The Kenai Peninsula Borough School District is forecasting a $13.1 million deficit for the next fiscal year, the district’s finance director said last week.

Finance Director Elizabeth Hayes presented on Jan. 9 to members of the KPBSD Board of Education information about the district’s fiscal year 2024 budget, which will be finalized later this year. For fiscal year 2024, which begins on July 1, 2023, and ends on June 30, 2024, the district is projecting total revenues of about $132.7 million and total expenditures of about $145.8 million, leaving a deficit of $13.1 million.

The deficit stems from total expenditures exceeding anticipated revenue and a reduction in funding from the State of Alaska.

“We are losing $6.3 million from the state that was not anticipated when we were coming into this fiscal year,” Hayes told board members Monday. “ … As we all know, we don’t know what’s going to happen at the Legislature until its final, but I do anticipate they will have some solutions for school district funding.”

KPBSD can partially offset the deficit, Hayes said, using its remaining COVID-19 relief funding, of which the district has about $6.2 million, and with some of the district’s unassigned fund balance monies, but the district will still be in the red. The deficit must be reconciled in order for the district to present a balanced budget for board approval later this year.

A decline in student enrollment during the COVID-19 pandemic has for the last three years qualified KPBSD for the State of Alaska’s hold harmless clause, which partially funds districts for students who have unenrolled. Because school district funding is tied to student enrollment, the hold harmless clause is meant to offset the financial hit to school districts where enrollment declined.

After KPBSD enrollment dropped in FY21, the clause allowed the district to still receive some funding for students who unenrolled from the district. Even though KPBSD enrollment has not yet caught up to pre-pandemic levels, the hold harmless clause no longer applies to the district for the upcoming fiscal year. The end of the hold harmless provision, Hayes said, will reduce funding for KPBSD by about $900,000.

The district is additionally no longer eligible to receive an estimated $2.5 million through the State of Alaska’s foundation formula, which the state uses to determine district funding, because the state’s valuation of the borough’s taxable real and personal property went up by $800 million in FY22. It’s that loss of $2.5 million that Hayes said KPBSD was not anticipating for the upcoming fiscal year.

Losses in state revenue will be partially offset by a bump to the per-student funding amount, called the base student allocation, approved by state lawmakers last year, as well as by an increase to the amount of money the Kenai Peninsula Borough can contribute to the school district’s budget.

The State of Alaska’s foundation formula is based on student enrollment and determines the base student allocation, or BSA.

State lawmakers approved last year a $30 increase to the BSA effective in Fiscal Year 2024, bringing the new amount to $5,690 per student. Efforts to inflation-proof the BSA failed in the Legislature last year, though Hayes said the district is following similar legislation this session.

The same valuation that’s expected to cost KPBSD $2.5 million in foundation funding formula will also increase the amount of money the Kenai Peninsula Borough can contribute to the school district.

For the current fiscal year, the Kenai Peninsula Borough funded the school district to the maximum amount at just over $52.5 million. Next fiscal year, that cap will increase by $2.1 million. Though all borough sales tax revenue goes toward funding for schools, how much money the borough ultimately gives to the school district is decided by members of the Kenai Peninsula Borough Assembly.

Until all of the district’s revenue streams for the upcoming fiscal year have been solidified, Hayes said Tuesday that it is difficult to know exactly how much money the district will need to locate to balance the upcoming budget. Either way, she told board members a longer-term plan is needed to prevent similar deficits in the future.

“I just want to have this board make sure that they’re aware that after next year we will have no more ESSER monies to help us out of the deficit of expenditures,” Hayes said. “We’ll need to have a long-term solution and hopefully it’s funding from the state.”

In all, the school district has received three rounds of federal COVID-19 relief funding, which comes from the Elementary and Secondary School Emergency Relief, or ESSER, fund.

KPBSD received about $2.3 million in original ESSER funds under the federal CARES Act, just over $9 million in ESSER II funds through the Coronavirus Response and Relief Supplemental Appropriations Act and about $20.4 million in ESSER III funds through the American Rescue Plan Act. Twenty percent of ESSER III funding, or about $4 million, must be set aside for learning loss recovery.

Between now and when the school district’s budget document must be submitted, Hayes said the district will need to reflect on where cuts can be made to balance the books.

The district in 2021 opted to use some of its one-time relief funds to save teaching and support positions, such as elementary school counselors and student success liaisons, it had considered cutting. Multiple board members said Monday they want to use COVID relief funds to retain those staff.

KPBSD Superintendent Clayton Holland said during a Monday work session that while the district doesn’t “want to cause a scare,” the amount of money needed to balance the budget is roughly equal to 42 full-time equivalent positions. Still, Holland said to remain “optimistic” that the district can find a way to cut costs without letting go of staff.

“We have to have that realistic viewpoint of a significant decrease in expenditure,” Holland said. “I just wanna make sure that it’s out there (and) it’s clear that we’re not hiding anything. We’re not gonna go around scaring people either. We’re hoping not to pink slip ultimately, that we can do things via reductions, retirement and resignations, but it’s there and we have to go in eyes wide open.”

Monday’s meeting of the KPBSD Board of Education Finance Committee can be viewed on the district’s BoardDocs page at go.boarddocs.com/ak/kpbsd/Board.nsf/Public.

Reach reporter Ashlyn O’Hara at ashlyn.ohara@peninsulaclarion.com.