South Kitsap School District officials will use $1.7 million from its undesignated reserve fund to help close its deficit for the upcoming school year.

Sandy Rotella, who was hired July 1 as the district’s chief financial operations officer, said SKSD faced nearly a $7 million shortfall for 2011-12.

The remainder of the deficit was closed in a variety of ways. SKSD director of business services Marcia Wentzel said the district reduced 23.5 full-time equivalent (FTE) teaching position, which saved nearly $1.7 million. Those reductions came in addition to the layoffs of two directors, Lori McStay (human resources) and Aimee Warthen (community relations), and other cutbacks in administration.

Terri Patton, the district’s former assistant superintendent for business and support who retired June 30, identified $1.4 million in savings from the 2010-11 school year during the June 15 school-board meeting. That was applied to close the upcoming school year’s deficit.

During that meeting, Patton also noted that SKSD board members approved a reduction in the district’s reserve funds from 3 percent to 2.5 percent in addition to an undisclosed subtraction to the uninsured risk contingency reserve. She said that resulted in $932,000 in savings that also could be applied to the deficit.

Rotella said that SKSD faced a “double whammy” when it came to its budget. First, had 9,516 FTE students enrolled, which 134 fewer than projected. Patton estimated in April that cost the district $795,000 in 2010-11 and $950,000 this year.

The state House and Senate then passed legislation in December that was expected to close most of Washington’s $1.1-billion shortfall.

Those cuts — combined with previous ones by Gov. Christine Gregoire — were expected to reduce the deficit by around $700 million.

That encompassed a $50 million reduction from public schools, which included the elimination of funding to keep class sizes smaller in kindergarten through fourth grade.

Patton said in April that particularly was difficult because SKSD already allocated those funds to hire teachers. Because of union contracts, she said the district simply could not layoff those employees. Patton estimates that cost SKSD $795,000 this year and $950,000 for 2011-12.

“We’re hearing whispers that might happen again,” Rotella said.

She said the district budgeted for 9,297 FTE for 2011-12, which is 2.3 percent less than last year.

“Let’s be ultra conservative,” Rotella said. “It’s better to make the plan now that children won’t be here. It’s easier to add back to a program than it is to come in and take it away when school starts.”

She said budgeting for enrollment is tricky because it often is driven by the economy as families move where jobs are available. But Rotella said the military component in Kitsap County creates an added challenge. She said strategic changes and deployments can result in significant enrollment fluctuations.

“That’s why it’s really hard to do multi-year budgets for schools unless you have stable enrollment,” she said.

But it is important for SKSD to be as close as possible to its target. That is because most its reserve fund, which Rotella said is $6.6 million, is designated, which means it is restricted or “cannot be touched.” The only portion of it that was undesignated is $1.7 million, which was applied to close the deficit.

“We’re going to need to have conversations about how do we makeup the $1.7 million that we’re using out of our savings account?” Rotella said.