The better we do at our goals, the better we do at alignment, the better we have strategies for our resources, that's what's going to make teachers want to be here. So, I guess I can't stress enough that yes, these are all the things that are happening. We cannot lose sight that the future is just as important as today. And that's what I think about when we're doing budget planning. >> So, it doesn't surprise me the contracted teacher. It is we're going to pay the five million no matter what. Let's take the the difference and reinvest that in to our schedules and be ready to go when those people become available as schools close around us. Teachers are going to be looking for jobs. Um so that was that was the reason the 12% is or 12.9 we're almost at 13%. Oops. Just sit with that for a minute.
Anyways, this is the the magic sheet. It keeps track of a lot of things, but it also gives me the ability to project where I think we're going to end up this year. Um, I keep my notes in here. It allows me because we haven't finished the year. Um, I'm like I said, we're going to lean heavily on that Medicaid to help with the contracted teacher solution while we're still working on how's that going to look in the future and what's the solution, what's the plan. We got ideas out there. you just don't you can't fix things instantly, but you need to have time to have the space to have the good conversations with the experts to go out and collect data and to um even look out at what other people are doing to see has somebody found a good solution. And we're doing all of those things.
It also gives us the ability to go ahead and plan for next year. And this leads me right into our budget update that we usually get. um our 2% and our fund balance reserves. I want to go back to our fund balance reserves because I'm going to talk about this for a second. So, when we finally um got our reserve process in place from the fiscal um stewardship committee and then we brought that recommendation to the board that we not put this in policy per se, but put this in a board approved process and procedure that goes through committee. Um that way the committee holds me on task to bring the information they need to help set the target re uh fund balance reserves. Again those are the dollars that we roll over to the next year and then I bring that information to exec and then we bring that information to the board.
So in that first year the uh committee had made a recommendation of a 20% fund balance reserve. in uh 25 26 they also made a 20% that I pushed back on and I said we're in a situation um that our enrollment didn't show up the enrollment didn't show up that we projected for uh and this is when fund balance reserves come into play so I said I think that we need to settle at 15% that's where I feel comfortable uh with the fiscal health of our budget it and so uh taking that information back to the uh fiscal stewardship committee they did agree with me and brought back a recommendation to the board uh for the 15% moving forward um we have some changes going on so now I want to go back to the sheet that you guys are very used to seeing uh let's put this one down and let's go over here over Oh no, everything's messed up, go.
Oh, there we go. Uh, that was the fund balance reserves and I've lost my notes, so give me one second. There we go. Okay, talking about those fund balance reserves, this is what allows us to pivot and cover those operating expenses. Um, and this happened through the highest enrollment decline Kraton has experienced in the last 10 years. This year was the highest enrollment decline in the last 10 years. >> So this is what fund balance reserve does. It gives us that breathing space to make strategic decisions. It's intended to be used and not stuck into an account and just never touched again. This is for the emergency. This amount of enrollment decline is an emergency. We were able to maintain our operations and do status quo for the entire year because of our fund balance reserve. It's intended to be used and then build back up.
Um that's why we have the sliding scale that we brought to the board, the 10 to 20%. It wasn't intended to be 20% every time. It's intended to flex as our needs flex. So, um, one of the targets that I hope that we'll get back to after we deal with this decline, this cliff is I'm going to probably bring something to the board to help us with the medical side of the house, which is our medical prepay. One of the things that we do for our medical to help reduce costs for the district is that we prepay those amounts ahead of time. Anything that we put into that prepay earns interest. My goal is to have two times our cost of medical prepay in our account earning dollars. Um so currently our medical prepay is about 5 million um for what we put in there in 2024.
uh through efficient phasing out of the esser funds and having some of those extra reserves built up because of it, we were way higher than our our 20%. Um we were able to put an extra million dollars in there to earn interest. So we went from earning very little interest to now we're currently at a $2.3 million um above what we have to put in there. That helps to mitigate some of the increases in the costs that we have in our medical. So, I would just highly recommend that we focus on our prepaid medical in the future. I'll be bringing more information back to the board uh on how we plan on doing that. But here is the document that we've um presented to the board in the past. This will be the last thing that I cover and I am going to kind of try to get through it.
