Kenai Peninsula Borough School District administrators spoke to about a dozen central peninsula residents about the multi-million dollar deficit in the 2014-15 school year preliminary budget on Wednesday at the Soldotna High School library.

Assistant Superintendent Dave Jones broke down the district’s general fund budget and reasons for the more than $4.5 million shortfall.

Superintendent Dr. Steve Atwater said the “big picture” is the district is spending more than it’s taking in and has been for a while.

“We’re now reaching a point where it’s harder and harder to make that work,” he said.

However, he said KPBSD is in “better shape” than other school districts in the state. He said KPBSD fortunately has some available money — about $6.2 million — in reserves.

“The sky isn’t falling because we’ve set ourselves up for this, but it’s not rosy either,” Atwater said.

He said the district is budgeting to receive the same amount of money as it did for the current year from the state and local government. However, the state is considering giving schools more than what the district budgeted.

The district originally faced a more than $8.2 million deficit and looked at what made up the largest percentage of expenditures. The majority of the spending — 84 percent — comes from staff salaries and benefits.

In July 2013, the KPBSD Board of Education reduced staff by increasing the number of students to teachers by 0.5, which cut 10.5 certified positions.

With Alaska leading the way in health care and worker’s compensation rates, benefits come in at $65.7 million after the staff reduction.

In January the Skyview High School pool was removed from the budget, reducing costs by $180,000.

About $2.1 million from the health care fund balance, basically part of the district’s saving’s account, Jones said, was factored into the budget.

“Fund balance is a one-time usage money,” Jones said. “You have it. You spend it. It doesn’t regenerate by itself. … When I talk to the board I always say, ‘You need to be careful about where we’re at with the use of fund balance.’”

Jones said for fiscal year 2016, the school is scheduled to use another $2.1 million from the health care fund balance, but after that, there will be no money left in the account.

While costs add up to more than $161 million in the preliminary budget, the district is really spending $127 million because state on-behalf payments make up more than $33 million, Jones said. The district is required to reflect the on-behalf payments in its budget.

When the state realized the retirement system was underfunded, the legislators adopted a plan to make payments on-behalf of government entities into a retirement fund.

“Basically what they did was created a 20-year plan that says, ‘OK for all the money that we didn’t pay for 20 years, we’re now going to take the next 20 years to put it back in so when everybody that’s eligible retires … we’ll have the money to pay them off,’” Jones said.

The district receives money from two major sources, the state of Alaska and the Kenai Peninsula Borough, which accounts for about 94 percent of revenue.

How much money the borough can give to the schools is dependant on how many dollars the state gives. The borough is required to meet a minimum amount and can then give an additional allowable amount to meet a maximum funding cap.

The district projects it will receive about $109 million from the state and about $43.5 million from the borough. The total amount the borough is projected to be allowed to fund is about $2.5 million in addition to the $43.5 million.

“What’s significant, folks, is we’ve just crossed the threshold in this district,” Jones said. “This is the first time that when you look at our deficit and you look at what the borough can give us, they can’t solve our problem anymore.”

In its budget, Jones said the revenues are based on next year’s enrollment predicted to be 8,773 students, which is lower than the current year, at the current Base Student Allocation — money given to a district per student.

Jones said enrollment numbers are important because most of the district’s revenue is based on those figures and staffing is also figured based on enrollment.

While 8,773 is the starting number for the BSA, a number of adjustments are applied including school size, special education and vocational education. After all factors are applied the district arrived at 17,187.16 for daily membership to be multiplied by the current $5,680 BSA for a total of more than $97 million in funding between the state and local government. The minimum requirement for the borough is about $23.5 million.

However, in Gov. Sean Parnell’s proposed budget, the BSA is increased by $85 per student, which could bring the deficit down to about $3.1, Jones said. To completely wipe out the deficit via an increase to the BSA alone, the allocation would have to be increased by $268 per student, he said.

“Hopefully, we’ll get a good solid amount from (a BSA increase),” Jones said. “Then we need to look at the borough and start talking with them about can we have some additional revenue.”

Administrators will be at the Homer High School on Feb. 25 to discuss the budget to residents in the area.

Kaylee Osowski can be reached at kaylee.osowski@peninsulaclarion.com.