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A difficult financial future lies ahead for the Lompoc Unified School District, but despite the dreary outlook, the district can expect to pay its bills through 2011, according to a state-mandated “first interim report” presented Tuesday night.

After the fiscal report by Assistant Superintendent Sheldon Smith, the board agreed to submit a positive certification to the state, in contrast to last December when the district submitted a qualified certification because it was unsure that it could meet its financial obligations through that current fiscal year and the next two.

The district’s interim report is the first of two required by the state each fiscal year. The second will be submitted in March.

Smith told the board it is facing a $2.8 million deficit this year, but has $3.6 million in federal stimulus money to fall back on. But that is one-time money that will be unavailable next year, so cost-savings must be addressed this year, he said.

District revenue has fallen steadily the past few years:

$67 million in 2007-08; $64 million in 2008-09; $59 million 2009-10, which includes a of $252 per student in state funding; and $60 million projected for next year, Smith said.

The district’s federal funding has fallen from $17 million to $11 million during the same period, according to Smith.

Among the cost-cutting measures that Smith recommended be considered are a shorter school year, staff furloughs, and larger classes for kindergarten through third grade.

“This isn’t, ‘Oh my God, the ship’s sinking,”’ Smith said after the board meeting.

Board members, recalling the disastrous report last year, looked to put the current report in as positive a light as possible.

“I think it’s amazing that it looks as good as it does,” said board member Kay Eatmon, after Smith’s presentation.

Among the challenges hurting the district budget, Smith said, is declining student enrollment, which is falling by about 200 students per year and costing the district about $1 million in state funding. Growing enrollment in charter school is hurting the district as well, he said.

Smith told the board to be on the lookout for mid-year reductions in state funding early next year. The governor’s revenue projections are expected in January.

The district’s Fiscal Policy Committee will start work Jan. 14.

Last December, when the district’s finances were even more dismal than this year, the school board opted to notify the state that it could not guarantee it could pay its bills during that current fiscal year or the following two years because of budgetary uncertainties.

 At that time, the board had cut $4.2 million going into the 2008-09 fiscal year, and faced at least $2.6 million in cuts for 2009-10. The board ended up cutting about $12 million from the budget for those two years.

Then-Superintendent Frank Lynch had opposed the board’s “qualified certification” report to the state, favoring instead waiting until the state’s mid-year budget cuts were announced and hoping for good financial news.

The qualified certification required the district to present a third interim report last year, Smith said.