Despite recent infusion of cash from levy, Rochester Public Schools projects deficit in coming years

ROCHESTER — Just months after local voters granted Rochester Public Schools nearly $20 million a year in additional revenue, the school district is projecting a forthcoming deficit in the next few years.

The Rochester School Board held a study session on Tuesday, Jan 14, to review the district’s five-year financial forecast. Despite the projections, Superintendent Kent Pekel said the commitments the district made to the community in the lead-up to the referendum will still stand.

“The discussion of deficits is unavoidably a part of the forecasts that we’re going to look at,” Pekel said. “The commitment we made in the referendum is that we are not closing schools, we are not raising class sizes, and we are not making major cuts to district systems and programs, at least for the first years of the referendum’s 10 year period. I am confident that we can meet those commitments.”

Pekel went on to say that the financial outlook would look “catastrophically” worse if the district hadn’t been able to secure the additional funding.

As part of Tuesday’s discussion, the district released a graph showing two projected outcomes. One represents what would have happened if voters had rejected the request for additional revenue during the referendum, as well as if the district hadn’t renewed its other operating levy that was originally passed in 2015.

The other shows the projected financial situation now that the district has secured the additional funding from the community.

Even though the projection accounting for the additional funding drops off less severely than it would have otherwise, it still shows a downward trend in the coming years.

The district’s policies require it to have a fund balance of 8%, meaning that it needs to have enough reserve funding available to represent 8% of its budgeted general fund expenses. According to RPS Chief Administrative Officer John Carlson, an 8% fund balance would be enough to cover one month of the district’s expenses.

In fiscal year 2024, the district’s fund balance was 17.4%, or more than twice what the district’s policy requires it to be. The projection shows that in 2025, that number is expected to decrease to 15.3%, and 14.2% in 2026.

By fiscal year 2028, the fund balance is expected to drop below the policy threshold to 5.5%.

Part of Tuesday’s discussion focused on the issue of enrollment since that is the primary driver behind the district’s annual revenue. Although the student population fluctuates throughout the year, RPS is projecting that enrollment for the start of the coming year will be 16,974.

If that projection holds true, it would be a drop of more than 340 students from the start of the current year.

“Enrollment is projected to trend slightly downward the next few years,” a summary of the district’s financial forecast reads. “Nearly all funding received by the district is based on enrolled students.”

Enrollment determines the amount of state funding the district receives, but it also determines the amount of funding RPS receives from voter-approved operating levies. The operating levy that was approved in November provides $1,133 per student per year.

Because of that, a drop in enrollment would mean that the operating levy would generate less revenue for the district’s operations than it currently does.

In addition to a projected decline in revenue associated with enrollment, there are other issues factoring into the projected deficit. Among them, the district’s cost of health insurance is increasing 9% in 2025.

RPS Finance Director Andy Krogstad emphasized that even though the district is predicting a deficit in the coming years, there are factors that will impact the severity of it along the way.

“A lot of these things are unknown,” Krogstad said. “And we really won’t know until we get closer.”

Nonetheless, School Board member Justin Cook spoke about the need to navigate the forthcoming challenges as efficiently as possible in order to stay focused on academic needs of the district.

“I think each of us needs to be clear-eyed about not growing our ambitions for what the school district could do beyond what is financially prudent,” Cook said.