Minnesota State is considering a plan to shift millions of dollars from its colleges to help two financially unstable universities – a move college presidents, students and employees condemned as the school system considers longer-term fixes to a growing financial crisis.

CLEO KREJCI/MinnPost proposal headed to the Board of Trustees for a final vote on Oct. 14, comes as the 270,000-student system grapples with broader budgetary distress that has officials weighing campus closures or mergers across its 26 colleges and seven universities.

If approved, the proposal would allow the system to reallocate up to $25 million each year for the next four years — with reapproval required each spring — to “financially challenged institutions,” taking a majority of the money from two-year schools.

St. Cloud State University and Bemidji State University would together receive about $15 million. Both universities are running dangerously low on cash reserves despite steep budget cuts.

Budget woes force “temporary” action on Minnesota State Colleges System officials describe the proposal as a “stopgap” and hope it will act as a bridge until they tackle underlying financial problems driving a $31.5 million systemwide deficit that, if left unaddressed, is projected to more than triple by summer 2028.

Bill Maki, the system’s vice chancellor for facilities and finance, acknowledged the plan is “somewhat unprecedented” in the system’s three-decade history. But he told MinnPost it’s a matter of “crisis for a couple of institutions.”

“Action needs to be taken,” he said. “This is not by any means a perfect solution. It is temporary.”The proposal would send $10 million to St. Cloud State University in central Minnesota, an institution that has lost about 5,400 students in the past two decades. The university has already reduced its workforce by 40% in 15 years and suspended admission to nearly 200 academic majors, minors and certificates since 2023.

Those cuts have not offset the lost tuition revenue from declining enrollment and other budget pressures, however. By this summer, a school spokesperson said, St. Cloud State will have “depleted” its reserve funding pool, a savings account that held nearly $19 million a decade ago. It also already took a $2 million loan from the system office. College presidents, students and employees staunchly opposed the proposal when the Board of Trustees first considered it in June.

Leaders from Minnesota State Colleges criticize decision Now is not the time for a “temporary funding bandage,” said Rose Sargent, the LeadMN student organization treasurer, in June. “While the intent may be to stabilize struggling universities, reallocating resources away from colleges will not solve the root cause of those challenges,” added the organization’s then-vice president Marco Loera Alvarez. “Instead, it risks creating similar financial pressures for the very institutions that are currently serving students effectively.”MinnPost contacted all college and university presidents in the Minnesota State system; most declined to comment on the proposal or did not answer.

Lori Kloos, president of St. Cloud Technical and Community College, told the trustees in June it would be “extremely challenging” to manage a budget reduction. She questioned the decision to move ahead with taking money from community colleges before the system develops a long-term strategy to shore up its finances.

“A 5% reduction might not sound like a lot, but when 80% to 85% of our operating budgets are salary, there’s an impact,” Kloos said at the board meeting.

It’s not the first time Minnesota State has shifted money to help struggling schools: between 2005 and 2015, the system dedicated $5.5 million to eight colleges and one university in response to financial issues. But that money didn’t come from the individual budgets of peer institutions.

The board’s vote comes on the heels of an announcement from Minnesota State Chancellor Scott Olson last month of a systemwide redesign that will likely include campus closures, mergers or consolidated administrative services. System officials will present initial options in January.

Maki said work on the larger overhaul was accelerated, in part, due to concerns about the plan to move money from two-year schools.

“I don’t want to minimize those concerns,” he said, adding that it’s not possible to 100% avoid unintended consequences — including the potential to “weaken other institutions.”In his Sept. 21 memo, Olson said the system needs to “urgently” cut costs. Eight institutions, five of which are universities, are projected to have ended fiscal year 2026 in poor financial health, according to system officials.

Restructuring the system is critical to Minnesota State’s future, Olson noted. He said cuts at individual colleges won’t cover systemwide budget holes, which he attributed to “constrained” state funding, declining enrollment, inflation and reluctance to make Minnesota State unaffordable by continuing to raise tuition.

In public meetings since Olson’s announcement, employees demanded the system act transparently as it makes decisions affecting tens of thousands of people. During a Wednesday town hall at Century College, one professor raised the idea of shutting down St. Cloud State University, saying the university’s financials appear to suggest it is “screaming for closure.”

