Minneapolis Public Schools is headed for a "fiscal crisis" that could put it in the red in just a few years, district finance officials say, if it doesn't make drastic budget changes as enrollment keeps dropping.

The roughly $960 million annual budget is currently balanced thanks to tens of millions in federal pandemic relief funds, which sunset in 2024. At that point, without massive spending cuts, the cost of operating the district will wipe out the general fund and put the district into operating debt, according to school officials' latest five-year financial projection. Even if the district could reverse its rapidly declining enrollment, that won't be enough to bridge the gap between revenue and expenses.

The relief dollars delayed the fiscal cliff, but the "cliff is nearing" and doing nothing is "not an option," finance leaders said.

"If we continue status quo operations, we will run out of money at the end of fiscal year 2025," said Thom Roethke, the district's budget director.

The projection, presented Tuesday to the school board's finance committee, is meant to lay out the district's path if nothing is done differently over the next five years, said Interim Superintendent Rochelle Cox. The document is not meant to prescribe solutions and options weren't discussed Tuesday.

"It is not a road map of where we will go but rather a path of hazards we must find our way around," Cox said.

Navigating that path will fall to fresh district leaders: Five new board members will be sworn in come January and a new permanent superintendent is expected to be in place by July. At least four of the incoming board members attended Tuesday's finance committee meeting.

Despite the blunt budget warning, Collin Beachy said he remains optimistic about what can be done for the district and its students.

"I realize this is a challenge, but I wouldn't have done this if I didn't see the potential," he said.

Board Chair Kim Ellison said she's heard the optimism from elected board members and looks forward to working with them. But she's worried about just how fast they'll have to act.

"The [projection] speaks to issues our CFO has been discussing for years," she said. "The fiscal cliff is real, it's scary and it must be addressed in real time to keep the district sustainable."

Kimberly Caprini, an outgoing board member and chair of the finance committee, said the comprehensive district design represents one way that several current board members supported large-scale changes.

"By no means do I see this outgoing board as a board that kicked the can down the road," she said. "I see this board as one that made some pretty bold and courageous decisions to start to repair the foundation of Minneapolis Public Schools."

Then the pandemic hit, she said: "That was a punch in the gut."

Minneapolis schools enroll about 28,000 students — down 17% over the past five years. The district projects that enrollment decline to continue, serving 23,000 students by the 2027-2028 school year.

That trend began before the pandemic, but has grown steeper in recent years, reflecting a reality sweeping the United States: Public schools have lost at least 1.2 million students since 2020, according to the Return 2 Learn Tracker, which pulls data from multiple sources nationwide. That could be due to a combination of parent concerns about schools' pandemic responses or reflect the rising costs of living in urban centers.

Since funding in many states is at least partially tied to enrollment, the steep loss has forced school districts from New York to Chicago to Los Angeles to consider millions of dollars in cuts.

Minneapolis is also home to fewer children now than in recent years. According to data from the American Community Survey, the number of children ages 5 and under in the city fell 17% between 2020 and 2021. The number of children ages 6-15 fell more than 6%.

"MPS must address both the quality of its product as well as work with policymakers and city leaders to address factors outside of its control such as crime, housing prices and transportation issues, if it hopes to stabilize," according to the projection's section on enrollment.

The comprehensive redesign of Minneapolis Public Schools, the murder of George Floyd and ensuing civil unrest as well as the teachers strike last spring may also be factors in families' decisions to leave the city's schools.

Because state funding is doled out per pupil, fewer students means less money for the city's public schools. That formula hasn't kept up with inflation — had it been tied to inflation, the district would've received nearly $27 million in additional aid this year, Roethke said.

Minneapolis schools also spends more money per student than other large districts in the state, Roethke said. MPS spent $3,900 more on a per-student basis in general operating costs than the average spent by the state's 15 largest districts.

That's largely due to Minneapolis' "significantly lower" student-to-teacher ratios compared with other districts, Roethke said. Those lower ratios are a product of the relatively large number and small size of schools.

"Other districts simply operate fewer, larger schools," Roethke said.

The price of other initiatives related to the district's strategic plan — like adopting new curricula or expanding programming — is not included in the projection and could come with additional costs, Roethke added. Inflation could also further strain the district's budget, even past current predictions.

"For all the reasons noted in the [projection], something has to change as our current path is not sustainable," Cox said. "But this moment of financial challenge is also an opportunity for our city and our district to make sure that our district is funded in a way that aligns with our values."

The projection will be presented to the full school board at its December meeting. Board members will also vote on a budget amendment to address rising transportation and food costs this year and vote to increase the tax levy by 4.4% for 2023.