Financial report: District could face $55M deficit
Local tax increase or more state aid needed to balance budget
Allentown School District would accrue a $55 million deficit in five years if it has no increase in local taxes or state subsidies, a scenario that, although unlikely, underscores the challenges the district faces in balancing its budgets.
Charter school costs, which have nearly doubled since 2014-15, are a key driver behind the forecast, according to a financial status report by PFM Group Consulting of Philadelphia.
By 2025-26, the district is projected to spend $86 million on charter school tuition, up about $28 million from this year’s outlay, according to the 43-page report.
““We actually flattened the deficit. This year we should have been in a significant deficit, but we’re going to end the year in a positive.” --Superintendent Thomas Parker
Personnel costs, which represent 62% of the $350 million budget, also will weigh on the district’s ability to control deficits.
PFM representatives presented their findings Tuesday at a special meeting of the School Board’s finance committee.
As part of its report, PFM took a status quo approach, looking at what would happen if expenses rose — as they have done historically — but the district brought in no new revenue through 2025-26. It also presented scenarios with increases in revenue.
None did away with a deficit except one — Gov. Tom Wolf ’s proposal to inject an extra $1.5 billion in the basic education subsidy and flow all that money through a fair funding formula. That would give ASD an extra $109 million — enough to cover charter school costs and leave it money for more programs.
The report noted that ASD’s local and state revenue increased by $64.4 million from 2014-15 to 2019-20.
But during the same time, expenditures jumped by $82.4 million.
Charter school costs have risen because attendance, now at 4,794, has been growing by more than 12% a year and is expected to grow by more than 17% a year by 2025-26.
The district budgeted $58 million in charter tuition costs for 2020-21. But that number will be even higher, as the pandemic has led about 30 students a month to leave ASD, where classes have been all remote, to charter schools, which hold in-school classes, the report said.
Salaries, which make up the bulk of expenses, were not factored into the scenarios because they are subject to contract negotiations. But health care cost is expected to grow 7% a year, rising to $45 million next school year.
Complicating the financial outlook is the lingering effects of the pandemic on everything from revenue to costs to the district.
But all was not doom and gloom.
In 2018, PFM presented a similar report showing a $28 million deficit for 2018-19 that also would continue to accumulate. But the district has been able to pass balanced budgets through cuts, tax hikes and additional state help.
In addition, at PFM’s suggestion, the district worked with the Carbon Lehigh Intermediate Unit to implement a financial management plan, including software that allows it to see its financial picture on any given day.
Superintendent Thomas Parker said the changes were instrumental in allowing the district to see where savings and cuts could be made without resorting to the massive staff cuts of the past.
“We actually flattened the deficit,” Parker said in an interview this month. “This year we should have been in a significant deficit, but we’re going to end the year in a positive.”
After the presentation, Parker said the report, as well as an upcoming PFM presentation, will help the district as it works on the 2021-22 budget.
School Director Charlie Thiel said he was pleased to hear that PFM’s 2018 report and the changes recommended by Carbon Lehigh have helped the district.
Thiel noted that Wolf’s proposal, though unlikely to pass the Republican-controlled Legislature, shows how ASD’s financial picture would change for the better.
“That means we could move the needle in this district and provide a first-class education that the students deserve,” Thiel said.