The Department of Education says it’s facing a $12 million budget shortfall during the next year under an imposed budget restriction that could undermine the school system’s ability to pay for utilities, bus transportation, school lunches and substitute teachers.
Officials say the restriction is especially concerning in light of more than $7 million legislators already cut from the department’s proposed operating budget.
Gov. Neil Abercrombie alerted state departments in a memo last week that the state will continue to withhold 5 percent of discretionary spending from all departments for the fiscal year that began Monday.
"At this juncture, we are very optimistic about the recovery of Hawaii’s economy, but we remain cautious about its sustainability in the face of numerous uncertainties," the memo said. "In this light, and in consideration of the many demands on our limited resources, we must continue to be prudent with our expenditures."
The state budget that took effect Monday calls for $11.8 billion in spending, including $1.4 billion in general funds for the Department of Education. The DOE’s budget is up less than 2 percent from the previous year.
Schools Superintendent Kathryn Matayoshi described the 5 percent restriction as "quite significant" at Tuesday’s Board of Education meeting, where board members first learned of the projected $12 million cutback.
"This is another quite significant action that we will need to work on and deal with," Matayoshi told the board.
She said the restriction will not affect the DOE’s budget for "school-based" expenditures — the largest piece of the department’s budget at about $800 million. Salaries also won’t be affected.
But spending will be restricted in four other budget areas: instructional support, school support, state administration and school community services. Those budgets — which total about $279 million in general funds — cover facility utilities, student transportation, food service and substitute teachers, Matayoshi said.
"Those are large dollars and very important pieces to the delivery of education," said BOE member Wes Lo, chairman of the Finance and Infrastructure Committee.
Matayoshi said the department will be working with state Budget Director Kalbert Young over the next two weeks to come up with a plan to present to Lo’s committee.
"(Young) has indicated that he is open to talking with us about serious impacts to schools," Matayoshi said.
Young said the 5 percent withholdings across all departments are intended to be a contingency reserve for the state.
"Should revenues fall too much or the state come under financial hardships, the state needs to have something to react or respond with," he said in an interview, adding that the restriction has been in place since at least 2008.
He said he’s open to hearing the department out and evaluating the situation, but said any decision to release funds won’t be made lightly.
"The DOE is saying this could be more impactful than they can accommodate," Young said. "I’m open to seeing the financial analysis and financial management analysis for their budget. If there are programs that will be detrimentally impacted, the purpose for the restriction is to provide contingency reserve funding, and this could qualify. That’s what it’s there for. But to do so, I would have to consider the overall impact to the state."
Lo said that while the shortfall is worrisome, he appreciates the Abercrombie administration’s direction.
"Certainly, my thinking about this is that you don’t want to put yourself in a situation where you’re forced to make far more dramatic or draconian decisions because you don’t have a contingency plan," he said.
BOE Chairman Don Horner said the department’s budgeting style is partly to blame for the wide-reaching impact the $12 million reduction could have.
"I think, bluntly, part of this challenge is our own doing in that we have all of these school-based items buried in this accounting matrix," Horner said at Tuesday’s board meeting. "I mean, clearly, utility costs, food service, transportation, substitute teachers are not part of (DOE) administration; they’re part of school expenses. So when people try to protect the schools and reduce the administration, it impacts schools."
The latest budget scramble comes just weeks after the department decided to shift funds around to make up the $7 million lawmakers trimmed for school accreditations, auditing staff and a phased plan to provide all students with laptop computers, among other initiatives.
DOE Chief Financial Officer Amy Kunz said at the time that the shortfall wasn’t substantial in the context of the overall budget, but that many of the areas cut were priorities that align with the department’s strategic plan.
For example, the fiscal 2014 budget didn’t include $703,000 requested for accreditation through the Western Association of Schools and Colleges; $1.2 million to help facilitate a transition to a new accountability system to replace federal requirements under No Child Left Behind; or $590,000 for teacher improvement services, including components of a new evaluation system and teacher sabbaticals.
The department came up with a plan to cover the expenses using its federal Impact Aid funds, which are coming in higher than anticipated for the upcoming year. Funding for states is determined by the number of "federally connected students" in public schools — such as military children — and is intended to compensate the DOE for families who pay less in local taxes.
