Members of the Juneau Assembly and Juneau Board of Education, along with top administrators for the city and school district, meet jointly to discuss the district’s financial crisis on Tuesday night at City Hall. (Mark Sabbatini / Juneau Empire)

Members of the Juneau Assembly and Juneau Board of Education, along with top administrators for the city and school district, meet jointly to discuss the district’s financial crisis on Tuesday night at City Hall. (Mark Sabbatini / Juneau Empire)

City leaders say they’ll help school district solve financial crisis, but express anger at situation

Loan and taking over millions in service costs proposed — which could result in a mill rate increase.

Assembly members said Tuesday they’ll help the Juneau School District resolve its budget crisis with measures possibly including a loan to cover some of an $8 million deficit and taking over some services such as building maintenance for longer-term cost savings.

But city leaders also had harsh words for district officials about the circumstances that caused the crisis during a joint meeting of the Assembly and Juneau Board of Education that lasted nearly three hours.

“On behalf of the Assembly — I think I speak for everybody — the Assembly is pretty pissed,” Juneau Mayor Beth Weldon said to open the meeting. “We have supported education for many, many years. We funded to the cap. We funded outside the cap. And because of this mismanagement of funds you have put us in a horrible situation. I just want everybody to be aware of that. You broke the public trust.”

Furthermore, Assembly members may hear plenty of angry words directed at them by residents when trying to explain details such as why taking over maintenance that costs the district $1.6 million could cost the city $4 million — it will reduce long-term deferred and major maintenance is the official explanation — and the mill rate may have to be raised as a result.

The first of what’s expected to be many upcoming meetings where the public can testify about the district’s financial crisis and proposed fixes is scheduled from 5-6:30 p.m. Wednesday at the Thunder Mountain High School library.

Key elements of a rescue plan discussed included a loan the district would pay back within five years (with no payments due the first two years), the city taking over millions of dollars a year in ongoing “shared services” costs, and cutbacks by the district including closing/consolidating schools.

A sense of urgency was conveyed during Tuesday’s meeting since participants said a solution that balances the books needs to be established within about two months, practically speaking, and will need approval from the Assembly, school board and the state’s education department. The $8 million projected deficit is more than 10% of the district’s total operating budget for the fiscal year that ends June 30 — and since only five months remain until that date the effective percentage of funding involved is far higher.

Assembly members also emphasized said providing a bailout will mean adjusting the relationship that exists with the school board and that the board needs to take drastic measures of its own.

“I am seriously looking for skin in the game,” Deputy Mayor Michelle Bonnet Hale said, adding for her that includes closing and/or consolidating schools.

Juneau School District Superintendent Frank Hauser (left) discusses the district’s financial situation with City Manager Katie Koester (center) and Assembly member Ella Adkison during a break in a joint meeting of the Assembly and school board Tuesday night at City Hall. (Mark Sabbatini / Juneau Empire)

Juneau School District Superintendent Frank Hauser (left) discusses the district’s financial situation with City Manager Katie Koester (center) and Assembly member Ella Adkison during a break in a joint meeting of the Assembly and school board Tuesday night at City Hall. (Mark Sabbatini / Juneau Empire)

District Superintendent Frank Hauser presented three possible consolidation options already being evaluated, and school board members have said they agree such action appears necessary, possibly as soon as the next school year.

“I fully expect that the school district will have skin in the game — probably way more skin than anybody likes,” School Board President Deedie Sorensen said.

A deficit caused by both short- and long-term problems

An area of agreement among Assembly and school district officials is the financial crisis is due to both relatively recent factors during the past couple of years as well as problems that have existed for many years. But there wasn’t always agreement about what those causes were.

A deficit initially projected at $9.5 million presented to the school board in early January was attributed in part to a series of accounting errors that overestimated revenue and underestimated expenses. The total included about $7.6 million for the current year and a $1.9 million carryover deficit from the previous fiscal year. District officials have, without using her name, increasingly implicated former director of administrative services Cassee Olin, who resigned on Dec. 1, for the accounting mistakes. There has been no suggestion the errors were malicious or that theft was involved.

The deficit was revised to about $8 million about 10 days ago. A newly hired financial analyst stated health insurance costs were overbudgeted by about $1 million, and the school board approved a series of short-term cost reductions including a hiring freeze, reductions to summer programs and other cuts.

However, two long-term trends are also generally agreed to be significant contributors to the district’s financial struggles: declining student enrollment and the state essentially flat-funding education without adjustments for inflation since 2017.

“The mayor may speak for me when she says I’m pissed, but right now I’m a lot more pissed at our state lawmakers for putting us in this position for education,” said Assembly member Christine Woll.

The per-student funding formula known as the Base Student Allocation is set in statute at $5,960, but a one-time $340 increase for the current year is in effect. That is half what the Legislature approved last year, with Gov. Mike Dunleavy vetoing the other half, and education proponents argue an increase of about $1,400 is needed for the coming year to offset the cumulative effect of inflation.

