The Kenai Peninsula Borough is fishing for ways to help its cash-hungry school district, and it has hooked a potential $2 million windfall in the process.
Tuesday morning, the borough assembly met with school district administrators and school board members to discuss the budget outlook for the 2002-2003 school year.
The school funding issue is heating up. The district faces a gaping budget shortfall, contentious contract talks with employees and even is considering suing the state over the way it doles out education dollars.
Schools Superintendent Donna Peterson told the assembly, "We are incredibly frustrated by the situation."
A delegation of parents and staff from the district will travel to Juneau and propose what she called "circuit breaker" legislation to avoid a fiscal implosion. The criteria of financial distress they are proposing only apply to the Kenai Peninsula now, but will affect other Alaska districts in years to come unless the state makes substantive changes, she warned.
"We are merely the canary in the coal mine for public education in Alaska, " Peterson said. "I don't want to sue the state. I want them to have the opportunity to fix it themselves."
Jeff Sinz, the borough's finance director, popped the good news at the end of the work session. An accounting technicality dating back to 1998 may allow the one-time transfer of about $2 million to the district next year, and an additional $300,000 annually after that, he said.
Melody Douglas, the school district's finance officer, described the preliminary budget outlook as dismal before Sinz outlined his proposal.
The district needs to fill a $1.4 million hole, she said, and even that number is based on severely conservative projections and may shrink or grow in the coming months.
"The district has taken a hard freeze on salaries for fiscal year 2003. It is my understanding that has never been done before," she said.
Employee unions have rejected the idea of a freeze and are seeking substantial raises. They exchanged preliminary bargaining positions with the district Friday.
"Even with freezing salaries, we have a $1.4 million problem," she said.
Douglas explained the draft budget for the assembly members. She attributed the district's cash flow crisis to several factors:
Enrollment has decreased since 1998. Because state law ties school funding to enrollment numbers, fewer students mean revenue cuts. Although some people have linked the growing popularity of home school with the decline in student numbers, analysis shows the change is overwhelmingly due to changing demographics and a real decline in the number of borough children, she said.
State funding formulas, which restrict the amount of money districts can receive, are flawed and particularly handicap the Kenai Peninsula. The funding starts from an inadequate base amount, is not inflation-proofed and fails to accurately reflect area cost differences, she said.
Some costs the district cannot avoid are spiraling out of control. Medical benefits for employees and utility costs lead that list. The district also is forced to replace obsolete items it cannot afford to maintain, such as the central data system and a warehouse truck, she said.
The only way the district can realize large savings is by taking drastic action. That may include increasing class sizes, closing some schools and eliminating co-curricular activities such as sports.
The school and borough officials all expressed aversion to those possibilities.
"Some of the ideas that are put forward push the edge of reason, and some of them would create problems down the road," Sinz said.
Going through the borough and district books, scrutinizing accounting and legal minutia, the finance department found a 1998 rule change that the borough had not exploited, he said.
At the time of the passage of Senate Bill 36, the Legislature's school funding reform package four years ago, one clause in the bill changed restrictions on interest school accounts earn. Under old rules, such interest was considered within the cap and counted as part of the restricted local government payment to school districts. Under the new rules, such interest falls outside the cap and, therefore, can be used without causing other cash penalties.
Sinz proposed that the borough pass a resolution changing the way it accounts the interest, so that money can go to the district. It can do so retroactively to the passage of SB 36.
Although each year by itself generates about $300,000 in interest income, adding up the years from fiscal year 1999 to 2003 would produce a one-time revenue boost of about $2 million, he said in a Monday memo to Peterson.
Sinz said the administration intends to put such a resolution on the agenda for the borough's March 12 meeting.
"It sounds like good news," assembly president Tim Navarre said.
But all present agreed that the interest income would only buy schools time, not solve their problems. With employee wage demands looming and enrollment declines likely to continue, all involved are still looking to the state for relief from the school funding problems.
Peterson expressed concerns about being forced to decide between investing money in teachers for children or hiring legal talent to take on the system in Juneau.
"Maybe it is time for another good fight," she said.
Navarre responded that the borough assembly would continue to back the district in its struggles, and perhaps, if worse comes to worst, it could pay for the legal expenses outside the school budget.
"Maybe that is a fight for the borough," he said.
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