PAIN IN THE BUDGET
Local revenue loss forecast puts schools in tough financial spot
School districts across Pennsylvania had a tough time of it financially back in 2008.
When the Great Recession hit, their revenues dropped. Collection of property taxes, earned income taxes and real estate transfer taxes plummeted as the U.S. dealt with rising unemployment and a rupture of the housing bubble.
The result was a wave of cuts. Cuts of program, cuts of extracurricular activities, cuts of staff.
Twelve years later, schools are once again facing an economic disaster.
The COVID-19 pandemic and subsequent shutdowns ordered by Gov. Tom Wolf have wreaked havoc on Pennsylvania’s economy.
A mandated statewide shutdown of most businesses has caused unemployment to skyrocketed to historic highs.
So what will it mean for the state’s public school districts?
According to a recent study by the Pennsylvania Association of School Business Officials, it will mean financial pain.
PASBO is estimating school districts could see a combined loss of more than $1 billion in local revenues for the 202021 school year. If the economy bounces back quickly, those losses might be around $850 million.
“In an economic downturn we know that unemployment goes up, thereby reducing our local income tax revenue, and we know that the real estate market will be affected resulting in a reduction of our real estate transfer tax,” said Timothy J. Shrom, PASBO director of research.
“We also know that our taxpayers will need more time to pay, thus reducing property tax revenues, and with the significant cuts in the rates, interest earnings will take a hit as well,” he said.
The PASBO report shows combined local revenue losses for the 18 districts in Berks County totaling $35.5 million to $41.6 million.
In Montgomery County, the
total loss could be as high as $102.4 million, while the worst-case scenario in Chester County would see a combined loss of $68.4 million.
The PASBO report shows worst-case scenario totals of $72.9 million in Bucks County, $47.7 million in Delaware County and $10 million in Schuylkill County.
The estimates from PASBO show that local districts will see a 4 percent to 5 percent reduction in local revenues next school year.
Hannah Barrick, PASBO assistant executive director, said the impact of the losses will vary by district depending on how much a district relies on local revenues.
In some districts, local revenues account for more than 80 percent of budgets, according to PASBO officials. In others, they account for less than 25 percent.
“It’s going to impact every school district differently, but every school district will have a COVID-19 impact of some sort,” Barrick said, calling the situation with local revenues pretty grim.
In the TriCounty Area, wealthier school districts with higher property values, and larger budgets — like Owen J. Roberts, Spring-Ford and Perkiomen Valley — stand to lose the most, as much as $5 million to $7 million.
“Real estate taxes, transfer taxes, earned income taxes and investment income alone are projected to decrease by $2.5 million from January 2020 projections for the 2020-21 fiscal year,” said Owen J. Roberts Superintendent Susan Lloyd.
“Flat property assessment values, potentially decreasing collection rates, increasing unemployment rates and a significant cut in short term investment rates all contribute to the projected revenue loss for next year,” said Lloyd.
The PASBO projections used what happened in 2008 as a baseline, Shrom said. But the COVID-19 economic crisis has a major difference from the one 12 years ago.
The Great Recession happened over an 18-month period, Shrom said, with the recovery stretching over three or four years.
“It was long and slow. It was steady,” Shrom said.
This time around, the economy has taken that year-and-half blow — and a little more — in just about six weeks.
“This is just creating a massive challenge,” Barrick said.
Local impact
If the economic recovery in Pennsylvania is slow, local revenue losses in the Tri-County area will range from just over $1.8 million in the Pottstown School District to more than $7 million in the Spring-Ford Area School District, according to PASBO projections.
A quick recovery would lower those losses to $1.5 million in Pottstown and just over $6 million in Spring-Ford.
“We are dealing with an unprecedented time right now. So far, nothing has been accepted or approved,” Tom DiBello, vice president of the SpringFord Area School Board and chairman of the board’s finance committee said in a message sent to district families.
“There is a lot of work going on related to this budget and a lot of decisions to be made,” said DiBello.
Spring-Ford has already lowered its revenue projects for the coming year by more than $2 million from the draft budget considered in November
The preliminary budget adopted at the April 27 meeting shows a $3.6 million deficit, however that is likely to change before adoption in June, according to the district newsletter.
Tuesday night, the Pottsgrove School Board adopted a preliminary $68.7 million budget that will not raise taxes in the coming year. The board will also considering waiving late fees and extending payment plans for making property tax payments.
“We have made substantial reductions to our revenue projections for next year, but they are not as deep as those proposed by PASBO,” Pottsgrove Superintendent William Shirk told MediaNews Group.
“We are currently studying their methodology to determine if further reductions are warranted,” said Shirk. “Regardless, the district feels that it owes it to our community to keep property taxes as low as possible during this extremely difficult time.”
Boyertown Schools Superintendent Dana Bedden said he is worried about the short-term and longterm financial impacts of the pandemic.
“We are not only concerned about the 2020-21 school year, but the following years are predicted to be just as challenging, if not more,” he said.
The PASBO projections show Boyertown losing $3.7 million to $4.4 million in local revenue next school year. On top of that, Bedden said, an effort underway in Harrisburg to keep school districts from raising taxes would take away another $2.3 million.
“Boyertown Area School District is projecting an increase in our deficit as a result of COVID-19 that could be between $3.8 million to $6 million, and these estimates could be low,” he said. “We are very concerned that decisions made in isolation without an analysis of the impact could be catastrophic.”
State mandates will add to the financial pain for school districts, said Lloyd.
“The fast COVID-19 economic decline also presents challenges for the state and additional uncertainty surrounding the state’s funding for school districts. In addition, there is no relief to school districts for state mandated cost increases, such as charter school tuition and special education required services, which are increasing by approximately $400,000 for next year,” said Lloyd.
“With a modest tax increase, we anticipate a potential budget deficit of almost $4 million over the next three years even if there is a quick turnaround in the economy,” she said.
“The district feels that it owes it to our community to keep property taxes as low as possible during this extremely difficult time.”
“There is a lot of work going on related to this budget and a lot of decisions to be made.”
— Tom DiBello, vice president of the Spring-Ford School Board
“We are not only concerned about the 2020-21 school year, but the following years are predicted to be just as challenging, if not more.”