However, both Dunleavy and the Republican-led House majority are so far opposing a large BSA increase, and Assembly and school district officials agreed Tuesday it was best to proceed on the assumption no increase at all may be approved.

Meanwhile, local student enrollment that peaked at 5,701 students in 1999 is down to about 4,200 this year and expected to decline to about 3,000 by 2032, putting both the resulting ongoing loss of future per-student funding and options for consolidating schools on the table.

Assembly member Wade Bryson (right) discusses the Juneau School District’s financial situation with school board members David Noon and Britteny Cioni-Haywood during a break in a joint meeting of the Assembly and school board Tuesday night at City Hall. (Mark Sabbatini / Juneau Empire)

Assembly member Wade Bryson (right) discusses the Juneau School District’s financial situation with school board members David Noon and Britteny Cioni-Haywood during a break in a joint meeting of the Assembly and school board Tuesday night at City Hall. (Mark Sabbatini / Juneau Empire)

Sorensen acknowledged to Assembly members that one of the failings of the school board over the years has been a reluctance to accept the financial realities of lower enrollment. Such actions by the board were strongly criticized by Assembly member Wade Bryson, who said has been the “bad guy” for bringing the district’s spending practices at joint meetings with the school board during his five years on the Assembly.

“As we move forward with this I really hope that every single school board member would appreciate the impact that this has to our overall taxes,” said Assembly member Wade Bryson. “So the CBJ is going to help you fix this. We can’t let teachers’ paychecks bounce, that’s not going to happen. However, it is going to really take a new approach of working with the Assembly so that we don’t put ourselves back in this predicament that we can be everything to all people all the time. It didn’t work for us.”

“And so I would strongly urge the school board to accept the Assembly suggestions. The more you work with us and allow the Assembly to have input, the more the Assembly can support the paths that we’re helping to set up in making these corrections.”

How the city might help — and how much it might cost

A memo by City Manager Katie Koester presented during the meeting outlines two primary ways the municipality can help the school district: a loan and taking on some of the costs for “shared services.”

A handful of loan options, including a traditional one from a bank, are mentioned, but a city-provided loan approved by an Assembly ordinance “is the most flexible and allows the Assembly to offer the most favorable terms to the district,” Koester wrote. The loan would have to be approved by the Alaska Department of Education and Early Development, which has stated a five-year term is the maximum it will allow.

Koester’s memo suggests a city-provided loan could be issued during the current fiscal year, the district would develop a payback plan the following fiscal year, and repayment would occur during the subsequent three years.

Hauser, during a school board work session last week, outlined a plan where the city could take over $4.6 million of “shared services in the areas of maintenance, utilities, property insurance, and operational/custodial costs,” which would eliminate most of the deficit for the current fiscal year.

The memo by Koester examines options for having the city take over building maintenance and Community Schools costs. She noted the City and Borough of Juneau owns all of the school district’s buildings, and already pays for their major maintenance and deferred maintenance projects.

“However, knowing what major maintenance projects to prioritize and making sure proper preventative maintenance schedules are adhered to is beyond our control,” she wrote.

Combining maintenance duties would increase the efficiency of such work by city experts, but at a day-to-day cost, Koester stated.

“Taking on facility maintenance would be no small task: JSD has approximately double the square footage of CBJ and would add $3.5M -$4M to our budget,” she wrote. “Currently our building maintenance operates where there are assigned experts to each building to develop deep knowledge and responsibility of the unique needs of facilities; we would maintain that model with JSD and ensure that there would be dedicated staff to tend to JSD specific facility needs.”

The fact that the district spends about $1.6 million on everyday maintenance — which excludes the city’s major projects costs — as well as how the city will pay for it was an issue of discomfort for some Assembly members.

“That is a mill rate increase if we take that on,” Hale said. “We don’t have $3 million just floating around.”

The Community Schools program also is something the city could take on because “the community utilizes school facilities during non-instructional hours for everything from symphony concerts to theater productions,” Koester wrote. State law restricts the amount of funding a municipality can provide for instructional purposes due to federal equality requirements that require districts statewide to be relatively even footing.

“Scheduling community use of facilities is already something we do within Parks and Recreation,” Koester wrote. “Similar to maintenance – expanding an already existing program is simpler than creating something new.”

Assembly and school board members agreed to a timeline proposed by Koester where the Assembly Finance Committee will work with the school board on drafting ordinances related to city assistance next Wednesday, which will be introduced at a special Assembly meeting on Feb. 26 and given a chance for public testimony at a special Assembly meeting on March 11. The school district is required by city charter to submit a budget for next year to the Assembly by April 5.

The public is also expected to be allowed to testify at other school board meetings — including forums scheduled at 5:30 p.m. Thursday at Dzantik’i Heeni Middle School and 5 p.m. Feb. 6 at Juneau-Douglas High School: Yadaa.at Kalé — as well as a trio of commuity input sessions this week and next, with more that may be scheduled on future dates.

• Contact Mark Sabbatini at mark.sabbatini@juneauempire.com or (907) 957-2306.

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