With a renewed vigor lead by General Manager John McNally, local grassroots public radio station KAZU 90.3 FM is forming a strategy to sail the station back into the black.

Two weeks ago, the station was forced to lay off four of its five paid employees because of financial straits that insiders say have been plaguing the station since it was destroyed by a fire in May 1997.

But at last Thursday''s KAZU Board of Directors'' meeting, boardmembers gave McNally the go-ahead to pursue the programming adjustments he presented in hopes of attracting new members and sponsors.

"Nothing has changed yet, but ultimately the station will be sounding a little different," says McNally.

The most immediate change could be the addition of a local news broadcast. McNally is currently contacting local media in an effort to incorporate already existing news programs into KAZU''s lineup. One possibility, he says, would be to pick up a local TV station''s news broadcast at morning and evening drive time.

Only initial contacts have been made so far, says McNally, and the specifics of such a program are still in the works. Changes are not expected to take place before the station''s pledge drive, which is scheduled for Feb. 27 through March 14.

"It will be beneficial both ways," says Ken Peterson, vice president of KAZU''s board of directors. Other media will benefit from increased exposure, he says, while KAZU will hopefully gain subscribers and a sponsor for the program.

Moreover, says McNally, KAZU is looking at picking up programming from Public Radio International, including international and business news, and programs such as "Prairie Home Companion."

Some changes in music programming are also being considered, although nothing specific has been decided. "There won''t be any drastic music changes," says McNally, "We''re just going to make it a little more interesting."

The hope is that the addition of news--something which KAZU doesn''t currently offer--and fine-tuning the musical lineup will attract new listeners and members to support the struggling station. Currently, a membership of 2,302 individuals--almost equally split between Santa Cruz and Monterey counties--provides a large part of the station''s income through annual subscriptions. And, at least for now, optimism is high that the new programming will increase that membership.

"I think it''s a great idea, it''s time for a change" says Mike Eckstrom, a KAZU programmer and former boardmember. "News is something that hasn''t been offered, I''m really encouraged."

Other revenue-building sources that boardmembers are considering--beyond next month''s pledge drive--include requiring a $20 per month fee from the station''s 60 or so volunteer programmers and a benefit dance this spring.

For most of 1998, says McNally, the station operated at a $3,400 monthly deficit, and while he says the layoffs will save about $6,000 a month, the station is still not out of the woods. KAZU is currently running about $30,000 in the red as far as short-term debt.

"We''ve got to pull back the reins," says Eckstrom. "We''re hemorrhaging money."

A series of setbacks, explains Peterson, contributed to the downward spiral. In 1996, KAZU lost its Corporation for Public Broadcasting (CPB) funding--a loss of $70,000, about 19 percent of the station''s annual budget--as a result of national cutbacks. But while CPB funding required a full-time paid staff of five, KAZU continued to employ five staff members even after that funding was lost.

Then, in May of 1997, came the fire which destroyed the station.

But, ironically, the station suffered, say insiders, more from a post-fire sense of optimism than the fire itself. Basking in the glow of an outpouring of community goodwill, boardmembers chose to move the station into a more expensive space. The station''s monthly rent jumped from $1,700 to $3,500, and a bigger space meant higher overall operating expenses.

But while expenses increased, income did not. Pledge drives continued to bring in the same amount of money as pre-fire drives. Nevertheless, assert some former employees, boardmembers failed to actively seek increased revenue sources to cover higher costs.

"[The move] meant that the station had to turn around its thinking and bring in more money," says former General Manager Peter Williams, "and that didn''t happen."

The station, he says, has been surviving on insurance money for the past year.

While Peterson doesn''t deny the lack of long-range planning, boardmembers'' energies, he says, were directed at finding a new home and at rebuilding efforts.

"At that time, we were busy coping with the aftermath of the fire," he says. "We weren''t looking down the road."

The station also suffered, says Peterson, from two key personnel changes. KAZU lost then Programming Director Jeff Grubb in the beginning of last year. And last August, Williams left to head up the Tucson Jazz Festival while an interim general manager took the reins until McNally arrived on Dec. 1.

While McNally brings 17 years of public radio experience and a wealth of knowledge to the station, the transition was nevertheless a setback for the already flailing station. "He just came in at the wrong time," says Williams.

Nonetheless, even as the station flows with red ink, an attitude of survival abounds. "This station has been around for 20 years, and it will be around for another 20 years," says McNally. "This station is resilient and it will keep going." cw