CAPE ELIZABETH — School officials said they are pleased with preliminary reports from the state Department of Education that show a reduction of only $40,000 in state subsidy for 2010-2011, not the $900,000 that was previously expected.

“I never expected the numbers to be this low, but nothing has been decided yet,” Superintendent of Schools Alan Hawkins said.

The notice sent to school districts from the Department of Education on Monday, Feb. 1, said the subsidy amounts for the 2010-2011 school year are only preliminary and do not represent final action of the Legislature. The letter advised school officials to use the information as “initial” guidance for budget preparations.

Hawkins said he expected a reduction of nearly $1.7 million, but was pleased to see the numbers had changed.

State property valuation fell 6 percent for Cape Elizabeth while the state average has risen 3 percent, Hawkins said, and student populations have decreased, too. In addition, federal stimulus funds have helped the district.

But the reduction could be $110,000 more if the Legislature reverses a decision to penalize school districts that did not comply with consolidation.

While the subsidy loss is better than expected, Hawkins said there are still $900,000 in cuts to be made due to unalterable expenditures.

“Teacher contracts and benefits, energy and special education costs are all items that are fixed,” he said.

The School Board will discuss the 2011 budget at a Finance Committee meeting Tuesday, Feb. 23, at 6:30 p.m., in the high school library.

In addition, the School Board has unanimously approved $940,000 in adjustments to the current school budget. Adjustments were made to meet a $621,000 state curtailment order, $167,000 in additional special education expenses and $152,000 in staff retirement costs.

The board moved $342,000 from an undesignated fund balance and $210,000 from Medicaid revenue that was to be used in next year’s budget. Other funds came from bond refinancing, debt service savings, school contingency funds, a freeze on capital improvements and contracted services, and a reduction in salaries and benefits.

Hawkins said he also expects $125,000 in savings from a spending freeze implemented after the curtailment order was announced.

“The news from the state is positive, but there is still work to be done,” he said.

Amy Anderson can be reached at 781-3661 or aanderson@theforecaster.net