Another year of deficit spending has taken another chunk of Ely school reserves, and has raised the specter that the local district could spiral into statutory operating debt (SOD).
Those were the grave warnings Monday, when school board members reviewed an audit report that showed a budget lined in red ink for a fifth straight year.
“You’ve had significant decreases year-over-year and you don’t want that to continue,” said Mary Reedy of Brainerd firm CliftonLarsonAllen, which conducted an audit of the district’s books for the fiscal year that ended in June.
Since 2021, district overall reserves plummeted from nearly $2.5 million to $1,196,783.
Of that just $690,000 remains in unrestricted fund balances, which combines funds the district classifies as unassigned, assigned and committed.
That amounts to about eight percent of overall expenditures, a sharp decline from the days earlier in the decade when the district had over 20 percent in unrestricted reserve.
Statutory operating debt occurs when reserves fall into a negative balance and Reedy warned that the district is headed toward that path, particularly so given that the unassigned fund balance had fallen from $1.5 million four years ago to just $158,850.
“It is significantly low,” said Reedy. “I would recommend looking at that and to try to increase the unassigned fund balance.”
Reedy also noted that the district should work to avoid falling into SOD, which triggers state interventions.
“Once you get down, the state will come in and help adjust that,” she said. “You don’t want to get into that spot.”
“No one wants to go there,” said Ely board member Tony Colarich.
Colarich also pressed for specifics about what might occur if the district requires state intervention.
“What would the state do?” asked Colarich.
Reedy responded that while she hasn’t worked directly with state officials on an SOD matter, she added “that the state would come in and help you with your budget. I believe they will help you eliminate expenditures. You’ll have to show a plan of how you’re going to rebuild that unassigned fund balance.”
Colarich said there’s little wiggle room in the budget when it comes to fixed costs including utilities and maintenance.
“You’re not going to turn off the lights, so it comes down to staff that’s going to be cut,” said Colarich. “Or the class sizes get bigger.”
“These are all things we took a look at last year when we cut significantly and we’ll have to look at again this year,” said Jordan Huntbatch, the district’s finance manager.
The Ely district remains in perilous financial waters despite 2024 approval of a $350,000 capital levy by district voters, and two rounds of significant budget cuts - in 2024 and 2025 - that slashed more than $600,000 from the district budget.
“It’s a bitter pill to swallow here,” said school board member Tom Omerza.
This marks the third time in a quarter-century that the Ely district has faced the threat of SOD.
A successful operating levy referendum fended off SOD in 2000, and six years later, another referendum was narrowly approved just as district reserves were about to fall into negative balance, Over time, the reserves increased, climbing to as high as just under $2.9 million in 2020.
But declining enrollment and rising costs have reversed the district’s fortunes this decade.
In three of the previous four years, the district spent anywhere from $412,000 to $473,000 more than it took in.
In 2024-25, the net loss was $254,691, although Reedy noted that was a better figure than school officials had earlier predicted.
“There was a budgeted loss of $284,000, so you did better than the budget by about $30,000.”
Figures released Monday night showed that the district spent $8,986,516 in 2024-25, compared to revenues of $8,731,825.
Various tables and figures included in the audit presentation highlighted the district’s financial decline.
State funding is determined by enrollment, also known as “average daily membership” as classified by the state.
The district’s ADM was at 574.69 in 2020 and has since fallen to 500.04, including a 12 student drop from 2024 to 2025.
Incoming kindergarten counts have fallen by roughly 50 percent during the same timeframe.
The district was aided in part by federal Covid-19 funding in the wake of the pandemic, but those funds have dried up and make the district more reliant on enrollment and corresponding state aid.
State aid has climbed over four years from $5.86 million in 2021 to $6.58 million in 2025, but federal funds to the district have dropped off largely to the end of Covid funding.
Many of the school’s local property tax levies are determined by student enrollment, so property tax support to the district has dipped as well, falling from $2,728,247 in 2022 to $2,509,412 this year.
Until only recently, the Ely district boasted a somewhat healthy reserve, with the school board setting goals to keep at least 10 percent, and later 20 percent of operating expenditures in reserve.
The board’s finance committee will meet Dec. 22, after the next regular board meeting, to begin work on the 2026-27 budget and likely reductions.
“There will be a lot of work ahead for the finance committee for sure and for the school, unfortunate funding for sure right now,” said board chairperson Rochelle Sjoberg.
