The Kenai Peninsula Borough School District Board of Education sought to explain why district costs continue to rise, even though student enrollment has dropped, to the Kenai Borough Assembly at a joint work session Tuesday.

The district points to an increase in special needs students, rising costs of health insurance and increasing salary costs to explain the climbing budget.

Enrollment in the district has dropped 601 students since 2006, but the district has gained 117 intensive needs students, Superintendent Sean Dusek said.

In Alaska’s Foundation Formula, which decides how much state funding a district is allocated, an intensive special education student is counted as the equivalent of 13 students.

“In essence, cost-wise, we’ve really increased by about 900 students,” Assistant Superintendent David Jones said. “And when you look at our staffing, you’ll see that our staffing in the special education areas of our budget are where our increases have been.”

Health care has also increased the school district’s operating budget, with health care expenditures increasing from $10,857,387 in 2008 to $24,404,734 in 2016, as shown in district budget documents.

“It is far outpacing inflation. I believe that is our biggest cost driver in all of this,” Dusek said. “(Alaska) has the highest health care costs in the country, we have the highest, or close to the highest workers’ (compensation) rates. Those things have an impact on the cost moving forward.”

Salaries play a role in the increased budget, with a negotiated percent increase of 1.5 percent to salaries in 2017 and 2018. District employees also receive step increases each year, which fall between a 1.25 percent and 3.9 percent increase depending on where the employee falls on the schedule, according to Jones.

In the past, the district has adjusted the staffing formula and is recommending adjustments this year as well.

“We are recommending that the board increase the pupil teacher ratio (PTR) at the high school level by two students per teacher. That equates to seven and a half positions districtwide,” Dusek said.

While full-time equivalency positions are being reduced, though, the overall staff has remained “pretty similar” to what it has been in the past, but spread across different areas, like staffing special education, he said.

“We’re showing reductions in full time equivalency, but we’re not actually showing reductions in any personnel and we’re also showing the increases in negotiated salaries, which is only a portion of the total cost increase,” Borough Mayor Mike Navarre said. “So, what we have is a similar number of positions that is driving the budget on a percentage basis every year.”

The school district has created a fiscal year 2018 budget that assumes status quo funding from both the state and the borough, which equates to about $87.7 million from the state, $48.2 million from the borough and $1.4 from other revenue.

“When we assume status quo funding, from the state and from (the borough), that equates to about $136.7 million in revenue and our expenditures … are $140 million. That leaves a $3.4 million dollar deficitit,” Dusek said. The district has recommended $2.6 million dollars in reductions and a use of general fund balances, the district’s savings, of approximately $872,000 in order to balance the FY 2018 budget.

Dusek, though, expressed concern about the level of funding the district would receive from the state once Senate Bill 22, which will make appropriations for the operating and loan program expenses of the state government, is finalized and passed.

“What happens at the state level, unfortunately, is still a huge unknown because the senate has not played their hand,” Dusek said at a Board of Education work session held before the joint session. The district should prepare for anything from status-quo to a five-percent reduction in the Base Student Allocation, he said.

To counteract the uncertainty, Dusek expressed hope that the borough would fund “to the cap,” or to fund the maximum allowable contribution. The allotted maximum funding that the borough can provide the district is also affected by state aid, but ranges from $51,282,191, if the state funds at status quo, to $50,064,637, if the state reduces the base-student allotment by five-percent.

“Worst case scenario, with a five-percent reduction from the state, the borough’s maximum would be $50 million. (The borough) could still increase their contribution by $1.8 million. Even though it’s not nearly what the status quo funding is, they still could provide us certainty,” Dusek said.

Borough Mayor Mike Navarre expressed concerns about how funding to the cap this year could impact the district and borough’s financial situation in the long run.

“We’ve heard it from parents, key communicators and administrators. They’re saying ‘we can’t absorb these kind of reductions.’ … We heard that at the last assembly meeting loud and clear, ‘fund to the cap, fund to the cap, fund to the cap.’ If we fund to the cap, this year, all we do is precipitate really significant reductions in the school district next year and the year after, and the year after,” Navarre said. “We can’t make up that difference. … We can’t make that up every year.”

While the district awaits both the borough and the state final budgetary decisions, Dusek urged Borough Assembly members to reach out to him for further clarification on any of the nuances of the district’s budget.

Kat Sorensen can be reached at kat.sorensen@peninsulaclarion.com.