In response, Olson noted that St. Cloud State is one of the largest universities in the system — it enrolls about 10,600 students— and said its closure would “strand all kinds of people.”

“Given their scale, given what they mean to the economy of central Minnesota, I guess I believe it’s worth another try at saving them,” he said. “Not everybody agrees with that.”

Kevin Lindstrom, president of the Minnesota State College Faculty, has spent months worrying about the consequences of the funding reallocation proposal on two-year colleges, especially smaller institutions in greater Minnesota.

“Those places work really hard to stay afloat and to serve their communities,” Lindstrom said in an interview. “They don’t have a margin for error, and this will impact them disproportionately.”

A race to restructure System leaders have been discussing the potential to shift money to bolster the most-struggling institutions in public meetings since February. That plan was one of five draft proposals presented in June aimed at addressing systemwide financial troubles.

A group of Minnesota State College and University presidents spent the summer tweaking the proposal with system officials, based on public feedback.

Under the latest proposal that trustees will vote on schools with smaller cash balances would contribute less toward an emergency fund used to help struggling institutions. If approved, the board would annually reassess the proposal through fiscal year 2031.

For fiscal year 2028, colleges and universities would contribute between $121,000 and $1.8 million. Overall, two-year colleges would contribute about three times as much money as four-year universities, according to a MinnPost analysis.

The system would then distribute $10 million to St. Cloud State University and $4.8 million to Bemidji State University.

Bemidji, which educates about 4,000 students in northern Minnesota, has cut several academic programs, three dozen positions and one third of its faculty, spokesperson Andy Bartlett said. Despite raising new money and growing enrollment, reductions in state funding, coupled with salary increases, have resulted in “enduring deficits,” Bartlett said.

Other universities have also cut jobs, frozen hiring, consolidated operations, delayed investments and spent down reserves, Kenneth Janz, head of Winona State University, said during the June Board of Trustees meeting. He spoke as a representative for university presidents.

University presidents support the reallocation proposal, he said then, because it “recognizes the seriousness of the current condition.”But he does not want it to act as a substitute for broader financial fixes the system must make.

Winona State University reduced its budget by $40 million in the past 15 years. Janz said the pandemic, which cut into revenue from in-person services like housing, meal plans and athletics, is one reason universities, in particular, are struggling. “We cannot cut our way to sustainability,” Janz said.

On Wednesday, board members will consider another proposal to take $24.3 million from all institutions, through summer 2032, to demolish excess facilities. Because schools would otherwise use that money to buy equipment, the proposal would most affect two-year technical schools with equipment-intensive programs like welding or automotive programs., Olson said during a recent town hall.

A draft of Minnesota State’s budget request for the upcoming legislative session shows the system will ask lawmakers for $25 million in one-time funding to support struggling institutions, as well as $25 million for building demolition. The draft needs final approval from trustees in November and would be submitted to lawmakers for consideration.

The board decisions come as the system examines other ways to cut costs, like getting rid of unused buildings to reduce maintenance and utilities expenses, redesigning the formula for dividing state funding across all schools, and sharing IT, cybersecurity and other services systemwide.

Decade-old report warned of budget problems Olson’s announcement about a broader system restructure adds yet another layer onto those goals.

Just last week, Minnesota State Community and Technical College announced it would close its Detroit Lakes campus, which educates just over 100 students near Fargo. That move, officials said, will save $1 million per year and $18 million in future costs, like maintenance, utilities and insurance.

While Olson’s memo created an enhanced sense of urgency, there have been warning signs of systemic financial problems for over a decade.

A 2016 internal report warned that Minnesota State could face multimillion dollar budget holes and “a future that is financially unsustainable” due to factors like declining enrollment, excess buildings and diminishing state support.

“We cannot and must not wait until 2025 to begin to make changes or we will only compound the challenges of achieving financial sustainability,” the report said.

At a Century College town hall last week, Olson said that report “was put on a shelf.”“It should have been dealt with. It wasn’t,” he said. “Now we have to deal with it. But it’s not too late.”

This story was originally published by MinnPost and distributed through a partnership with The Associated Press.