Date: 3-3-2021

To: Ms. Ann Long Voelkner, School Board Chair

CC: Mr. Tim Lutz, ISD-31 Superintendent

From: Michael J. Murray, Ph.D.

Subject: Motion to close Central Elementary

Dear School Board Members,

I write to you to outline the economic and financial consequences of closing Central Elementary.
I have a Doctorate in Economics/Statistics from UM-Kansas City, and a Master’s degree in
Geographical Information Systems from Johns Hopkins University and I am on the faculty at
Bemidji State University. In my judgement, the decision to close Central Elementary is extremely
short sighted and will not significantly impact the budgetary deficits in the long-term. The closing
of Central Elementary will make the school district less competitive and open opportunities for
charter and private schools to capture even more market share. These competitors are already
taking a significant market share from ISD-31 with adverse budgetary consequences for ISD-31;
closing Central Elementary may exacerbate that effect. Alternative short-term measures to reduce
expenses without closing a site should be explored. Long-term, the School Board should reconsider
holding a referendum. ISD-31 needs to secure additional sources of steady revenue streams to meet
the expenses of unfunded state mandates. Central’s closure may provide short-term budgetary
relief but will be detrimental in the long-term. I strongly recommend the School Board to
oppose the motion. The analysis below uses data up to fiscal year 2019 (FY-19), and provides
the best estimates on enrollment, enrollment projections, and profitability from the data publicly
available.

Exploring Profit: The motion to close Central Elementary is a temporary budgetary band-aid but
does nothing to address the budget deficit long-term. In fact, it will likely make it worse. Central
Elementary and J.W. Smith were the school district’s only two profitable schools in FY-19. Central
Elementary was the most profitable on a per-pupil basis generating $1505.90 per pupil and
$236,425 in total. Having profitable institutions is vital to offset budgetary losses elsewhere. See
Table One (1).
Table 1: Revenue/Expenses/Profit of ISD-31 School Sites

Table 1 also illustrates the difference in expense of educating students at different sites. In FY
2019, if a student transferred from Central Elementary this would have reduced aggregate profits
by $1505.90. Meaning the district would have lost these profits as soon as the student walked out
the door. If that student transferred to Solway in FY-19 that loss would be compounded by an
additional loss of $937.44. Thus, the transfer of one student from Central to Solway would have
yielded a net loss of $2443.34 in profits to the district. Similarly, the transfer of one student from
Central to J.W. Smith in FY-19 would have yielded a net loss of $455.15. For FY-19 Central was
the most efficient and most profitable school in the district on a per-pupil basis. The school must
be given the opportunity to regain growth (projected in 2023, see below).

The deficits displayed by the elementary schools in FY-19 coincide with the decision to open Gene
Dillon Elementary. Figure 1 (below) displays the profitability of each elementary school from
2016-2019. As is easily seen, all schools maintained profit prior to the opening up of Gene Dillon.
The decision to build and open Gene Dillon transferred revenue without altering expenses in any
meaningful way. It threw all the elementary schools into deficit except for Central Elementary and
J.W. Smith. These two institutions have remained profitable. This is the kind of outcome that
occurs when the school board fails to look at the long-term consequences of its decisions.

FIGURE ONE: Profitability of Elementary School Sites. Source: MDE/Data Center/Reports and Analytics.
Focusing on the long-term, the projected savings to the district of closing Central Elementary is
$460K - $465K. This is not nearly enough savings to warrant the school’s closure! In FY-19
Central’s expenditures for the district were $1.58 million. The decision to close this site would
leave the district with over $1.2 million in expenses reallocated across the district, ballooning the
deficits for the future at the other sites while losing one of only two profitable and efficient schools.

The deficit experienced by ISD-31 is caused by the structure of the expense allocation. In the
aggregate, the district’s expenses at the Paul Bunyan Center and Bemidji High School are too high.
If the School Board is serious about addressing the deficit long-term the board should take a
targeted approach and look at reducing expenses at these two sites without affecting revenue
generation.

Short-term Budget Opportunities: The school board should not vote to close a site. This may
provide temporary relief, but it affects potential revenue in both the short-term and long-term and
makes ISD-31 less competitive going forward.

Central’s closure, which does not address the structural deficit problem, contrasts with the six-
period proposal which does address structural deficits. The six-period proposal at Bemidji High
School is projected to reduce expenses by $680K. Moving to a six-period schedule is a systematic,
targeted approach, focused on a site that is expensive to operate, and that reduces expenses and
addresses the deficit long-term without affecting revenue. A six-period model is a highly advisable
policy choice to reduce the budget deficit long term.

