiker praised the district's statutory operating debt plan, prepared by Caldwell, for its rigorous look at data and historical trends and for its honesty.

Streiker's only reservations were its assumptions for state aid increases (the plan assumed raises of three percent in 2003 and two percent thereafter) and for keeping inflationary spending below three percent, especially without having settled any contracts (teaching, support staff, transportation, etc.) for the next two years.

He said the plan would not be approved unless those assumptions were made more conservatively or if a clause was inserted whereby the district will guarantee compensatory cuts if those assumptions prove wrong. So if state aid isn't as much as expected or if the district spends more than expected on contracts, the district will be obliged to make corresponding budget cuts in the same dollar amounts.

The district's current financial predicament was brought on by a number of past practices, the district's SOD plan states, including increasing staff from 1996-97 to 2000-01 while enrollment decreased, which led to four years of deficit spending. Over that time, general fund revenue increased eight percent while expenditures increased 17 percent.

"Obstacles that need to be overcome," the plan states, "include recognition by our staff and community of the seriousness of this budget crisis and the probable need to further reduce staff and increase class sizes; the need to develop and adhere to a fund balance policy; the need to assess the long-term implications of any increases in expenditures, especially staffing; recognition of the relationship between enrollment, funding, and staffing; and contract bargaining with available revenue."

Board chairman Pat Flanders said the one thing the plan ommitted, on how the financial crisis came about, was the lack of accurate budget predictions, which made fiscal planning by the board difficult.

In the SOD plan, Caldwell estimates that district enrollment will continue to decline, through the 2006-07 school year at least. Even using an optimistic 75 kindergarten students per year (which is more than indicated by the district census, which are traditionally low) by 2006-07 the district would have just over a thousand students. The district's enrollment has already dropped from 1,401 in June 1996 to 1,235 in June 2001.

The continued drop in enrollment demands continuing, corresponding budget reductions. The plan calls for another $500,000 in cuts in 2003, $100,000 in 2004, and $150,000 in 2005, 2006, and 2007. More will be needed if the district's reveune or expenditure assumptions don't prove true, while less would be needed if a levy referendum would pass.

The district could conduct another levy referendum in the spring. Speiker assured the board that the CFL would approve another vote this time. (The department denied the district last November following the failed vote during the general election. The school board tried to get another vote in time so the levy would have taken affect in 2002-03, which would have avoided the need to do some of the present reductions.)

If another levy is passed, the district's statutory operating debt plan could be revised to take in account the added revenue. Board members have expressed a desire to pass a levy and to reinstate some expenditures to the district budget.

Board member Tami Stanger asked if the district could cut less this year, say $300,000 this time around, and then make bigger cuts next year if the levy doesn't pass.

Speiker said that would not be allowed, as the district can't get out of statutory operating fast enough that way (unless a levy would pass, which the district cannot count on until it actually passes). Without cutting $500,000 this year "you won't get out of SOD in the proscribed amount of time," said Speiker.

A change in the law resulted in the the district being in statutory operating debt (SOD). The debt percentage used to be figured differently for statutory operating debt, and Paynesville would not have qualified under that measuring system.

"Under the old law you would not have been in SOD," said Speiker. "You need to know that. The community needs to know that."

Of the 35 school districts currently in statutory operating debt, Paynesville's debt percentage of unreserved fund dollars (-4.35 percent) is the fifth best. Seven districts in the state have double-digits negative percentages, led by Renville County West at -36.95 percent.

Speiker said District #741 is in an enviable position by having a net gain of 50 students due to open enrollment, which he called "truly extraordinary." "I don't know why the kids are coming here but I imagine its because you've got good teachers and good programs," he said.

The district last filed a statutory operating debt plan with the state in 1988, when after seven years of deficit spending the district deficit in its general fund was $174,941. At that time, rising enrollment helped the district escape SOD.

Ironically, after seven years of deficit spending, the district's plan stressed the need to budget appropriately and operate without deficits. "We've got to put some action into the words this time so we don't get here again," said Speiker of the district's SOD status again.