“Every year we feel like we hit the wall,” district Superintendent Donna Peterson said of the annual budget process. “What’s different is this year, there are no more rabbits in a hat. We have exhausted everything we can find. I don’t see any way out of the box.

“This is the precipice Melody has been warning us about for years.”

The figurative rabbits, which have saved the school district from drastic cuts over the past few years, have included one-year fixes from the Legislature to address retirement systems and the area cost differential, and help from the borough.

The borough funds peninsula schools to the “cap” — the maximum local contribution allowed by law — so the only way out of the box for the district is through the Legislature.

The Legislature, however, continues to wrangle over PERS/TRS relief and changes to the base student allocation and area cost differential, the formulas the state uses to divvy up money for public education. That means the district is left planning for next year based on the numbers already on the books — formulas the district has long argued are short-changing peninsula students. The net result is pink slips — 75 this year — sent out to teachers in March, with the hope those teachers may be rehired in June.

“Because we’ve had to make the schedule with cuts in place, everyone is seeing what happens,” Peterson said. “There is an understanding that this is a state problem, not a local problem.”

The district’s budget has increased each year, but the increases have not kept pace with increases in fixed costs — things like utility bills, insurance coverage and retirement contributions — meaning little, if any, of the additional funding makes it into the classroom.

“There’s nothing we can do about fixed costs that continue to increase,” said school board President Debra Mullins.

Mullins said that in her visits to Juneau, state legislators have recognized the difficulties on the Kenai Peninsula, but none have an idea of how to fix the problems. A study by the Institute of Social and Economic Research at the University of Alaska has found peninsula schools have not been fairly funded, and Rep. Mike Chenault, of Nikiski, has submitted a bill to base school funding on that report.

However, Mullins said some legislators either believe the study is flawed or are not willing to make changes that might take funding away form their own districts.

“If we could have a concerted effort and a push to recognize the cost differential, or to have another study they would implement, that all the senators and representatives would buy into — we’re not the only ones in the state with problems, but we seem to have the most severe problems,” Mullins said. “To continue to have this problem year after year after year after year has put us in a hole we can’t recover from. ... It’s a sad position for our children to be in.”

The budget for the 2007-08 school year, approved by the board of education on April 2, calls for general fund spending of $113,434,399, and total expenditures from all funds of $131,136,419. To make the numbers add up, the district has in place a plan to cut 75 teachers, 15 due to declining enrollment and 60 due to budget constraints. In addition, the board approved a $2.1 million allocation from the general fund balance, the district’s savings account.

The day-to-day operations of the district are accounted for in the general fund. Other district funds include: special revenue funds, which include revenue from specific sources, such as food services, government grants and transfers from the general fund designated for specific functions; a capital projects fund for purchase of equipment and school furnishings; and two fiduciary funds, one for student activity accounts maintained by each school, and an internal service fund for compensated employee leave.

Of the district’s general fund spending, $88.7 million — or more than 78 percent — is slated to be spent on salaries and benefits for the district’s teachers and administrators. According to the district’s 2007-’08 budget, $30.3 million will be spent on teacher’s salaries, while $21 million will be required to cover the district’s TRS contribution.

The district has budgeted $6.2 million for utility costs next year; $8.3 million for in-kind services from the borough, such as maintenance and liability insurance coverage; and $10.3 million for discretionary accounts, including supplies, equipment such as computers and a variety of other services needed to keep schools running smoothly.

While general fund expenditures represent an increase of $16.8 million over this year’s budget, the district’s money isn’t going near as far. Increases in retirement contributions to cover the system’s unfunded liability account for a large percentage of the increase. The district is projecting increased utility costs next year, and costs for supplies also have increased.

The district also continues to see a decline of about 2 percent per year in student enrollment. Because state funding is allocated by student enrollment numbers, the decline also affects the district’s bottom line.

The 75 teachers being cut represent a nearly 12 percent reduction in the district’s certified teaching staff. District administrators continue to work the numbers to restore a teacher here and there. While the various plans might lessen the hurt of cuts at a few of the district’s smallest schools, it does little to alleviate any districtwide issues and comes with a cost, namely, funds that would have been used for supplies and for staff professional development. It also would limit the district’s flexibility to deal with any changes in student population next fall.

The annual budget crunch has affected the district’s ability to recruit and retain teachers. Peterson said teachers looking for jobs are choosing to go to other parts of the state or country, where student populations are growing and the likelihood of being laid off after a year is much lower.

“We’re very honest with people, and they’re getting savvy with their recruiting questions,” Peterson said, noting the district has not retained nontenured teachers in most years of late.

“What we’re finding each year is that we’re losing more teachers, which means a loss of offerings of classes, which means people no longer want to put children in our schools ... it’s a self-fulfilling prophecy of loss,” Mullins said. “It’s a shame because we have a fantastic school system with great teachers. I’ve watched it for a number of years, programs disintegrate and the loss of great faculty — the loss is saddening. I wish we could curb that.”

Adequate funding has become a statewide issue in recent years. According to information posted on the NEA-Alaska Web site (www.neaalaska.org), the state contribution to public education has kept paced with student enrollment, which has grown statewide, but has not kept up with inflation.

When adjusted for inflation, the per-student spending, including state and federal contributions, has declined from $5,240 in 1983 to $3,003 in 2001.

Mullins said the Kenai Peninsula’s predicament started with the oil decline in the mid ’80s, when the district was forced to make big cuts. She said the district has gotten a few small boosts here and there, but never been able to get back to the same level of funding.

“I’m not saying that we should have to go back that far, but we’ve really taken major hits since the cost differential has come in and we’ve recognized how big a loss we’ve had,” she said.

Maintaining the status quo would require an additional $7 million from the Legislature — $2 million to restore the district’s general fund balance, and $5 million to bring back the 60 teaching positions.

If nothing changes, the district will work with the staffing levels outlined in the version of the budget approved by the school board last month, Peterson said.

“We’ll proceed with the schedules we’ve set forth, with fewer teachers and fewer opportunities for students,” she said. “We’ll continue to look for efficiencies and continue to do the best we can with what we have.”