Two years after a steep deficit prompted the Hopkins School District to cut millions from its budgets, the district has pulled itself out of debt.

A recent audit report revealed that the district emerged from statutory operating debt last school year and had a nearly $1 million fund balance at the end of June.

"It's good news," Superintendent John Schultz said. "The board provided incredible leadership in getting the district out of SOD [statutory operating debt] as fast as they did."

The results of the annual audit, conducted by Minneapolis-based LarsonAllen, were released Thursday night at the district's school board meeting. Brock J. Geyen, a LarsonAllen accountant, said Hopkins' emergence from debt was one of the "quickest turnarounds" he'd seen a school district make.

The Minnesota Department of Education considers a district in statutory operating debt if it has a deficit greater than 2.5 percent of its annual expenses. Hopkins' 2005 and 2006 deficits represented 4.9 and 4.6 percent of its budgets, respectively.

The district currently has an unreserved, or "rainy day," fund balance of $900,901. That's about 1 percent of the district's total expenses last year.

District officials said additional cuts made last year totaling more than $3.745 million from the current budget should help the district continue to build a positive balance. The cuts included closing Katherine Curren Elementary School in downtown Hopkins.

Business manager John Toop said the Hopkins district expected to get out of statutory operating debt by the end of last school year, but the $900,901 fund balance was unexpected. The finance director praised the board and other district administrators for tough decisions they'd made, but cautioned "we should celebrate this news, but we must stay on course."

Toop joined Hopkins at the end of the 2005 school year after an audit revealed the district's finances were more than $4.2 million in the red. The deficit shrank to about $3.8 million after the 2006 school year.

At Thursday's meeting, retiring board members Barbara Klaas and Susan Scharenbroich and recently reelected member Yvonne Selcer praised Toop for improvements he made with enrollment projections and other financial procedures.

Selcer said the board realizes that "staying on course" means the district must build an unreserved fund balance of about 6 percent of its expenses to absorb fluctuations in state and local revenue as its enrollment declines.

Patrice Relerford • 612-673-4395