Melody Douglas' job isn't getting easier.
The Kenai Peninsula Borough School District chief financial officer is in a tricky spot this month, as the district begins budgeting for the 2004 fiscal year without a settlement in teacher and support staff contract negotiations.
Douglas said it isn't unusual to start a fiscal year without an employee contract, as the district did in July. But to be this far into the fiscal year and planning the next year's budget without a clue as to salary and health benefit expenses is not normal, she said.
"We have a very unusual situation before us," Douglas told the school board Monday during a budgeting work session. "When you're doing a budget, you need as reasonable of information as possible. Right now, it's a guessing game."
On top of the expenditure "unknowns" caused by the contract negotiations, the district also is facing some guess work on the revenue side. The district's revenue comes primarily from the state and borough and is based almost exclusively on student enrollment. For the past several years, enrollment in the district has been on a downward slope, but this year, it's dropping faster than expected.
Earlier this year, the school board revised its enrollment projections for next year because this year's enrollment was 211 students less than expected. On Monday, Douglas said the district had lost an additional 75 students. Such losses might mean even less money than expected from the state and borough in the coming year -- but just what that figure is, no one can say.
Still, the district doesn't get to forgo its budgeting process because of unknowns.
Douglas unveiled the first draft of the district's fiscal year 2004 budget to the school board Monday. The document will be passed on to the budget review committee and be the focus of a series of public hearings in the coming weeks.
The preliminary budget is, for the most part, a status quo translation of this year's budget, Douglas said.
On the revenue side, the general fund budget includes about $32.4 million in anticipated borough funding, $39.9 million from the state and $200,000 from the federal government, for a total revenue of about $72.5 million. This year's revenue budget was about $75.9 million.
The district also has a special revenue fund budget, but money in that budget comes from grant sources and has very specific use requirements, meaning it cannot be used for the district's general operations.
In the general fund, federal funding is exclusively Medicare money.
State funding includes about $39.4 million from the foundation program, $230,000 in anticipated Learning Opportunity Grants and $275,000 in tuition money. The foundation program money is granted based on enrollment, and the budget is based on an anticipated enrollment of 9,456 students. This year, the district received about $1.9 million in Learning Opportunity Grants, but that figure was not carried over in the 2003 budget because those grants are offered on a one-year only basis, and the district cannot guarantee they will be continued in 2003-04. The money from those grants also has specific use requirements.
Borough funding must fall within a state mandated range, also based on enrollment. The budget is based on a borough contribution at the maximum level, which the borough has provided for several years.
"Our borough has been extremely supportive," Douglas said. She noted, however, that the way the state funding formula works means state contributions are decreasing while borough contributions are increasing.
"We're taking leaps and bounds annually for them," Douglas said.
Expenditures in the 2004 budget also are similar to the current budget, with only a few exceptions.
For example, the utility budget increased 2 percent to account for the national trend of rising costs.
Salary and benefit expenditures, though not set in stone, are based on the district's most recent contract offer to teachers and support staff, and the total expense is calculated with 50 fewer full-time positions than this year. Those cuts include a reduction of 13.5 positions due to declining enrollment and 42 positions from the school board's recent decision to increase the districtwide pupil-teacher ratio by three students in grades three through 12.
Though the expenditure budget is down from about $77.6 million in 2003 to $75.4 million in 2004, the first draft of the 2004 budget still is out of balance.
"We have a $2.9 million problem," Douglas said.
The district does have some reserve funds that could be used to make up the difference, but Douglas warned that the numbers are not as simple as they appear.
The total of the fund balance -- basically, the closest thing the district has to a savings account -- is about $3.6 million.
However, Douglas explained, the accounting rules that the district must follow require a number of different categories of money to be listed in the fund balance account, including designated funds such as money set aside for employees' compensated absences or school incentive purchases. Some borough money also is in the fund and cannot be used to make up budget shortfalls.
In reality, she said, the undesignated fund balance that the borough has to work with is about $460,000. And, she said, using that money to make up budget differences early in the process would be a mistake, because there is a good chance other emergencies could come up.
For example, she said, the nationwide trend of increased liability insurance and workers' compensation costs after Sept. 11, 2001, has not yet hit the district -- but could in the coming year.
The bottom line, Douglas said, is that there is still work to do on the 2004 budget.
"In a nutshell, we have a bit of a problem," she said. "We need to be going forward accordingly."
One avenue will be legislative lobbying. The district will continue to lobby the Legislature to change the area cost differential -- the formula used to determine how much money schools get per student -- to reflect the diversity of the Kenai Peninsula, she said.
Another avenue will be public comment on the budget. The first draft of the budget will go before the budget review committee next week, then the public will be invited to share their thoughts during two weeks of public hearings. The school board and borough assembly will continue discussing and revamping the budget through the spring before it is scheduled for approval.
KPBSD Budget Time Line: At A Glance
The Kenai Peninsula Borough School District unveiled the first draft of its 2004 fiscal year budget this week, and will continue to work on the document throughout the winter and spring. The budget is subject to review not only by the district and school board, but also by a community budget review committee, the public and the borough assembly. The time line for discussion and approval of the budget is as follows:
Today: The budget review committee will receive the first draft of the budget.
Monday: The budget review committee will conduct a financial discussion to analyze the budget.
Wednesday: The first public hearing on the budget will be held at 7 p.m. in the Soldotna High School library.
Jan. 16: A public hearing will be held at 7 p.m. in the Seward High School auditorium.
Jan. 21: A public hearing will be held at 7 p.m. at the Kenai Central High School library.
Jan. 22: A public hearing will be held at 7 p.m. in the Homer High School library.
Jan. 23: A public hearing will be held at 7 p.m. in the Nikiski Middle-Senior High School library.
Feb. 3: The school board will conduct a work session to further discuss the budget and public input.
Feb. 18: The school board and borough assembly will conduct a joint work session on the school district budget.
March 3: The revised budget will be presented to the school board during its meeting in Homer at 7:30 p.m.
April 7: The budget will be up for approval by the school board at its meeting in Soldotna at 7:30 p.m.
April 8: The board-approved budget is scheduled to be forwarded to the borough assembly.
April 15: The assembly is scheduled to introduce a resolution regarding the school district budget.
May 6: The assembly is scheduled to introduce an ordinance regarding the budget.
June 3: The assembly will vote on the ordinance to approve the school budget and appropriate funds.
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