Public employee salaries at the school district have gone up as revenues have declined, and the district is in a full-blown financial crisis, according to Chief Operating Officer Andy DeGraw.

He told the Fairbanks North Star Borough Board of Education on Tuesday that as public education funding has contracted, the school district has been living off reserves and federal coronavirus relief grants, which are running out, and the financial outlook is grim. Public employee compensation is the school district’s biggest expense, encompassing almost 90% of annual public education spending.

The school district and three public employee unions — the Fairbanks Education Association, the Education Support Staff Association and the Fairbanks Principals Association — are gearing up for contract negations. Current bargaining agreements expire June 30, 2022.

“Drastic” action is needed to address the school district’s financial challenges, DeGraw said during a briefing on public education finances at the regular school board meeting.

“The rainy day funds are gone, and now we are staring at a deficit,” DeGraw said. “If we’re not going to cut expenditures to come down to the revenue where we are at, we have to find other revenue.”

DeGraw presented some graphs to the school board showing that revenues have declined by almost $10 million in recent years while overall spending on salaries has climbed. At the same time, enrollment has dipped. 

A report that came out earlier this year shows that school buildings across the board are about 30% below maximum capacity.

The anticipated shortfall for the 2022-2023 school year is $17.3 million, DeGraw said.

Last year, the school district administration said it faced $27 million worth of cuts for the current academic year and proposed to eliminate almost 250 positions — many that were already vacant. The school district later issued 14 layoff warnings to non-tenured teachers and seven school support staff.

The head of the teachers’ union, Sandi Ryan, also presented a crisis to education leaders, saying that Fairbanks area teachers are quitting their jobs at a higher rate than the national average, costing the district about $2 million a year, and compensation is part of the problem. The school district has a turnover of about 100 teachers a year, according to Ryan.

The average teacher at the school district earns $79,840 a year — $116,782 including benefits — for 180 students attendance days plus four teacher workdays, according to DeGraw and terms in the current contract.

During the last round of contract negotiations, teachers were provided a supplemental retirement account and a range of annual salary increases from 1% to 6.6% depending on teacher education level and longevity.

Upcoming proposals

Initial proposals for new public employee contracts are anticipated to be exchanged in January, according to Ivory McDaniel-Ilgenfritz, executive director of human resources and chief negotiator for the school district.

Some of the district’s financial challenges can be blamed on a 15% drop in enrollment following the Covid-19 outbreak but the district started on an unsustainable path even before the pandemic, DeGraw said.

“We were technically living even a little bit beyond our means even before Covid occurred,” he said.

Still, enrollment dropped by more than other school districts, and only about half the students have returned, according to DeGraw. State support, the school district’s main revenue source, depends on enrollment.

The state has buffered the enrollment decline by providing funding despite the lack of students, but that support is declining and will run out, DeGraw said. Federal coronavirus relief money is also anticipated to run out.

DeGraw acknowledged that the school district characterizes the budget as challenging every year but said this year is different.

“I don’t say that to discourage folks. I say that to get folks’ attention,” he said.

DeGraw noted that the state’s basic allowance per student has been stagnant and that the local contribution to public education has gone down from $55.3 million in 2016 to $49.4 million for the current academic year. The chief operating officer said that an increase in borough property values has contributed to a reduction in state support.

Currently, about 50 teachers and the districtwide music program, among other programs, are being funded via one-time federal coronavirus relief money, according to DeGraw.

The news fell like a weight on the school board, which will begin working on a budget for the 2022-2023 school year after the administration presents a draft proposal in February.

A new spending plan is due to the Borough Assembly by April 1.

What happens next

School board members were contacted on Wednesday morning for their response to DeGraw’s presentation.

April Smith said a school building, maybe two, will probably need to be closed and staffing reduced. She predicted that next year’s public education budget will shock people.

“It is going to be difficult for the community,” Smith wrote in a text message, “and that is why we are encouraging every stakeholder to fully engage in the process. We have already held multiple budget talks and we will have more.”

Matthew Sampson said the district’s financial situation should come as no surprise.

“Unfortunately, given the dynamics of the situation, there has been little to no support in regards to reigning in unsustainable spending practices,” he wrote in a text message. “Options of minimizing the negative impact felt by both staff and students are now limited in nature. Fortunately, the district currently has the necessary administrative leadership poised to guide us through this difficult yet vital point in time.”

Board member Erin Morotti said the budget will be a hot topic in the coming months with every school board committee adding school district finances to its agenda.

“I am hoping that last night was informative for the community, and I look forward to the community and our stakeholders being heavily involved in the budget discussions going forward,” she wrote in a text message.

Former board President Tim Doran said DeGraw’s presentation was a “balanced and realistic portrayal of the financial/funding landscape ahead.”

Editor's note: This story was corrected on Nov. 19, 2021, at 12:10 p.m. to reflect that overall salaries at the school district do not exceed overall revenues as was incorrectly reported in an earlier version. 

Contact staff writer Amanda Bohman at 907-459-7545, at abohman@newsminer.com or follow her at twitter.com/FDNMborough.

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