Just two months after struggling to produce a balanced budget, the Lancaster school district is hunting for cuts to stave off a projected shortfall in excess of $2 million.

This week, the district gave employees a choice: take a pay cut or risk layoffs.

"Of course, we said cut our raises," said Connie Fowler, a school librarian. "No one wants to see anyone lose their job."

The district gave all employees raises this year, which appeared in last month's paychecks.

The shortfall, which the school board president said may be closer to $4 million, emerged after the district built this year's $40.5 million budget around enrollment projections that turned out to be too high.

District officials will present information on the shortfall at Tuesday night's school board meeting.

School systems receive state funding based on their average daily attendance, which counts the equivalent of full-time students. Two kindergartners attending half-day, for instance, count as one full-time student.

Superintendent Larry Lewis declined to divulge this year's average daily attendance on Friday, but figures released in August indicated this year's budget was built on a projected average daily attendance of 5,900. Last year's final count was 5,732.

"There is nothing wrong with our enrollment figures," Dr. Lewis said. "The kids just didn't come to Lancaster schools like we thought they would."

That can make a significant difference, said James Damm, a former school district administrator assigned by the state to oversee Lancaster's finances.

"In a small district like Lancaster, even a small deviation on those numbers is serious," he said.

Mr. Damm said he asked district officials to come up with cuts that would leave the $500,000 projected fund balance intact.

The Texas Education Agency sent Mr. Damm in July, after conducting a nine-month audit that revealed numerous financial problems, including inflated attendance figures in past years, an unbalanced checkbook and failure to accurately report a $6 million loan.

Dr. Lewis would not discuss the size of the shortfall.

A list of budget cuts that totaled more than $2.1 million, was sent to the board this week. The largest cut is to salaries, including $479,000 for teachers, counselors, nurses and librarians; $79,000 for nonteaching staff; and $206,000 for administrative staff.

The deficit reduction plan cuts the superintendent's compensation by $10,000. Dr. Lewis' annual salary is $197,600.

Dr. Lewis said the salary reductions are "a small part of what we're doing" to correct the budget. He said that "98.5 percent of the people surveyed in this school system – and we surveyed everybody – said it was the right thing to do."

The district also eliminated cellphones and wireless cards for a savings of $63,000, according to the board document.

Cutting out substitute teachers is expected to save $298,000.

School board President Carolyn Morris said she learned about the budget problem after employees did during meetings on Wednesday.

"The board did not know any of this was happening, and I am furious about it," Ms. Morris said. "When [Dr. Lewis] first figured out that we were in a shortfall, there should have been an emergency called meeting of the board."

Tuesday's meeting begins at 7 p.m. in the administration building, 422 S. Centre Ave.