District ends 2023 with surplus after projecting deficit
Despite originally projecting a $16.4 million deficit at the end of 2023, Pittsburgh Public Schools wrapped up the year with a surplus of several million dollars.
In all, the district saw a $3.3 million surplus at the end of 2023, Ron Joseph, the district’s chief financial officer, said during a Tuesday business and finance meeting. The nearly $19 million swing was attributed to an increase in revenues collected throughout the year, which came in $29.3 million higher than 2022. That includes state revenues, which were $24.7 million higher than last year, a $7.9 million boost in the basic instructional subsidy and earned income tax revenues, which were $8.5 million higher than 2022. Real estate tax collections were $7.1 million lower than last year.
Expenditures also increased by $22.7 million when compared to 2022, but things such as salary expenses declined by $5.53 million and nearly $10.3 million in salaries were funded by COVID- relief funds. At the same time, charter school payments increased by $14 million.
And under a current financial forecast, the district is projected to end 2024 with a $13.9 million deficit. That’s a significant improvement from the original $29.9 million expected when the budget passed in December, although those numbers could change based on ongoing property tax assessment appeals that have reached historic levels in the city and county.
“We’re greatly improved for our projected deficit,” Mr. Joseph said. “Where it was supposed to be at nearly $30 million we’ve seen that decrease to nearly $14 million, so that’s a great improvement. A lot of that is due to looking at salaries. So how salaries are trending, that’s … one of our biggest costs that we have in our budget.”
Still, the projected deficit is expected to grow in coming years, reaching almost $30 million in 2026. Any future deficits would be covered by the fund balance, causing it to drop to a total of $18.6 million in 2026. That means, Mr. Joseph said, that “we’ll not be able to have sufficient funds to balance our 2027 budget.”
But those numbers worsen when tax assessment appeals are accounted for. Assessment reductions across Allegheny County have hit a high not seen since the 1990s, county officials previously said, putting both the city of Pittsburgh and its school district on the hook for potential massive tax refunds and revenue losses as a result of the assessment cuts. And it has led to several Downtown properties being granted millions of dollars in reductions.
The commercial reductions are based on two major factors: high office vacancy rates created by the COVID-19 pandemic and hybrid work, and a steep drop — from 87.5% to 63.5% — in the common level ratio, the number used in appeals hearings to calculate the taxable value of a property. That number has fallen again — to 54.5% — this year and could go even lower in 2025.
That means PPS may see a $4 million decrease in tax revenues for the 2022 and 2023 tax years and could pay $7.4 million in tax refunds, Mr. Joseph said. And in 2024, projections show tax revenue decreasing by $3.4 million.
If those numbers come to fruition, the district could end 2024 with a $23.4 million deficit, followed by a $28.1 million deficit in 2025 and $34.2 million in 2026. That means the district’s fund balance would total $918,714 at the end of 2026.
“The situation based on these projections is grim,” Mr. Joseph said. “Not trying to cause anybody any alarm, but this is something that we need to monitor very closely, and we need to not stand by. We’ll have to take action over the course of the next two years to make sure that we’re not at that position.”
Those impacts led school directors last month to authorize a lawsuit to force a reassessment in Allegheny County. The last time a reassessment took place was in 2012. In response, Allegheny County Executive Sara Innamorato released a statement saying that her office is working “to gather all of the relevant data about the state of assessments in the county and engage stakeholders at the state and municipal level to create a more thoughtful and consistent approach.”
District Solicitor Ira Weiss on Tuesday said officials are “preparing the necessary documents to file a case within the near future.” PPS Superintendent Wayne Walters said he has had a conversation with Ms. Innamorato, who told him they “are in the process of doing some research and reporting.”
Other factors that could impact the budget, Mr. Joseph said, is state funding. Under Gov. Josh Shapiro’s proposed budget, the district stands to see a nearly 14% increase in basic education funding. And Mr. Shapiro also proposed creating a flat tuition fee for cyber charter schools. The budget, which has received pushback from Republicans, was proposed by Gov. Josh Shapiro in February and must be approved by June 30.
District officials are now ironing out ways to save money in the future.
School Director Emma Yourd said board members will now work with administrators “on ways we can start proactively identifying some cost savings or areas where we might be able to trim back as well as identify some opportunities for additional revenues, knowing that the county real estate reassessment may take a while and there are other levers that aren’t in our control. I look forward to working with you to figure out which levers are in our control and how far we can pull them in order to get the school district into a better position.”