FRANKLIN—Franklin City Schools faces a $585,000 shortfall as it begins planning for the 2012-2013 budget.

The School Board during a Tuesday meeting learned the school district will again receive $4.8 million from the city and a $385,000 increase in state funding. The school district will lose $354,884 in federal stimulus funding and faces a $401,506 increase in Virginia Retirement Systems funding, based on Gov. Bob McDonnell’s proposed budget, which Superintendent Dr. Michelle Belle called a worse-case scenario.

Schools also will have to deal with a 2.6 percent increase, or $23,248 more, in employee health insurance premiums.

“It could be worse, but a $585,000 shortfall for a school division of our size is still kind of devastating,” Belle said. “We are looking at making cuts instructionally, but we may not have to.”

Belle said roughly $59,000 could be saved through employee retirements.

The district is always looking to share services with Southampton County and has been sharing the county bus lot and mechanic crews. In the past, there has been discussion about combining a human resource office, she said.

Belle will present a proposed budget to the board later this month.