PORTSMOUTH — A potential hole of $835,377 in the proposed school budget has been whittled down to $168,147, but the savings come at the expense of several staff members, including an elementary school nurse, as well as all middle school sports and late bus runs, among other things.

The School Committee on Tuesday reluctantly adopted a proposed budget of $34,611,083 for the 2008-09 fiscal year beginning July 1, although further adjustments are sure to be made to close the $168,000 gap before a bottom line is finally adopted by the Town Council in June.

Schools Supt. Lusi described the budgeting process as a “painful” attempt to continue providing a high quality education while resources have failed to keep pace with costs.

So far, the proposal represents an overall increase of 3.47 percent above current spending, which is capped at $33,451,958.

The proposal assumes the closing of the Prudence Island School, the state’s only one-room schoolhouse, but that move depends on the School Committee arranging suitable transportation for the island’s young children to one of the three elementary schools in town.

The commissioner of education last year blocked an attempt to have elementary schoolchildren take the Prudence Island Ferry as part of a bus-and-boat commute to the Melville School.

The schedule would have resulted in a door-to-door school day of 10 hours, which the commissioner said did not fulfill the school district’s requirement to provide “reasonable” transportation.

The Prudence Island school teacher is one of 6.73 full-time positions cut from the budget in the next fiscal year for a savings of $420,000. That reduction includes one of three elementary school nurses, each of whom now covers a different school.

Medically fragile children may all have to attend a school staffed with one of the two remaining full-time nurses, Lusi said.

Because of declining enrollment, the district can eliminate classroom teaching positions in grades four, five, six, and eight without affecting instruction, Lusi said.

The jobs of two computer technicians will be converted to that of one higher-paid systems administrator, due to shifting technological needs, she said.

In addition, the budget anticipates the elimination of a half-time literacy coach at the middle school and the reduction of a total of 1.73 full-time teaching positions in art, music, physical education and other “co-curricular” subjects in kindergarten through grade 8, Lusi said.

But the superintendent has planned a new full-time secondary teaching position focusing on reading, as well as the addition of a technology teacher who will work with classroom instructors in kindergarten through grade eight to better integrate computer software into the curriculum.

Lusi also has cut a total of $150,000 other academic accounts, including professional development, curriculum development, testing and tutoring.

Revenues assume that the town’s contribution to the schools will increase no more than $1,276,251, from $25,525,020 to $26,801,271, in accordance with provisions of new property tax relief legislation that allows no more than 5 percent growth in the overall levy for the next fiscal year.

The General Assembly has indicated that property tax relief would be accompanied by a stable and predictable formula providing adequate funding for local schools, but that part of the equation has not materialized.

Consequently, the proposed budget assumes state aid will remain flat at $5,366,738.

It also relies on $200,000 in surplus funds from the last fiscal year to help offset rising expenses, Lusi said. The Town Council has asked the School Committee to turn over last year’s surplus to help augment the general fund, which has been depleted in part in recent years to cover School Department deficits.

But the School Committee has declined to turn over the money, citing the continuing needs of the schools.

Among those needs is a hike of $212,632 in the district’s contribution to the state retirement system. Lusi said that figure represents 18 percent of the total allowable increase in the school budget.

A one-year teachers’ contract, finalized last week, will cost another $699,905, an increase of 5.26 percent.

Even though the School Committee still needs $168,000 to balance its budget proposal, its vice chairman and chief negotiator said it would not have been fair to ask teachers to accept less.

A total of 126 teachers who already have at least 10 years’ experience will receive cost-of-living increases of 3.1 percent. Those with fewer years of service will receive step raises in the same dollar amounts that are in the current contract.

But in a break with the past, they will receive no cost-of-living adjustments. The union’s waiver of these increases for 108 teachers now on the first nine steps will save the district $172,137, according to E. Richard Carpender, the committee’s vice-chairman.

gmacris@projo.com