T-R PHOTO BY RUBY F. MCALLISTER — GMG Superintendent Chris Petersen, second from right, speaks to members of the GMG school board during the Monday, April 8 meeting held at the secondary building in Garwin. This was Petersen’s first meeting in his new role with the district. Also pictured from left to right, elementary principal Stacey Busch, board members Kristine Kienzle and David Collins, and board secretary/SBO Betsy Spaur (far right).

GARWIN — The GMG Community School District’s financial health has reached a critical juncture requiring a series of sustained, smart budget decisions over the next five years to keep its solvency ratio in the black.

Such was the assessment of district consultant and now former GMG interim superintendent Gary Sinclair — who is widely regarded as an Iowa school finance expert — during last Monday’s school board meeting at the secondary building in Garwin.

With newly hired part-time GMG Superintendent Chris Petersen seated at the end of one long conference table and Sinclair seated at the opposite end of another, board members spent much of the hours-long meeting addressing what Sinclair referred to as a “serious” money issue.

“We’ve got a cash reserve problem,” Sinclair said at one point before later adding, “By the end of this year, we will be near zero [solvency ratio].”

According to Iowa School Finance Information Services (ISFIS), a consulting firm that assists K-12 school districts in Iowa, a solvency ratio is a “snapshot point-in-time measure of the percentage of revenue remaining assuming a district closed its doors” at the end of any given fiscal year (June 30). ISFIS recommends school districts’ solvency ratios fall somewhere between 5 percent (good) and 15 percent (excellent).

Using documents generated by the Iowa Association of School Boards (IASB) and provided to the newspaper by GMG’s former interim superintendent Joel Pedersen, the district has maintained a healthy solvency ratio in the years prior to fiscal year 2023.

According to data Sinclair presented Monday night as part of a five year budget projection for the district – and after accounting for $700,000 in open-enrollment miscoding last fall – from FY2015 to FY2022, GMG had a solvency ratio above 20 percent – reaching a high of 41.3 percent in 2018.

But beginning in fiscal year 2022, cash reserves began to take a nosedive: From 2021 to 2022, solvency fell by more than 10 percent from 38.55 percent to 28.43 percent, and from 2022 to 2023, solvency fell almost another 10 percent to 18.56 percent.

“[Solvency has] been dropping fast,” Sinclair explained to the board.

Through a series of charts, Sinclair then illustrated in stark terms how GMG’s solvency will continue to drop if the district does not make changes soon.

Several factors have contributed to GMG’s current budget woes, Sinclair explained, including staff salaries increasing by almost 6 percent the last two years, increasing employee benefits including a jump of more than 14 percent in fiscal year 2023, and the cost of supplies increasing by more than 25 percent in fiscal year 2022.

In a phone call with the newspaper last month, Sinclair declined to lay GMG’s budget woes at any one person’s feet.

Five-year fix

“We obviously have some issues that we have to address,” Sinclair told the board before diving into how exactly the board might begin to do so. “This is a five year model with a one year decision-making cycle.”

But before addressing those necessary one-year decisions, Sinclair established a budget baseline for the board through a series of assumptions and adjustments including:

-Conservatively setting supplemental state aid (SSA) over the next five years between 2-2.5 percent.

-Assuming the district’s declining enrollment only decreases by two students each year.

-Paying Petersen’s salary using funds for purchased services rather than salary funds – a move allowed due to the sharing agreement with Baxter.

-Levying the management fund’s high balance – close to $1 million right now – down to $0 in fiscal years 2025-2027 and levying those dollars instead into cash reserves.

-Increasing operational sharing from 12 students currently to 19 students in a couple of years which will generate additional funding.

-Recoding dropout prevention/at-risk dollars in the current fiscal year.

-And, perhaps most important to taxpayers, keeping the district’s property tax levy flat for the next few years. The rate is currently $12.37.

But even with all these adjustments, Sinclair said, the district is still far short of keeping the solvency ratio from falling negative. To “overcome trendlines” and stay solvent, board members must find approximately $400,000 in general fund savings for fiscal year 2025 alone.

To that end, Sinclair recommended the board take the following actions:

-Purchase an equipment repair program from Jester Insurance using $88,000 in management funds which will net approximately $60,000 in general fund savings.

-Participate in the Iowa Local Government Risk Pool Commission Agreement for 2024-25 to offset general fund natural gas expenditures by $50,000. The premium for a year’s worth of natural gas usage would be paid with $69,000 in management funds.

-End COVID/Elementary and Secondary School Emergency Relief (ESSER) fund spending. Those dollars are no longer being provided by state or federal sources. The position(s) that were paid for using those funds have been paid out of the general fund during the last two fiscal years. This will amount to an estimated $102,911 in general fund savings. “This is obviously going to impact staff and services,” Sinclair said.

-Reduce one full-time staff member, preferably through attrition, which would save the general fund an estimated $108,400.

-Implement selective, across-the-board budget reductions equal to $95,000. Such cuts have yet to be identified and more will be needed in years two through four.

Board action

“These are all strategies we are suggesting to you,” Sinclair told the board following his presentation, later adding, “Remember, we’re slowing down the trendline, we’re not reversing it at this point.”

Petersen was then asked to share his thoughts on the plan.

“Like Gary said, it’s a lot better than it was two weeks ago when we started [working on the budget].” He also said the most difficult decision now would be finding the additional $95,000 in savings.

Later in the meeting, the board approved as part of the consent agenda the first two recommendations including the equipment repair program from Jester Insurance and the Iowa Local Government Risk Pool Commission agreement, a 28E Agreement started in 2019 by three public school districts for natural gas risk management.

The remaining budget reduction proposals will be addressed during next month’s board meeting.

Also part of the consent agenda, Sinclair’s contract as a district consultant was approved. Both Sinclair and Petersen’s contracts – which run through the remainder of the school year – will, combined, not exceed the previously budgeted $25,000.

At one point during the discussion regarding GMG’s financial future, board president Jill Roberts commented, “I think our gut was telling us [we weren’t doing ok].”

Before packing up his laptop and taking leave after the budget presentation, Sinclair told the board, “A lot of schools have financial challenges right now.”

The next regular meeting of the GMG school board is scheduled for May 13 beginning at 6:30 p.m. in Green Mountain.