Iowa City schools facing up to $6 million budget shortfall next year, seeking loans after overspending

IOWA CITY — The Iowa City school district is anticipating about $6 million in budget reductions next academic year — and more cuts in subsequent years — after spending more on salaries than it could afford.

To make ends meet, the district will need to take out “a series of loans,” school officials said Tuesday.

The Iowa City school board last month retroactively approved a $10 million interfund loan made months ago without its knowledge. The loan from the district’s health insurance fund covered anticipated deficiencies in the general fund, which largely pays staff salaries.

“I wanted to take responsibility for how that interfund loan was handled,” Superintendent Matt Degner said Tuesday during an Iowa City school board meeting. “We did not follow the appropriate work procedures, and I take responsibility for that shortcoming. Furthermore, I wanted to say as we’ve unpacked our budget, it’s evident that this simply was not a timing issue, and that we have a structural issue on the cash flow side as well as a concern on the authority side of our budget.”

Iowa’s Statutory Authority for Funds requires all loans between funds within a fiscal year be accomplished through official board action. The loans cannot be made until the board authorizes them through a resolution.

The interest rate on the loan is 4 percent, which is about $394,000. The loan must be repaid by Oct. 1, but school officials said they expect to pay it back before June 30.

Degner estimated the district will need to trim $5-6 million from the fiscal year 2027 budget, which begins July 1. More budget cuts will be needed in future years, he said.

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More detailed options on the fiscal year 2027 budget — which begins July 1 — will be brought to the school board at its next meeting, which will begin at 6 p.m. Feb. 24, at 2255 N. Dubuque Rd., Iowa City.

“The honest and transparent answer we’re trying to provide tonight is that our expenditures went beyond where we forecast,” Degner said.

Loans needed to correct budget shortfall

Degner said school officials are working to understand why “expenditures were so far off.”

The district is working with lenders to borrow up to $5 million more next month, Degner said during a Financial Oversight Committee meeting prior to the board meeting. This would be a short-term loan to cover district expenses until they receive property tax payments in April.

The financial oversight committee meeting is a public meeting that includes all seven school board members.

As the district “looks to correct” its budget shortfall, another longer-term loan will be needed, which district officials will speak to school board members about later this month, Degner said.

This spring, the district will work to “make spending adjustments,” including in areas of travel, transportation, overtime, professional development days and time out of the classroom, substitutes, supply purchases and discretionary spending.

“It’s my responsibility as superintendent to ensure that we make investments in our students while also being fiscally sound in how we do so,” Degner said. “I’m sorry for the anxiety, concerns and disruptions this has created. It’s not the position we anticipated being in this budget planning cycle. We’re working hard to chart a path forward, and we do have many improvement steps that we are taking, so the long term financial health of the district is strong.”

The district is working to hire a new chief financial officer with a Certified Public Accountant (CPA) license and experience with school finance.

The district’s previous CFO Adam Kurth left the district in November 2025. He was the district’s director of technology before being hired as their CFO in 2023.

The district also is seeking to hire an assistant controller responsible for overseeing financial operations and ensuring accuracy in financial reporting, budgeting and compliance with regulations.

The district is hiring a public financial management consultant to review current business office practices and assist in budget planning strategies moving forward, Degner said.

School board promises due diligence moving forward

School board member Mitch Lingo said he doesn’t “believe I’ve been asking enough questions and asking the hard questions.”

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Lingo said the “community gives to its public schools” through sales taxes and multiple levies. “It gives through people coming back for performing arts and sports events well after their children have graduated,” he said. It’s important those funds are being allocated appropriately.

The district has yet to complete its fiscal year 2024 and 2025 audits. School fiscal years begin July 1, and end June 30 of the following year.

Completing the audits is “the highest priority,” school board member Lisa Williams said.

“If we can’t rely on the numbers, we can’t make informed decisions about what has to be cut and what our budget situation looks like. I need data I can trust, otherwise, we can’t make good decisions,” Williams said.

Where is the district spending its funds?

The Iowa City district had a 9 percent average payroll cash increase this academic year, a projected $15.7 million more in salary and benefits costs than the year prior, the district’s chief operating officer Curt Pratt said Tuesday at the Financial Oversight Committee meeting.