Um but I wanted to share a lot of the practices and the thought processes behind how we build the dollars and and then how what works and what doesn't. So, when we go back to what I presented to the board last year, that's the budget item that's on the uh la left, that's what I presented to the board, I believe in uh March of 2025. It wasn't the final budget update. Um, but this was the preliminary one that was happening about the same time that my new one is happening. Um, again, areas of conservative uh of projection. I want to move up where I see talk to the board. >> Okay. So, the the premise with the budget update item is that the budget is going from status quo. So, this is how the budget ended. It's what we spent and now we're going to look forward to the next year and say what is going to change from our budget, what's going to go up and what's going to go down.
So, the one thing that we know, the things that we know is that we're going to have enrollment decline. The other thing that we know is that we have to adopt a budget that allows us to have the cash resources to cover our budget capacity and that is in alignment with what we've um told our taxpayers that we would do. So, something that I noticed when I got to Kraton is that we had some different processes of going into that adopted budget. Um, and that's where you can see the FY25 adjustment went up $2.3 million. That's because when I adopted the budget that year, I went ahead and put our enrollment decline in the adopted budget number. So, I declined our number, which means when that conservative decline didn't >> occur, I was able to put 2.3 million back in the budget. But what that did was that underserved our tax rate, meaning that we didn't bring in as much cash that year because I declined us.
So, I thought that's not the necessarily the best strategy, but we do have uh sufficient cash collection. So, I don't need to worry too much. Um, but I definitely wanted to make sure that we got that tax rate up to the level that it needed to be. So, this last year when we adopted the budget, I made no change in the budget itself when we adopted it, but on my budget magic spreadsheet, I declined our number. We also had made some staffing decisions. Um, we do that right now. We're working on staffing right now in February to try to figure out what we're going to need in August. So, we did that last year. Um, for our staffing, we decreased the staffing by 2%. I had a concern about the 2%, but at the time, um, we had actually done something we hadn't done before, which was we grew uh, our enrollment on 100 day.
We weren't seeing the immigration impacts that we kept thinking we were going to see. I brought to the board a research study that had been done by ASU showing our two steepest decline um enrollment years were SB1070. So we kind of had I just had this feeling. I was like man I I know we're not seeing it but I'm really concerned about it. So because of that, um, instead of decreasing staffing by 5%, which was what our initial thoughts and conversations were about, um, we went ahead and and pulled that back to 2% thinking that that would be the best support for our students in our SOFG goals. We were getting momentum. Uh, we were starting to see movement in areas we hadn't seen before, and we were really concerned, but cutting that staffing was going to impact SOFG goals directly. Um, so despite my little inner turnurning, um, we went ahead and did the 2%.
I still felt worried, so I did some back-end budget, um, conservative and I put another 5% in the budget number. Um, that's why we have this FY26 adjustment coming into 2627 was that I decreased it and knew that we were going to need some some buffer. um or if we didn't need the buffer, I would have had a positive number there. So, we went into it and our enrollment didn't decline 2%, it declined almost 10%. Enrollment, but because of the budget practices in the back end and because I took a conservative lens with the budget, the budget, if we go back to the magic spreadsheet, you'll see that the ADM cut that I accounted for was only a little over 5%. I calculated for a 4% decline. So my decline was only 1.4% more than what I put into the numbers. But our decline of staffing and what we should have staff for was 10%.
So I don't want to use like overstaff because we didn't overstaff. What we did is we chose SOFG. We chose the lens of what's best for students and in a time of uncertainty. We didn't know what the next year's enrollment was going to look like, and it was in fact even worse than what we could have even projected for. But because we took some strategies, we actually were able to get $1.9 million to help support carrying those teachers through this year and not ending those contracts. the way that we will deal with this in the future. Uh you can kind of see on the staffing adjustments and the attrition that number is a lot bigger because that gave us this year to talk about the ratio and the alignment and what the plan is for next year and how we'll handle that through attrition. So obviously staffing numbers have to come down it the numbers of students don't support where we are in those staffing levels and it's not uh meeting the agreed upon ratio that we've brought to the board in the past the 27.5 So for forward planning, we're going to take care of that staffing adjustment through attrition.
