Financial Report for the 2024-2025 School Year

A school district's fiscal year runs from July 1 through June 30. Since our financial reporting is based on accrual accounting and governmental practices, it takes a couple of months past the end of the fiscal year for all our expenditures for the prior fiscal year to 'run out'. This hold open period is from August 1 until roughly September 15 when we analyze expenditures as they come in to ensure they are accrued to the proper fiscal year. Once all of that is complete, we are able to certify our books to the state and prepare for our public an annual report on district finances. While this is an unaudited report, it does provide a lot of valuable information. However, what is most valuable is not the story of this year's numbers. Indeed it is to view these key metrics over time.  To view a copy of this report, please go to the About Us page of our website and open the menu titled 'Basic Financial Data'. The Annual Financial Report for the fiscal year ending June 30, 2025 is the first link at the top of the page. There are nine different metrics that are tracked over time, and while all measure key metrics some are more important than others. For the sake of time and space, I'll only highlight a few here. 

Overall, the school budget for the fiscal year that ended on June 30, 2025 performed better than expected. Revenue exceeded expectations by $103,702 and budgeted expenditures were underspent by $144,320. Labor costs consumed 79% of the budget, which is just below the target of 80%. Compared to other school districts in Iowa, transportation costs continue to be below the state average at 2.99%. The low end of the target range for this metric is 5%.

An area of concern in the school district is a decline in our solvency ratio, or cash balance. While still slightly above the long term target range minimum of 10% (10.41%), the real issue is the trendline. State law restricts cash balances in Iowa public school districts to 20% of the prior years revenue less current cash balance. Because of this, the district has no statutory ability to take corrective action until the cash balance falls below the threshold described above.

The challenge for a school district like Hudson that is growing is that when we hire teachers for our classrooms, the per pupil funding for those teachers is always going to be a year behind. Where we can capture the 'spending authority' immediately, the cash to pay for them comes from the cash on hand in the school district. Coupled with a 'governor' to prevent recapturing that cash until the trigger is met means quite simply a decrease in cash balance. When compounded with rapidly growing enrollment like we have (thus needing more staff), one can go through a lot of capital before the mechanism to recover it becomes operative. Which is where we find ourselves.

The other issue that directly relates to this is the amount of capital that we are expending to fund our special education program. The IDEA has federal protections in place for students who are served by IEPs (individualized educational plans) that provide few options for denying services. Because of this, special education does not have the same spending authority limitations that the general education program has. 

In our case, the special education program for Hudson Schools ran a deficit of $771,671.30. That is an increase of almost $100,000 from one year ago. As enrollment grows, so too does the number of students served by the special education program. Likewise, the cases become much more complex requiring even more specialized services. If there is good news, so far this year we have fewer students attending specialized schools and one fewer special education teacher on staff. However, those teachers have shared they are facing significant headwinds when it comes to properly servicing their individual caseloads.  

So then, what is the solution? Well, there are multiple strategies that can be deployed. In our case it would seem to make sense to implement them all. For starters, we need to closely examine our special education program to see if there are other steps that can be taken to decrease the annual deficit. This will be incredibly difficult based on increasing enrollment patterns and the current workload of this staff. To that end, we have contracted with the AEA to help us evaluate the program from top to bottom. 

Along that same vein, we should slow our rate of growth on the expenditure side of the ledger to no more than 4%. On its surface this may seem like a relatively easy bar to hit, I mean 4% still seems pretty aggressive, right? However think about this. In the fiscal year just ended, general fund expenditures grew by 7.4%, coming in at grand total of $11,421,005. Our rate of general fund expenditure growth is due to hiring additional personnel related to enrollment growth. Slowing the growth rate to 4% may mean hiring fewer teachers, which translates to larger class sizes. 

This brings us finally to the last strategy, and perhaps the most painful: an increase to the tax rate. This is particularly challenging because the tax rate in Hudson is already among the highest in the conference. We discussed our tax rate in a series of posts last spring and will do so again this year as fresh financial variables are introduced to our data set. This will need to be contextualized against another legislative session in January where you can be assured property tax reform will be a prime focus of attention. If you followed the discussions last year you know property tax policy is incredibly complex and a one size fits all solution is unlikely. In other words, there will be winners and losers. 

Also worth mentioning is the unspent balance, which as I have argued for more than a decade is the most important metric in Iowa public schools. By law, it is illegal to have a negative unspent balance. To do so authorizes the Iowa Department of Education to take austere measures, including dissolving a school district-and it has happened in Iowa. In fact, not too long ago a school district in Iowa voluntarily chose to close do to insufficient USB. For those of you who have been around awhile can attest, a low USB was the root of our troubles in 2010. Luckily here in Hudson, our unspent balance is at $5.9 million or 35%. (It was $90,971 at the end of the 2010-2011 school year.)

In closing, the school district is in very good financial condition. We'll need to make some adjustments to ensure it stays that way, but looking at our trends overtime enables us to make course corrections as we go. That is what makes this report so valuable. Our next step is to forecast the future. We'll do that toward the end of October once our enrollment numbers are finalized. Indeed we'll need to make some assumptions, but we'll be able to forecast about 5 years into the future what we believe the fiscal health of the school district will look like. Stay tuned!