WASILLA -- Budget discussions began last week for the Mat-Su School District. Two giant elephants are lurking in the jungle of budget numbers: the district's unsettled contracts with two unions covering 2,000 of its employees.

For nearly a year, the School District and its 786-member Classified Employees Association union have been discussing a new contract. Negotiations just began for the 1,219 members of Mat-Su Education Association.

Mat-Su Education Association employees typically deal directly with students -- as teachers, linguistic aides, school nurses and psychologists and even teachers who teach other teachers. Classified employees fill a range of roles, from janitors, building maintenance officials and school secretaries to special education assistants and employees working with hearing-impaired or vision-impaired students.

School District Superintendent George Troxel said the district has offered both unions contracts with a similar theme -- no across-the-board raises and more out-of-pocket payment by employees for health insurance.

Employees who qualify for step or column increases would still receive raises, although the district has proposed changes to the structure of the Classified Employees' pay scale that would limit the size of those raises.

The district currently covers 90 percent of employee health care costs and employees pay 10 percent. The district's offer would make that an 80-20 split.

Both unions want to keep their out-of-pocket insurance payments at the 90-10 ratio and both are asking for raises to offset a higher cost of living.

ASKING FOR RAISES

Classified Employees Association president Rick Byrnes said his union has asked for a 4.75 percent increase in the first year of a three-year contract. Raises in the second and third year are not clearly defined.

Without a raise and with increased insurance costs, the district is asking its employees to take a pay cut, Byrnes said.

His members are the lowest-paid group in the district, with an average salary of $29,000, Byrnes said. They're less able to absorb a cut.

"We're not even talking a freeze here; we're talking about losing money out of our pockets," Byrnes said. "Don't balance the budget on the backs of the Classified Employees."

Jill Showman, president of Mat-Su Education Association, said her union has asked for a 5 percent raise, "just above the rate of inflation," she said. New numbers show the Anchorage inflation rate, the only one officially measured in Alaska, was 1.2 percent last year. The teachers' union based its raise request on the previous year's 4.6 percent inflation rate.

The teachers' union is seeking only a one-year contract, Showman said. It's hard to keep teachers or hire new teachers when existing teachers move or retire if teachers effectively take a pay cut, she said.

Troxel said the district has been able to negotiate more appealing contracts in the past than what he is proposing now.

"When economic times were better three years ago, I think we settled with very attractive packages for our employees. Things are much different now," he said.

WHAT'S AFFORDABLE?

The School District budget being discussed is based on the district's offer of no-raise contracts. The district creates program-based budgets, a range of potential budgets that show what district programs, class sizes and other factors would be paid for under several scenarios.

For example, each school and district department makes one budget based on a 10 percent reduction in spending over last year and another based on a 10-percent increase in spending over last year. Other budgets, at 5 percent and zero increase or decrease, are also created.

The end result is a column of numbers corresponding to the cost of various levels of service. The district tallies what it receives from federal, state and local sources and draws the line at which programs it can pay for.

"If (the union contracts) come out so the cost is less than what we calculated, we're able to include more in the overall programming for the School District next year," Troxel said. "If the cost is greater, the line moves up so less is included."

Byrnes said Classified Employees members are upset at the district's unwillingness to budge in the past year from its initial offer.

Union members protested outside a School Board meeting in November, and in December the union complained to the Alaska Labor Relations Agency because members of the School District's negotiation team said they were not authorized to move from their original proposal.

"In our estimation, the district has not been negotiating in very good faith," Byrnes said.

After months of stalled negotiations, the Classified Employees union and the district are in the process of picking an arbitrator to help draft an agreement.

If the two sides still can't agree, the district's "last best offer" -- at this point its original offer -- will be enacted. Byrnes said if that happens, union members could vote to strike.

"We don't want to do that," he said.

The teachers' union, however, is just beginning negotiations. Showman said two meetings are scheduled this week and a third is set for Feb. 4.

"We're hoping that both sides can sit down together and work this out ... so we can back to doing what we do best, which is educating kids and making sure we have a work force that is stable," Showman said.