Anchorage School District faces a $67 million budget gap next year, with tough choices about how to close it

As the Anchorage School Board gets ready to begin budget discussions, officials with the district are warning it faces an estimated $67 million operational shortfall next year, though federal pandemic aid could offer one way to plug the gap.

Still, that aid is expected to run out within two years, the officials say, raising questions about what must change in order to maintain balanced budgets.

Finance officials with the school district raised the concerns at Monday night’s school board meeting as the district released new financial documents outlining the problems.

The board this month is beginning to look at future budgets after years of flat state contributions and rising costs, and as negotiations over teacher salaries and benefits continue.

It’s not a pretty picture.

The district could find itself in a severe financial bind in the 2023-2024 school year if things don’t change, as the COVID-19 federal aid runs out, school district officials said.

“We talked about this gap for years now, and it keeps growing with the cost of doing business,” said Superintendent Deena Bishop in an interview on Monday. “It’s like ‘hey, this will catch up with us some day.’ ”

The state, facing its own budget dilemma as oil revenue has plunged, has not increased the district’s base-student allocation since 2017.

The school district’s expenses are driven primarily by staff costs. To close the budget gap, the district faces difficult choices next year, including whether to reduce staffing levels and create efficiencies or to continue relying on federal funds, according to a summary of a financial outlook released Monday.

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The unchanged base-student allocation has reduced the district’s purchasing power by $40 million as inflation has risen, said Jim Anderson, the district’s chief financial officer, speaking at the meeting Monday night.

This current year, the district is using about $36 million in federal pandemic relief funding to maintain staff and class sizes, he said.

At this point, the district is expecting that next year, in 2022-2023, it will receive $67 million less in revenue than it spends. The federal aid can be applied to that shortfall, district officials said. The 2022-2023 budget year begins July 1.

Revenues will decrease by $20 million in part because of declining student enrollment, Anderson said.

Meanwhile, expenses will increase $46.7 million, or about 8%, budget documents show.

“This reality of flat funding, coupled with routine inflationary cost increases, is the main reason we have a deficit going into next year,” Anderson said at the meeting.

The district holds $91 million from the last round of pandemic relief funding from Congress, he said.

That can be used to close next year’s deficit, Bishop said in the interview.

She said some groups are looking at ways to spend the money on projects. But it has been used so far, including this year, to maintain services without increasing class sizes, Bishop said.

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“We really want the board to know that you want to stretch this money out as far as you can,” she said.

The school district and the Anchorage Education Association, representing about 3,100 teachers and other district employees, are currently in mediation to discuss employment contracts that haven’t yet been finalized for this year and the following two years, said Corey Aist, president of the union.

The district faces a huge question of how it will cover costs once the large tranches of federal pandemic aid run out, he said.

The state in the past has provided one-time annual contributions after not raising the base-student allocation. That has created significant challenges for districts statewide by making planning difficult, Aist said.

“The message is that education at the state level has been flat-funded since 2017, and that needs to change,” Aist said.