The district spends about 86 percent of its general fund budget on salaries and benefits, higher than the 80 percent of the general fund neighboring districts spend on payroll.

Workgroups with the largest percent increase to their salaries include paraeducators with a 21.7 percent increase, secretaries with a 19 percent increase, and support staff salaries with an 18 percent increase. Teachers saw a 5 percent salary increase.

The school board in May approved a $2 differential for special education paraeducators whose job assignment is with a student classified as a complex case at least 50 percent of the time by the special education and human resources department.

The salary increases were calculated off 550 paraeducators and not the more than 600 current paraeducators in the district now, Pratt said. Special education preschool paraprofessionals have increased by more than 40 positions.

Secretary salary increases were due to accounting for previous experience in their compensation.

The district also added 14 preschool teachers and 11.5 teachers for elementary class size support, middle school math support and additional teachers at Liberty High School.

School officials discussed the need to move away from their current practice regarding management of the unspent authorized budget, which is to “spend, cut, spend, cut.”

The unspent authorized budget is the amount of unused district general fund capacity to spend on behalf of students — or spending authority — left over at the end of the fiscal year that is carried over into the next fiscal year. It is not cash, a fund balance, savings in a bank account or automatically spendable without money, Pratt said.

By increasing the district’s unspent authorized budget, they can more efficiently address needs if additional spending is required during a given year, Deputy Superintendent Chace Ramey said.

District lacks financial oversight, community members say

Community members voiced their concerns Tuesday about what many people said is a lack of financial oversight in the district.

Emily Campbell, who has spent 20 years in financial leadership positions in the education sector and has professional experience as a financial statements auditor, said a quarterly financial report presented to the school board Dec. 9 contained multiple omissions, errors and misstatements.

Four funds totaling $17 million, including the insurance funds, were removed from the report for the first time since at least 2015, Campbell said. The funds were the health insurance fund, the dental insurance fund, the school children’s aid fund and the school based health clinics fund. These funds represent 24 percent of the district’s cash.

This happened during the same quarter the $10 million unauthorized loan was taken from one of the funds for the general fund. These funds are still missing from the second quarter financial report with no explanation, Campbell detailed in a document provided to The Gazette and Iowa City school board members.

The starting balances for this year did not match last year’s ending balances — a $5 million difference with no explanation, an indication that bank accounts are not being reconciled and that financial oversight is lacking, Campbell said.

This year’s first quarter cash balances are wrong, Campbell said. The numbers are identical in more than one place, which is virtually impossible and indicates the numbers were reused, she said.

Campbell said the same issues were on the second quarter report presented to the school board Tuesday. “At least there’s a new disclaimer on the first page (of the report) stating that we probably shouldn’t actually rely on the numbers,” she said.

“This is not just one mistake … this pattern over the past five months should not raise concerns about employee turnover or errors by the financial team. It should raise serious concerns about the integrity of top district leadership,” Campbell said. “Every member of this board needs to ask hard questions, demand accurate information and bring in outside expertise to help you understand the financial issues. If you fail to act, it also will call into question your own integrity and the integrity of this board.”

Matt Hayek, an attorney and former Iowa City mayor, said the school district in 2023 faced “millions in cuts caused in part by budget errors and bad forecasting.”

As a part of $7.5 million in cuts, the district closed Hills Elementary School at the end of the 2023-24 school year to save $1.66 million in annual expenses.

Hayek said the fiscal year 2023 audit — which was completed late and received by the school board in September 2025 — found “inadequate controls and financial reporting.”

“If I were a director, I would want updates on all corrective measures recommended by the audit,” Hayek said. “I would want the fiscal year 2024 audit — which normally would have been submitted a year ago. The fiscal year 2025 audit is due next month. I would worry about the district’s bond rating. Moody’s downgraded it in 2021. If there is further deterioration, what does that do to the cost of borrowing?”

Hayek said the school board has a “fiduciary duty to ensure legal compliance, provide financial oversight and maintain an administrative team that can manage all aspects of the district.”

“You are not expected to know how to run a school district. You are expected to have an administration that can. This is a serious situation, and you need help … Until the financials are accurate, you cannot plan for the future,” Hayek said.

Comments: (319) 398-8411; grace.king@thegazette.com