The Kenai Peninsula Borough School District introduced a balanced budget to the borough assembly Tuesday, but the balance was achieved at high cost.
The school board, assembly and administrators sat down in work session to review financing for the 2000-2001 school year. The mood was cooperative but grim, and school officials voiced deep concerns about the future of peninsula schools.
"We don't have anywhere to go," said school board member Nels Anderson. "We are not cutting out fat. We are cutting out opportunities in the classroom."
The district has a plan to plug a $3 million budget gap using a combination of across-the-board belt-tightening, staff layoffs and creative accounting.
The suggested cuts came from the budget committee and a series of public meetings around the peninsula.
The district is asking the borough assembly to approve an appropriation of about $30 million for the public schools. That is an increase of about $370,000 over the current year, continuing a trend of declining state funding and increasing borough funding.
The amount the local government (in this case the borough) can contribute to schools is capped by state law. The district is not asking for any contributions outside the cap.
Some categories of expenditures are not included in that cap, and in 1997-1998, the borough paid for student activities outside the district's general fund budget.
While the district is not asking for such extra money at this time, it is asking for a financing change to deal with another problem.
State law mandates that most school spending go into classroom instruction. Each year, the required percentage rises. Next year, school districts will be required to have at least 70 percent of expenditures be in approved accounts. If the district fails to meet the target, it must obtain a waiver from the state or risk losing state funding, which accounts for more than half the district's revenue.
If the district can move the expenditures for student activities, including sports, outside the operating budget, it will come closer to meeting the 70 percent goal through accounting maneuvers, said Patrick Hickey, the school district's assistant superintendent in charge of finances.
"They are not going to like this, but it is a loophole" he said.
Hickey said talk of new legislation to hike the percentage to 80 percent worries him, especially if lawmakers move to close the loophole.
"This brings on a more political aspect," he said. "My intent is to ask forgiveness rather than permission. We have already had 12 districts who filed for waivers last year when the rule was 65 percent."
He cautioned that the move could expose the borough to pressures to spend more on activities.
"We are not using this as a vehicle to get you to give us more money," he said to the assembly members. "It's just that we put it in a different fund."
Hickey said that the assembly's previous funding of activities outside the cap may provide the precedent the school district needs to make the accounting change without antagonizing the state.
Assembly members spoke of other district functions that potentially could be moved outside the operating budget, such as hazardous bus routes, food service and some building maintenance.
"It opens up a lot of other potential pitfalls," Hickey cautioned.
Borough Finance Director Jeff Sinz asked why the district is out of compliance with the state percentage rule despite a state study that commended the Kenai Peninsula for the lowest administrative costs per pupil in the state.
"It is because we take care of our buildings," Hickey responded.
The district spends about 18 percent of its budget on operations and maintenance, about half of which is in-kind assistance from the borough, which cares for the buildings.
Assembly member Jack Brown expressed frustration with the state regulations, noting that districts in crisis because of poor facilities are getting state aid for improvements.
"Why should we be penalized for having the best buildings and the safest buildings for children?" Brown asked.
The outlook for the fall is bleak, but the long-term prognosis is worse, school officials warned the borough officials.
"The picture is about to get uglier," Hickey said.
Without a change in the state law setting the foundation formula for school spending, the inflationary costs of labor will cause problems, continued population declines will reduce revenue, the funding burden will continue to shift toward the borough, and the school funding problems will worsen, he said.
The district and the borough need to start work immediately on restructuring to slash long-term costs, school officials warned.
They recommended consideration of options including:
n Consolidating similar business functions between the borough and the school district;
n Consolidating, reducing or closing schools;
n Removing municipal functions such as swimming pools and athletic fields from school management; and
n Removing the activities program from the district to avoid "further financial competition."
"We cannot afford to wait until even next fall to begin addressing those implications," Hickey said.
Schools Superintendent Donna Peterson assured the assembly that the district is hustling to solicit grant funds and to dramatically retool its central functions to cut costs.
"This week, those teachers who are not having jobs next year are getting those letters. The pressure is going up," she said.
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