Editor’s note: This story has been corrected to show the correct date of the next Board of Education meeting. It is Monday Feb. 2

The Kenai Peninsula Borough School District’s fiscal year 2016 budget deficit is projected to be $3.9 million at best and $8.7 million at its worst.

Assistant Superintendent Dave Jones presented the 2015-2016 Preliminary Budget to the School Board of Education at the Jan. 12 meeting. If the school district maintains the same level of services next year as the current year, it would be facing a $6.5 million deficit, he said.

The school board requested this specific calculation at the start of fiscal year 2016 budget discussions in December, Jones said. The deficit announced in the fiscal year 2015 preliminary budget had included $1.3 million in salary cuts that ultimately decreased last year’s shortfall, he said.

Funding set aside in the fund balance for self-insurance health care will provide some support, Jones said. Using the remaining $2.6 million of $5.9 set aside three years ago for health care costs will reduce the deficit to $3.9 million, he said.

A declining fund balance and slim state budget are of concern for the school district this year, Jones said. Gov. Bill Walker announced cuts to education funding during the State of the Budget speech on Jan. 22, he said.

“In my endorsed budget, the K-12 formula funding remains intact, but I’ve eliminated the one-time funding added last year,” Walker said. “This equates to a 2.5 percent funding reduction.”

For the school district that will likely mean $2.2 million in reduced revenue, Jones said. That loss would bring the overall deficit to $8.7 million, he said.

The district had to examine the potential of their revenue sources going into the budget process, Jones said.

The school district has two main funding sources, Jones said. The state provides 70 percent of the school district’s annual revenue and the Kenai Peninsula Borough Assembly allocates the remaining 30 percent, he said. In Walker’s recommended budget, municipalities will receive $57 million dollars in revenue sharing, which is $3 million less than last year.

“Can we look to the borough when they are going to be a target of funding cuts as well?” Jones said.

Another challenge with the budget process is that the school board is required to finalize the document by April, Jones said. The borough assembly does not complete their process until June, meaning the school district will not know the final amount the assembly will appropriate until that time, he said.

Last year the assembly allocated $44 million to the school district, Jones said. This is what the school district is projecting to receive again in the preliminary budget, he said.

However, the borough could potentially fund the school district an additional $4.7 million this year, Jones said.

“They have the potential to solve our problem,” Jones said.

This year the school board will have to decide whether or not the district will make small cuts, dip into the fund balance, or stay on the same path until drastic cuts are necessary, Jones said.

At this point the useable funds in the fund balance would not cover the projected $3.9 million, according to the preliminary budget. While the overall fund balance is projected to be at $15.5 million for the 2016 fiscal year — called the “unassigned” portion of the balance — only $3.5 will be accessible to the school board, Jones said.

“At some point it time it (the fund balance) has to quit going down,” Jones said. “Otherwise it won’t be there.”

The school board will begin deciding how to address the deficit at their Feb. 2 meeting, Jones said.

Reach Kelly Sullivan at kelly.sullivan@peninsulclarion.com.