That's why we don't go back and say, "Oh, we're going to riff, you know, a bunch of jobs." We carried those jobs through this year because it was what was best for kids. So those are the types of decisions that the budget allows us to make because we have fund balance reserves. So, what's going to happen in order to make all of this happen and still have the operating budget and the investment in ourselves is that we're going to go through those um budget items, but also we're tracking a little bit less fund balance reserve. Uh I initially thought we were going to be at 10%. Um it's already starting to change based on uh where our expenditures are for the year and as I said some of those supportive measures for the contracted teachers. So, it's already back up to 12% fund balance reserve.
I I don't want to anticipate it's going to go any higher. I'm perfectly comfortable with that. We did 15% last year. This continues to refund our fund balance reserve. It's a little bit less, but we have the other dollars that we accounted for in the planning. So, I know that sounds like back and forth.
If we look at that spreadsheet, I can answer any questions on on how that works, but it is all about what we adopt and how much I think we're going to decline and then where we have the savings of those dollars and where did that $1.8 million hit get covered. It's covered right there between that fund balance change, the 5.8 million to the 4.6 million. Does that make sense? It's a little bit complex. >> Little bit. >> I'm so sorry, Nicole. So um but I think pointing out those numbers. So we have a negative up there that we have to account for we have a fund balance reserve from last year and then we have uh which is actually more than that 5.8 million and then we have a 4.6 million target uh for planning into next year. So that mitigates that deficit. All right.
Then let's go into the things that are yellow, which are the things I don't know exactly right now, but I'm projecting another enrollment decrease next year. Here's the other reason why um the ADM budget number doesn't get hit as hard as the staffing number. So, what that means is the budget stays a little healthier. The expenditures go up. So, how much we spend in the year go up when we have that staffing. Um, but uh we're going to project an enrollment because I projected an enrollment decrease of uh 289 kids last year in ADM, which was why ADM was closer. I kind of stuff that number and I do that. That's what I do. I'm conservative. I make sure that I don't get us to the penny. I make sure there's there's flexibility in those numbers. Um, so for this next year, the pro projected enrollment decrease of 199 is in alignment with SB1070 work that I did.
I'm not expecting another enrollment cliff, but I am expecting another decline. Um, the 2% base support, I I put 1.5 last year and honestly, I didn't like the way that I calculated it because I calculated it on that weighted student count. Weighted student count means we get one ADM for each kid, but then like K3 kids, we get an extra 1.18% of funding for that kid because they're K3. So those are weighted counts. A sped student gets um a little bit extra money because it's a a sped category. So I had costed that out on weighted counts. I think a more conservative way to calculate that 2% base support increase is to go on the nonweighted count means the numbers a little less. So that works. I'm saying we're going to get less. So I'm accounting for less. Most likely we'll get more, but I'm banking on what happens if we get less.
So it's another way to protect the budget and still have the dollars for the needs. Um, the minimum wage, I want to bring that back on our radar because we're at 16.68. It's 1516. It's it's trending at like over a 3% increase each time. If I track that, that's about four years. We'll have to start talking about minimum wage. I just want to keep it on the radar. So, it's really important that we keep pushing those schedules. Part of the compression work that we're doing in meet and confer is going to push those schedules up from that 16 and keep us away from that minimum wage impact. So that's on our um staying ahead of it. Just staying ahead of it before we have to do it because now you're in a situation if you stay ahead of it, it's because we chose to and we did it strategically.
If minimum wage catches you, you have to do it whether you have the dollars or not. It's a legal requirement. So it's really important to keep that on our radar. Medical cost increase is a very interesting topic we got going this year. Um, what I can tell you is based on what I had heard in our meetings and all sorts of uh, information and based on the history of Kraton, we were looking at a significant medical increase. We knew it was coming. I budgeted 15% in our budget last year for this, which was $750,000. Interestingly enough, it came back less. Um, the projections that came back were is a 13.4% 4% increase and an option for a 9.99% increase based on something that we took to meet and confer. We have the ability to move our maximum out-ofpocket cost up. So, it's an increase to maximum out of pocket.