The Kodiak Island Borough School District Board of Education voted on Thursday to return $1.6 million in funding to the borough, following a $6.2 million surplus in the district’s fiscal 2019 budget. The board also approved a list of projects for school safety, instructional support and urgent maintenance totaling $2.6 million. 

According to Superintendent Larry LeDoux, the decision to return money from a school district to a borough is unprecedented in Alaska, and is motivated in large part by the $2.6 million gap left in the borough budget after Gov. Mike Dunleavy slashed school bond debt reimbursement payments for this fiscal year. 

“There is good communication between the borough assembly and the school board,” said school board President Duncan Fields. “As part of that communication, we talked a lot about the bond debt reimbursement.”

The district recently completed an audit, which revealed the district’s fund balance is close to the limit it can maintain without paying a penalty. The district aims to have at least $1 million in its fund balance at the end of the year, but any amount that exceeds the penalty threshold must be returned to the state.

“We needed to begin considering options of how to manage or use the fund balance,” Fields said. “As a school board, we looked first to educational needs. We have a long list of identified needs in the schools.”

Those discussions led to a list of 23 projects that range from purchasing additional classroom supplies to new playground equipment. But while the district was intent on appropriating the funding for necessary school improvements and educational projects, they also recognized that the borough is facing a financial predicament. 

“We had that discussion in the context of a community that is likely looking at increased taxes due to bond debt reimbursement, and the borough having to come up with $2.6 million. In that context, if we’re going to be spending money on school needs, they really have to be immediate, important school needs,” Fields said.

The district’s project list includes $800,000 for elementary school data network upgrades, which will provide VOIP phones, cameras and access card readers to increase school safety; $15,000 for new musical instruments for the high school and middle school; and $80,000 in playground equipment for East and Main elementary schools. 

The district also will provide funding for overdue equipment expenses, which have been deferred due to a shrinking budget in recent years.

“We’re so low that we’ve heard reports that teachers are having to buy their own pencils in some circumstances,” Fields said. 

In order to abide by Department of Education regulations, all of the projects on the district’s list must be completed by June 30, 2020, the end of the current fiscal year. 

But the district is also planning projects that, according to Alaska law, should be taken up by the borough. All district buildings are owned by the Kodiak Island Borough, and the law stipulates that maintenance projects exceeding $10,000 should be completed using borough funds.

The projects include $200,000 for repairs and renewal for the Gerald C. Wilson Auditorium; $300,000 to create a new community gym in the building that housed the old swimming pool; $500,000 in siding replacement for North Star Elementary School; and $160,000 for moss removal from the Main Elementary roof. 

All of these projects would otherwise be taken up by the borough, and according to Borough Manager Michael Powers, the June deadline might make it challenging to complete these projects on time.

“These are still taxpayer dollars. We have purchasing requirements to make sure we get qualified contractors and plans that meet codes,” Powers said. “Sadly, none of that is fast. I have yet to see a state constitution that talks about being fast and efficient with taxpayer dollars.”

The district’s budget surplus will be a central topic of discussion during a joint work session between the borough assembly and the school board Tuesday at 6 p.m.

Borough Mayor Bill Roberts said he was happily surprised about the school board’s decision. 

“I’m sure they could have done something else with the fund balance,” he said. “It’s a show of extreme good faith on the school board’s part.”

While the school board said the money is intended to cover school bond debt payments, Roberts said the assembly members may have other ideas in mind.

Taking into account the income and expenses of the borough’s Debt Service Fund, the anticipated fund deficit is around $1.9 million. If applied toward the budget gap, the district’s $1.6 million transfer to the borough would leave a $300,000 hole to fill.

Powers previously stated that by pooling funds originally designated for unfilled borough staff positions, the assembly could furnish around $325,000 toward debt repayment. Prior to the school board’s decision, the borough assembly considered borrowing funds from the borough Facilities Fund to cover the remaining debt. 

A final decision on a course of action to address school bond debt reimbursement will take place in December. 

According to LeDoux, this is not the first year that the district has used its fund balance to finance repairs for school buildings and facilities. But the amount of funding the district hopes to contribute to the borough is unprecedented.

“We’re on an island; we can’t afford to not work together between the school and the borough,” LeDoux said.

After covering the urgent needs of the school district, Fields said the question was — “Do we continue to retain that money, given the circumstances of the community, or do we acknowledge that we are in this partnership with the borough assembly, and on the basis of trust, return that money to the assembly?”

Fields said keeping the money would have provided the district “a nest egg” to rely on going in to the fiscal 2021 budget cycle. But then, he said, the borough might provide less funding to the district for the following budget cycle. 

“That’s the peril of the school district holding on the money,” Fields said. “We think it’s better to give the money back and let the borough decide how best to use this money.”

LeDoux said that every year, the budget process for the district is a challenging task, because the district must estimate expenditures and revenues without knowing key figures such as the state budget or the total student enrollment in the district. In recent years, both state funding and student enrollment have been on the decline.

“Some people confuse having a fund balance as ‘oh, you didn’t really need the money,’” LeDoux said. “But that’s not the case. Every year, we try to budget for what we need.”

A combination of factors led to this year’s high fund balance. 

The district saved $2 million on insurance costs for district employees through a self-insurance plan implemented two years ago. The high balance left in the insurance fund reflects a relatively low number of claims this fiscal year.

The district receive around $760,000 in Public Employees’ Retirement System (PERS) and Teachers’ Retirement System (TRS) forfeitures. This money is transferred to the district when district employees leave their position before they become vested, forfeiting the district’s contributions toward their retirement plans. The forfeited savings are returned to the state, which distributed them to the district.

The district also received a payment of around $410,000 from the state appropriations bill SB142. 

Finally, the district saved $1.7 million in the general fund due to low utility bills from a mild winter, and other measures adopted by the district to reduce spending in the face of a tight state budget. 

“We know we’re in tough times,” LeDoux said. “As we look at our budget, whenever we can save money, we do.”

The school board voted to approve a total of $4.2 million in spending from the fund balance. The remainder will be maintained to address any unforeseen contingencies. 

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