The Calallen Independent School District is considering a proposal by the district's financial director to raise the tax rate by two cents in order to help ease a potential deficit caused by falling appraisal values.

Financial director Edith George presented trustees with a preliminary budget report on Aug. 3 that showed the district is likely to finish this fiscal year with a $1.5 million deficit. In addition, it is expected that the district will finish the upcoming 2009-10 Fiscal Year with another deficit over $1 million.

As a result, the district will have to dip into its general fund, which will drop below $3 million after the end of the 2008-09 Fiscal Year. This is putting the district dangerously close to having the Texas Education Agency get involved with the situation, George said, since the TEA has previously informed the district it should be at a preferred level of $4.8 million.

The reason for the financial hit on the district is due to a variety of reasons, George said, including a lack of state funding to help offset a $49 million decrease in the district's tax base. Home values actually saw a $62.3 million increase in appraisal values, but the industrial properties saw a large decrease, $111.4 million.

Equistar, which filed for bankruptcy earlier this year, accounted for $105.8 million of that figure, according to the preliminary budget report.

In order to offset the decrease in the property values, the district is now considering raising its overall tax rate from $1.2765 per $100 valuation to $1.2985 per $100 valuation. That is comprised of a $1.04 per $100 valuation rate for maintenance and operations and 24 cents per $100 valuation rate for the district's debt service fund.

The new tax rate must still be approved at a future meeting, but if the district wants to increase the tax rate further in the future, it will have to call for an election in which voters will decide whether to approve any proposed tax rate. Superintendent Arturo Almendarez said that not only is such an election is a possibility, but it might be necessary.

The district will also have to look at its various programs during the next fiscal year to decide which programs to keep and what to cut in order to offset costs to the district, he added. Staff cuts are also a possibility, he said.

"If we want to get down to a balanced budget, we're going to have to make some program cuts, period," Almendarez said.