Special Education Underfunding: Another area of high expenditure for ISD-31 is in special
education. ISD-31 ranks 24 of 333 school districts in special education expense in the state of
Minnesota. 1 The Bemidji School District’s Special Education shortfall is $4.5 million. 2 Again, this
is a structural problem and cannot be addressed in any meaningful way by closing a school site. A
sustainable solution to the shortfall in special ed funding is through tax levies or through legislation
to close the funding gap. 3 Dissolving a school that serves the economically disadvantaged is not a
long-term solution. The lack of special ed funding is certainly not unique to ISD-31 and has
affected many school districts in Minnesota (ibid).

Enrollment Opportunities:

Total enrollment for AY 20-21 is 4971 4. In 2018, the district projected 2020-2021 enrollment to
be 4979 5. ISD-31’s projected enrollment figures are highly accurate as noted in Figure Two (see

1
Source: http://www.bemidji.k12.mn.us/wp-content/uploads/2018/10/Information-Planning-Report-BEMIDJI-
JULY-2018-B.pdf
2
“Securing Our Financial Future” Bemidji Area Schools, 2021.
3
Source: https://www.startribune.com/minnesota-schools-facing-crisis-level-special-education-funding-
gap/504601631/
4
Source: https://rc.education.mn.gov/#demographics/orgId--10031000000__groupType--district__p--9
5
Source: http://www.bemidji.k12.mn.us/wp-content/uploads/2018/10/Information-Planning-Report-BEMIDJI-
JULY-2018-B.pdf
below). Moving forward, the district’s enrollment is projected to remain stable toward 2025. This
includes stable kindergarten enrollment, thereby providing opportunity for long-run stability.

FIGURE 2: Source: 18-19 Information and Planning Report, p. 5. (ibid)

The current enrollment decline is a short-lived aberration and not indicative of a long-term trend.
Minnesota state demographers project that the elementary school-aged population in Beltrami
County will only decline until 2023 and then rebound. Beltrami County will see a steady and
sustained increase in 5-9 year old children for the next thirty years to 2053! (see Figure 3 below).
ISD-31 needs to be in a position to meet this 5-9 year-old enrollment gain in just two short years.

FIGURE 3: Source: “Long Term Population Projections for Minnesota” 6

6
Source: mn.gov/demography/projections
Closing Central Elementary is incredibly short-sighted; ISD-31 needs to position itself now
for long-term growth: Failure to do so will result in increased competition by charter and
private schools. The current academic year enrollment at Central Elementary stands at 117 (100
onsite, 10 distance, 7 special ed). This short-term enrollment decline should be viewed as an
opportunity to recruit students to Central from nearby competitors while positioning itself for the
future.

Growth at Central: The closure of Central Elementary as a budgetary solution creates instability
in education and parents will seek alternatives. Parents whose children will have to be bused
(any distance) may turn to other attractive options such as charter schools or private schools that
have already invested in and around downtown Bemidji. The district is already losing elementary
school children to these competitors (see “ISD-31 18-19 Information and Planning Report”, fn. 5).
Bemidji Area Schools had a net loss of over 900 students because of charter schools, private
schools, and open enrollment. 7

Rather than closing Central Elementary, a more responsible decision by the School Board would
be to investigate opportunities to invest in Central and grow enrollment at Central from nearby
competitors. The district only needs to get itself past the 2022-2023 academic year before growth
starts to pick up. Investing in Central Elementary is financially responsible as this site educates
students profitably.

Summary: The district’s budgetary problems are structural, caused by the cost of special
education and expenses at the high school and Paul Bunyan Center that significantly exceed
revenues. The proposed motion to close Central Elementary does not address either of these
costs and will not in any meaningful way address the budget deficit. The closure of Central
Elementary will simply reallocate over $1.2 million in expenses to other district sites. Further in
doing so, the closure of Central will make ISD-31 less competitive in the long run and create an
opening for increased competition by charter and private schools.

Recommendations:
• Oppose the motion on March 15 and keep Central Elementary as a school.
• Investigate opportunities to reduce expenses at the high school w/o affecting revenue.
• Investigate the opportunity for an emergency referendum.
• Lobby state legislatures to fully fund the cost of special education.
• Position Central Elementary strategically to meet the enrollment demands long-term.

Sincerely,

Michael J. Murray, Ph.D.

7
“Securing our Financial Future” Bemidji Area Schools, 2020.