The Juneau School District is looking at a nearly $3 million financial hole due to lower-than-expected enrollment and a preliminary audit showing the district is continuing deficiency practices cited as “deeply concerning” a year ago. However, on the plus side, the state has reportedly removed an objection to non-instructional funding the city has been providing the district.
A projected loss of $820,000 due to lower-than-expected enrollment this year and a preliminary annual audit showing a nearly $2 million deficit as of the end of the previous budget year were disclosed during a Juneau Board of Education meeting on Tuesday night at Juneau-Douglas High School: Yadaa.at Kalé. It was the first meeting since the Oct. 3 election, with newly elected members David Noon and Britteny Cioni-Haywood being sworn in to replace Brian Holst and Martin Stepetin Sr., who opted not to seek reelection.
The draft audit report includes a $620,000 deficit from last year’s audit that stated the district failed to follow district policies that might have lessened the amount, plus about $700,000 more added to the deficit during the past year.
[Audit shows ‘deeply concerning’ deficit for school district]
Officials presenting those figures emphasized they are preliminary, with final figures expected during the next several weeks.
The good news during the evening is the state has largely backed away from challenging about $2.28 million in “outside the cap” spending by the district last year, according to Superintendent Frank Hauser.
All of those figures aren’t a sizeable percentage of the $96 million budget the school board approved in March for the current fiscal year. But they are significant sums since the district’s budget largely consists of fixed costs, meaning even relatively small losses can mean cutbacks in discretionary staff and/or programs.
The bottom line, so to speak, is that much like the past several years the district’s finances will largely depend on the amount of per-pupil funding state lawmakers provide, Hauser said in an interview after Tuesday’s meeting. The district is getting $6,300 per student this year, an increase of $340 from an amount that had remained essentially flat dating back to 2017, but far short of what statewide educators say is needed.
“When you look at inflation that’s happened since around 2017, that inflation cost you’re looking at is about 25%,” he said.
Education leaders and some legislators argued during this year’s session a permanent increase of more than $1,000, with upward adjustments annually to account for inflation, was needed. The Legislature ended up approving a one-time increase of $680, with half of that amount being cut in a line-item veto by Gov. Mike Dunleavy.
The school board is scheduled to begin its budget review process in November, but won’t complete it until next March, well before it is known how much per-student funding state lawmakers are providing.
82 fewer students than expected = $820,000 in lost revenue
A total of 4,240 students were expected to attend Juneau’s public schools this year, but 4,158 were enrolled as of Oct. 13, according to Hauser. Because of the per-student funding formula, that means the district also likely will have less money than expected.
“This number equates to an approximate $820,000 loss in projected revenue,” Hauser wrote in a report presented to the board.
However, Hauser noted the 20-day student count period for the current school year ends Friday and the state education department won’t officially determine total enrollment until December.
The projected versus actual numbers as of Oct. 13 include 1,604 projected and 1,565 actual for elementary students, 868 and 812 for middle school, 1,269 and 1,257 for high school, and 504 and 524 for optional programming, according to Hauser’s report.
Preliminary audit shows nearly $2 million deficit
An independent third-party audit presented to the school board last November found the district failed to monitor its budget as its estimated revenue for the fiscal year was coming in at much less than expected, and it did not make sufficient adjustments in time to accommodate the lack of revenue.
The preliminary results of this year’s audit, with an even larger deficit along with ongoing findings of operational deficiencies, are prompting both concern and caution since the findings aren’t final.
“In my role as finance chair I have met with the administration, with the borough and with the auditor,” Will Muldoon told his fellow school board members and other district officials during Tuesday’s meeting. “There’s been a lot of meetings in the last five days or so. And we also want to be respectful of the fact that this is currently a draft.”
The district had a total fund balance deficit of $1.95 million for the fiscal year ending June 30, compared to a $1.25 million deficit at the beginning of the year, according to the draft report. It also issued four findings related to a “significant deficiency in internal controls over financial reporting,” involving the following:
• “Implementation of new accounting standards,” with the cause attributed to “a shortage of adequate resources in the Administration and Finance departments.”
• Medicaid billing: A continuation of a problem from last year’s audit, the draft states the budget for the past year included an estimated $200,000 in Medicaid revenues during the past year, but “the inability to bill for Medicaid services provided led to decreased billing and Medicaid revenue.”
• Two findings that cited “non-compliance with CBJ Charter, Article 13, Section 7 (Section 13.7).” One of the findings specifies it is related to the district’s operating funding deficits and failure to properly bill for Medicaid. Specifics of the other finding are redacted. The cited charter section states “no payment may be made and no obligation incurred except in accordance with appropriations duly made. No payment may be made and no obligation incurred against any appropriation unless the superintendent ascertains that there is a sufficient unencumbered balance in the appropriation and that sufficient funds are or will be available to cover the obligation. After adoption of the school budget by the assembly, the board shall not exceed the total budget without Assembly approval.”
The school board unanimously voted to refer the draft report to its Finance Committee for further review before the full board takes it up again Nov, 14, the day before it must be submitted to the state, after Muldoon mentioned some of the report’s content without getting into detail about the findings.
“I think it would be a bit premature to do a deep dive on those given that this is a draft, and we should be respectful to our to our staff that done this work (and) also to the auditing firm,” he said. “It’s not the final publication.”
Superintendent: State “apologized” for errors in targeting city’s “outside the cap” funding
To put a complex matter simply, Hauser said it appears the city of Juneau will be able to keep giving the school district a significant amount of funding for non-instructional purposes despite an effort by the state earlier this year to halt the practice.
[State challenges Juneau’s “outside the cap” funding to district]
Those funds, referred to as “outside the cap, have been allocated by the city to cover what officials consider non-instructional costs exempt from limits that apply to money from the state’s per-student funding formula. Such costs include pupil transportation and Community Schools,.
However, the state challenged the city’s providing of such funds in a letter in June, then sent similar letters to districts statewide in July. The letter did not demand repayment from past years, but declared such funding must cease as of the current fiscal year, which district officials locally and statewide said “could trigger an educational funding crisis for future years.”
Lori Weed, the state education department’s school finance manager, said at the time the letter to Juneau was sent because the state in recent years has failed federal disparity tests due to districts allocating “special revenue funds” for purposes like pupil transportation. The disparity test is a little-known rule involving areas affected by Federal Impact Aid, which for Alaska means proving there is less than a 25% funding difference between the highest- and lowest-funded districts.
But Hauser, in a report he presented to the school board Tuesday, said the state Department of Education and Early Development “apologized to the district” during a Sept. 21 meeting with district and city leaders.
“DEED confirmed in the meeting that the local appropriation referenced in the letter was indeed non-instructional, as the Board of Education had stated in its July 28, 2023 response to DEED,” he wrote in the report. “DEED had also confirmed in an August 28, 2023 letter to JSD that pupil transportation and community services are excluded from the federal disparity test, as the Board of Education had stated in its July 28, 2023 response to DEED.”
One item is still awaiting legal clarification from the state, which is expected this week, Hauser said. When asked after the meeting if he believes the city will be able to provide the same amount and type of “outside the cap” funding as previous years, he said “those items that were identified are not instructional so we are to continue to have funding coming for that.”
Weed, in an email Wednesday, confirmed the meeting with local officials and the pending legal considerations remaining without specific reference to Hauser’s claim about an apology and that previous “outside the cap” city funding will be allowed to continue.
”DEED is working with legal counsel and will provide further clarification to all school districts in Alaska as soon as possible,” she wrote.
• Contact Mark Sabbatini at mark.sabbatini@juneauempire.com or (907) 957-2306.
