As the Cape Elizabeth School Department works to overcome a loss of $421,000 in state aid for the current budget, it is taking steps to ready for the upcoming budget year that might include layoffs if residents don’t approve a target budget, said Cape Elizabeth Superintendent Alan Hawkins.

On Feb. 13, the Cape School board approved a list of adjustments to the 2008-2009 budget to cope with a shortfall resulting from the state’s $27 million curtailment of general purpose aid.

The adjustments include using all of the department’s $70,000 contingency fund and transferring $200,000 from the town’s undesignated fund balance to the school department.

In November the state Department of Education determined Cape Elizabeth would lose $421,572 as part of the state’s curtailment efforts.

“We are certain that is going to be the bottom line,” Hawkins said. “This is where we will be making the adjustments in order to ensure that we have met our curtailment.”

Hawkins submitted his proposed budget for 2009-10, a $20 million spending plan that represents a 2 percent increase over this year’s budget, to the Town Council on Feb. 7.

The 2 percent increase target was directed by the School Board.

The proposed budget would add 50 cents to the current $12.34 tax rate for school services, an increase of 4 percent.

Despite the difficult steps the school department has already been forced to make, tougher decisions could be looming, Hawkins said.

Cape residents vote to approve the school budget in May. If they don’t approve the 2 percent increase, then the school will need to consider laying off employees, Hawkins said.

Among the cuts that would be considered are elimination of a full-time executive skills teacher at the high school and a half-time substance abuse counselor at the high school.

“It will be very difficult,” Hawkins said. “We currently have $1.1 million in fixed costs for salaries and fringe benefits. If we can’t get the budget to where we want, we will have to be looking at all sorts of possibilities including cutting staff.”

Cape school officials will be having a series of meetings with other school departments such as community services and athletics to determine where money can be saved in the current budget year, said School Board member Katharine Ray. The School Board will meet with other departments on Feb. 24 to discuss cost-cutting or restructuring measures. There is a tentative meeting also scheduled for Feb. 26, Ray said.

School officials say they meet annually with departments to determine savings opportunities, but this year’s meetings are particularly important, Ray said.

“I don’t think anybody will tell you that it’s not going to be a tough year,” Ray said. “This year, everything’s on the table, and we’re not going to leave any stone unturned.”

“I would be very surprised if we didn’t have the meeting on the 26th,” said Ray, who is chairwoman of the finance committee. “We’ve heard from a lot of departments about cost-cutting measures, but we really haven’t a had a chance as a board to discuss them fully.”

The board will present its budget to the Town Council in March.

Other adjustments in the current budget include an $80,000 reduction in the budget for facilities, capital improvement projects and contracted services. Hawkins said this means the school will hold off on any maintenance projects to the schools that aren’t deemed necessary right away.

The remainder of the approved cuts comes from money for substitutes, staff development, supplies, books and equipment. The $70,000 used for contingency also emptied the contingency account, Hawkins said. If something unexpected happens, he said, funds would need to be realigned again.

The school department applied to use $128,000 from the town’s 2007 capital improvements bond issue because it competes with other town departments such as public works to use that money.

If approved, the money would be used to help fund Middle School roof repairs and major capital projects remaining at the high school.

“I think it is a true, urgent need of the School Department,” said Councilor Anne Swift-Kayatta, who is also chairman of the council’s finance committee.