The Federal Way School District is predicting an $8 million budget shortfall for the upcoming 2011-12 fiscal year because of anticipated state revenue reductions and waning federal stimulus funds.

The budget projection was given at the Jan. 11 school board meeting by Assistant Superintendent of Business Affairs Sally McLean. At this point, the district could lose $3.1 million from the state, McLean said, and $4.2 million in remaining stimulus money will be spent in this budget year.

“I really think an $8 million reduction is likely,” McLean told the board, “but it’s not the worst case.”

The worst case, she said, would be near $16 million. However, Gregoire’s proposed 2011-13 budget is only the first of many. Both chambers of the Legislature will form a budget that must be reconciled with Gregoire’s budget before the state’s fiscal year begins on July 1.

That means the district’s January projections could change. McLean compared the situation to being at the top of a tornado, its widest point, with the end being the tip of the funnel where it touches the ground, its most destructive point.

“This is a snapshot based on what we know now,” she said.

The district’s budget year begins Sept. 1, which means that a final budget will likely be approved over the summer. McLean said the district will “wait until the last possible moment” to form a budget so it knows the effects of state cuts. A tentative schedule produced by McLean has Superintendent Robert Neu presenting a budget to the public by April 26, and the board passing it by June 28.

Adding levity, Neu compared McLean’s presentation to a scene in “Monty Python and the Holy Grail” where a knight is mostly dismembered and claims that “it’s just a flesh wound!”

State cuts

The projected $3.1 million loss of state revenues is comprised of a number of cuts proposed by Gregoire’s budget. The largest is $2.1 million from “enhanced K-4 funding.” That money was supposed to go toward lowering class sizes in kindergarten through fourth grade. The district is also projecting a $400,000 loss in levy equalization assistance. This is money the state pays to school districts based on how “property poor” they are; essentially, the money is supposed to make up for a lack of a large industrial or private property tax base in school districts so that local levy rates remain low.

Another $400,000 could be lost from school Medicaid assistance, and $200,000 could be lost from reductions to the state Highly Capable program, which is money to support “educational opportunities that challenge the highly capable student population to meet its academic potential.”

Federal stimulus

More than half of the $8 million projected deficit comes from the end of money given to Federal Way under the federal American Recovery and Reinvestment Act, also called “stimulus.”

According to Recovery.gov, the federal government’s stimulus money tracking website, Federal Way got around $22 million. But, much of that was used by the state to plug budget holes. Thus, the “new” funding the district got from the stimulus was around $8.5 million. Half was used in the 2009-10 budget year, the other half in this budget year.

McLean said the district planned for the inevitability of the money going away. The district saved money in its fund balance so it could pay for programs created under or maintained by stimulus money. That fund balance will now go toward plugging the projected $3.1 million hole created by reduced state funding.

“We knew the funding cliff was coming, and we tried to plan deliberately,” she said.

The funding saved a lot of jobs, McLean said, and created 23 to 25 special education instructional coach positions. The district also used stimulus money to buy instructional material, make upgrades to technology and provide professional development for staff.

Additionally, Washington got $208 million last November to save teaching jobs through the federal Edu Jobs bill; that money, however, was used by the state for its budget deficit.

McLean said it would be premature to guess how the loss of stimulus would affect cuts. Neu, she pointed out, has not drafted the district’s budget yet.

“Our revenue loss doesn’t automatically result in the expenditure that revenue is supporting going away,” she said. “We’re looking at all the different things we’re doing and deciding what things we’re going to be retaining.”