Facing widespread enrollment drops, unexpected funding losses and uncertainty about how many students will return this fall, Minnesota school districts are hedging their bets as they create next year's budgets.

Many public schools saw their numbers decline by the dozens — or hundreds — this year as families opted to home-school their kids, send them to private schools or delay kindergarten during the COVID-19 pandemic.

Collectively, that means that local districts' budgets are set to lose millions of dollars in state aid for the 2021-22 school year — a time when many of those missing students are expected to finally return to classrooms.

For many districts, the math feels impossible. Shoring up budget gaps might require cutting programs and laying off teachers — but if they cut too much, schools will be understaffed and unprepared if enrollment numbers rebound next year.

"You can always adjust budgets, but you can't hire people when you don't have the resources to do that," said Kirk Schneidawind, executive director of the Minnesota School Boards Association.

School budget setting is always a little bit of a guessing game, because districts typically have to approve their plans before the Legislature finalizes the state budget. But this year is an even bigger challenge because school leaders are contending with new and unexpected variables.

The sudden plunge in enrollment this school year was felt across Minnesota, where the number of students in public schools declined statewide by 2%, with much higher losses in some districts.

Three-quarters of the state's 300-plus traditional public school districts saw enrollment losses this year, along with about 45% of public charter schools. Districts and charters get about $10,000 in state funding for each student, so the budget gaps expand quickly.

Inver Grove Heights Superintendent Dave Bernhardson said leaders in his east metro district built their budget with the expectation that enrollment numbers would decline, as has been the case in recent years. But the district's 5% enrollment drop this year was far greater than expected — and accounted for $800,000 in lost state funding.

Now the district is projecting a budget shortfall of more than $1 million, which will likely require both dipping into reserves and cutting major expenses, like staffing.

"When you anticipate kids will show up, and they don't show up, it creates challenges," Bernhardson said.

Missing lunch money

Meanwhile, schools across the state are set to lose a significant chunk of state funding linked to students who qualify for free or reduced-price lunch because of their families' income.

Each year, Minnesota gives school districts more than $600 million in "basic skills" aid — commonly referred to as compensatory revenue — which is meant to help students struggling academically. Districts' allocations are based on how many students qualify for free and reduced-price lunches, a count dependent on families turning in paperwork to confirm their economic status.

But this year, with students scattered between distance and in-person learning, the federal government made meals free to all students, with no paperwork required. As a result, districts struggled to get families to fill out the free and reduced-lunch paperwork, which is still required to determine both federal funding and state compensatory funding.

For Inver Grove Heights, the missing paperwork added up to $630,000 in lost compensatory funding from the state — on top of the losses it already suffered from declining enrollment.

The Burnsville school district stands to lose $2 million because of a drop in qualifying students, a loss that Superintendent Theresa Battle said will amount to the biggest hit on the district's budget, even though enrollment declined by 7%. That's because the budget plans that the district made in spring 2020, as the pandemic was approaching, in the end matched up fairly closely with the smaller number of students who enrolled this year.

"The biggest impact is actually related to families not completing the applications for free or reduced-price meals," Battle said.

In the Winona school district, where enrollment dropped by 6% this year, Superintendent Annette Freiheit is worried about the same issue. She said school leaders have been strategizing about how to get the word out to families on the need to fill out the lunch paperwork.

But they face plenty of obstacles: At a time when more students likely qualify for free or reduced-price lunch status than in years past, she said many families don't have the bandwidth to sort through a pile of paperwork.

"This economy, over the last year, has really created some difficulties and barriers for some families," Freiheit said.

Working out budgets

March is typically the time when school boards begin to work out the details of their budgets, so most districts are just beginning to sketch out specifics as the Legislature moves closer to its own decisions about funding schools.

Many school leaders are hoping that news about COVID vaccines and the virus' spread will help shed some light on how many students might decide to return to public schools, and they eagerly await signs that the Legislature will provide help for pandemic-related losses.

Gov. Tim Walz's budget plan includes $25 million in aid for districts that have seen reduced enrollment, while a separate bill would allow districts to use pre-pandemic enrollment counts to determine state funding. Lawmakers from both parties have indicated they want to help schools but must still sort out specifics.

Brad Johnson, superintendent of the McGregor school district, said he's hopeful lawmakers will act soon. His district, in a rural community halfway between Brainerd and Duluth, saw its enrollment drop by 16% last year as families opted for home schooling or online academies. Many held off on kindergarten; the district had just one kindergarten class this year instead of the usual two.

"We know we are not the only ones in this boat," Johnson said. "The whole state is this way, and the country."