For the 28,000 students who attend Minneapolis public schools, 2022 has already been a turbulent year. Their teachers went on strike. Their superintendent quit. Friends and classmates continued transferring out of the district altogether.

But things could get even rougher.

Barring drastic cuts or significant revenue increases, the Minneapolis school district is on track to run out of money in 2025, according to a projection from district financial officials that will be presented to the full board on Tuesday.

And facing the likely unpopular decisions that lie ahead are interim Superintendent Rochelle Cox, nine board members — five of whom will take their seats for the first time next month — and a new superintendent who likely won't be in place until mid-2023.

The financial projection "calls on each of us — board members and administration — to do what we were put here to do. To lead, especially when it's difficult," said Cox, who will serve as superintendent until the end of June.

"While I want to provide assurance to our community that we will find our way through the financial challenges of the next few years, it will be very difficult at times."

The financial crisis facing the state's third-largest district has been looming for years. The pandemic both exacerbated some of those issues while delaying an eventual reckoning. Federal COVID-19 relief allowed cash-strapped districts like Minneapolis to plug budget gaps. Its $960 million annual budget is balanced with tens of millions in federal pandemic relief dollars, but that funding will end in 2024.

Minneapolis is "one of the most egregious examples of what some other districts are doing," said Marguerite Roza, director of the Edunomics Lab, a Georgetown University research center dedicated to education finance. "A likely result is that what comes next is budget cutting — what we call 'the bloodletting.' "

In Minneapolis, that could include closing schools, likely adding more disruption in a district that has already faced a tumultuous few years marked by multiple leadership changes and an unpopular realignment of school attendance boundaries.

The projection, done by the district's finance staff, found that Minneapolis Public Schools operates a large number of relatively small schools compared to other districts. MPS enrolls about 28,000 students but is constructed financially to serve about 40,000, according to district officials. That raises the question of what's next, and what could have been done to avoid the looming squeeze.

Board Member Nelson Inz said school closings should be a last resort. The board hasn't shied away from making tough decisions, he said, including a sweeping district redesign that redrew boundaries in an effort to save money and make opportunities more equitable. That decision, however, proved controversial and potentially drove more families out of the district.

"We did make cuts and changes," Inz said. "But we couldn't have foreseen the pandemic and the impact it would have on enrollment."

Some board members point to Minnesota's $17.6 billion surplus as a possible answer to the district's woes. But national experts and some school board members caution against looking only to the State Capitol, and instead suggest a "both/and" approach under which district officials would lobby for more state aid while also quickly moving to make changes themselves.

"You're always sort of waiting to see what those above you will do and what factors come into play as you make the decisions you can," said outgoing Board Member Jenny Arneson.

Krista Kaput, a senior analyst with Bellwether, a national education nonprofit, said leaders should be pushing for an overhaul of Minnesota's "complicated and ineffective [school] funding formula," particularly for special education students and English learners.

But no matter what comes of that effort, she said, "MPS needs to face the reality of declining enrollment and make a plan to best serve students with the funding the district will actually have over the long run."

The district is expected to set the funding amount for each school in February. Budget recommendations will be made in April before the board votes to approve a final budget in June.

Declining enrollment

The wave of federal aid to schools nationwide during the pandemic has shifted the focus of conversations about school finance away from state aid and more toward how districts chose to spend their relief dollars, Roza said.

That means more eyes are on districts like Minneapolis and Seattle, which also faces hard choices after years of declining enrollment (due partly to changing demographics and declining birthrates) and a budget shortfall in the tens of millions.

Like teachers in Minneapolis, Seattle teachers went on strike for better wages and additional student supports, ultimately securing a contract that further stretched the district's budget.

Edunomics staffers use red flags in their presentations to indicate a district isn't confronting enrollment declines. Minneapolis' enrollment reached about 35,000 students in 2016 but has ticked down every year since and dropped more precipitously since the pandemic broke out in 2020. That trend is expected to continue; district projections suggest that just 23,000 students will be attending the city's schools in 2027.

It's a cause for concern when leaders mention using attrition as a way to save money or talk about "investing" in new ways to recruit students to bring in new revenue, Roza said. Comments like "We've committed to not close schools" also sound alarm bells, she said.

Districts are "out of practice" with cutting and closing schools, which are hard decisions for a community to make, Roza said. But not doing so can drain resources that students need.

"When a district goes through this, they stop paying attention to reading and math instruction and intervention, and that comes with major consequence," she said.

'Tough conversations'

When a Minnesota school district falls into operating debt, it must let the state Department of Education know. In 2021, Waconia Public Schools was the only public school district on that list, along with four charter schools.

In the past, upwards of 30 or 40 districts have been in statutory operating debt, said Cathy Erickson, director of school finance at the Education Department. School districts in Minnesota can collaborate or consolidate with other districts to help their bottom line, or they can take the rare route of fully dissolving, Erickson said.

Leaders with the Waconia district, which has remained in statutory operating debt for a few years, echo the problems raised by Minneapolis school officials: inadequate state and federal funding, and enrollment declines that have outpaced estimates. Because state funding is doled out based on the number of pupils, drops in enrollment mean lost money for a district.

Kaput said Minneapolis district leaders should have considered closing schools long before now. "Rather than starting these tough conversations early enough to really engage the community, as we've seen in districts like St. Paul, MPS has used COVID relief funding to kick the can down the road," she said.

But Arneson said the board intentionally decided not to close schools when it redrew the district boundaries. Everyone talks about closing schools when enrollment drops or finances get tangled, she said, "but doing so has devastating impacts on communities. I don't know anyone who aspires to live next to an empty school building."

School Board Member Ira Jourdain said delaying such decisions forces the hand of a board with new members to make unpopular cuts, which will likely include closing or consolidating schools.

"I know some people are undoubtedly saying that the state is going to bail us out with the surplus, but that is not a long-term, sustainable solution because our financial issues are systemic and internal," he said. Jourdain added that he's pushing for community outreach efforts to help families understand the district's position and possible decisions.

Abdul Abdi, an incoming board member, said he's working to prepare himself for the role he'll take over next month.

"I believe the [outgoing] board members did the best they could with the information they had," he said. "But when I sit there in January, I can look back and see what may have been missed. … My job as a board member is really advocating for the future of this district."