School budget first draft has $15.5M shortfall
LANSDALE » It’s still early in the process, but the 2021-22 budget season for North Penn School District is starting with one ominously large number in mind.
“The first draft of the budget is always the worst-case scenario,” said district CFO Steve Skrocki.
“We try to be ultra-conservative in that first blush, and it is a staggering number. This year, it’s even worse, unfortunately, and the number, the deficit we’re looking at for our first draft budget is $15.5 million,” he said.
Each year staff and the school board typically start budget discussions in late winter, with a first draft showing the largest possible
deficit, then refining those figures through the spring ahead of advertisement in May and budget adoption in June. Skrocki gave the school board’s finance committee a preview on Tuesday night of the latest figures, and said that number comes with several assumptions built in.
“That’s with a zero-dollar tax increase. That’s typically how we present the draft budget number, and we say ‘OK, well, at various tax increase levels, here’s how much revenue that would actually generate’,” he said.
In December 2020 the board voted to pass a resolution stating they will not exceed the state-mandated Act 1 index of a 3 percent tax increase for the 2021-22 budget, by using certain exceptions if granted by the state. Skrocki said Tuesday that, based on the current valuation of the district’s total tax base, the 3 percent increase would raise roughly $5.5 million in new revenue.
“That alone would drive the deficit down to $10 million,” he said.
“We are just starting the process, but I think it’s important to note that we do have significant financial challenges that will be facing us for the upcoming budget,” Skrocki said.
That first-draft budget figure also includes no new hiring, and “makes some serious assumptions with respect to our labor contracts” with district teachers and other staff, whose contracts are set to expire on June 30 unless extensions are negotiated beforehand.
One other factor is “having a tremendous impact,” Skrocki added: increasing costs of cyber and charter schools that must be paid by the district for students not attending North Penn’s schools.
“We have had a number of students disenroll from North Penn, and enroll into cyber schools this year. We are budgeting nearly $2 million, additional, in the budget next year as a result of this,” he said.
If and when students are allowed back to full in-person instruction for five days a week as the COVID-19 pandemic ends, that number could drop, but that worst-case figure will likely remain the budget until that happens, Skrocki said.
“If some or all do migrate back, we can lose that
$2 million in additional spending for cyber schools, but right now we have it in there because it’s based on the enrollment we currently have at the cyber schools,” he said
The $15.5 million figure also does not include any staff retirements, which typically save the district about $1 million per year as those with higher salaries retire and are replaced by new staff at lower pay scales, he said. Between the first draft in January and the proposed final budget advertisement in May, staff and the board will hold a series of special finance committee meetings to hear budget details from each district department, as follows:
• Feb. 9: Facilities and operations
• Feb. 16: School safety and security, transportation
• March 9: School and community engagement/ communications, secondary education and assessment
• March 16: Curriculum, special education, human resources
• April 13: Elementary education, technology
Staff are also monitoring developments at the state and federal levels regarding education funding, and the early draft assumes no increase in state funds.
Governor Tom Wolf is expected to make his budget address on or around the first week of February, which could give an indication as to whether North Penn should expect any additional state taxpayer dollars.
“If the governor is proposing a freeze for education, that’s not a good starting point. We’d like to see a 3 to 5 percent increase, starting off, knowing that might be scaled back,” Skrocki said.
Committee chairman Christian Fusco asked how the district’s financial picture looked at the same time last year, and Skrocki said the first-draft 2020-21 budget showed a deficit of $12.5 to $13 million before the onset of COVID-19 disrupted both the expense and revenue sides of the budget.
“It’s a little bit higher this year, and it’s primarily from the charter schools,” he said.
One bit of good news, budget-wise: the district has learned it will receive roughly $4.1 million in additional federal COVID stimulus money, which will likely be used for planned technology purchases, but that is already included in the first draft.
Board member Jonathan
Kassa added that while school board members often field the brunt of complaints from local residents about rising taxes, the state legislature holds the key to changing calculations and funding formulas that could make a bigger difference.
“We need the solutions to come from Harrisburg. We’re simply swimming in the mess that washes downstream,” he said.
Fusco recalled a public call from the board last fall asking state lawmakers to fix the cyber and charter funding formula, and said the structural deficit and unfunded mandates can only be changed in Harrisburg.
“You can replace us with nine new people — you’re still going to have a similar difficulty, because the bill’s coming from the state, from sources that are largely out of our control,” he said.
Board President Tina Stoll asked if the district had any facts or figures on what North Penn could save under charter and cyber reform scenarios, and Skrocki and Superintendent Curt Dietrich answered.
“The way the cyber charters are paid now is grossly unfair to all of our taxpayers. We can produce cyber education at a fraction of the cost of what the cyber charters are charging,” Dietrich said.
“One of the proposals was that, we would not have to pay more than what it would cost if we were doing it here ourselves, and yet it’s not even close,” he said.
District staff have calculated a cyber education could be provided at a cost of roughly $3,600 per student, while payments to cyber schools are roughly three times that amount, and closer to ten times the amount for those who need special education services, Dietrich said.
Last year’s reform package could have saved the district roughly $900,000, Skrocki added, while changes to the funding formula overall could generate upwards of $5 million in savings for the district each year.
Skrocki added that the 2020-21 budget is showing the projected deficit narrow, due largely to expenses not incurred because of COVID, and a roughly $12 million deficit at the first draft before a tax increase was narrowed to roughly $6.4 million when the final budget was passed in June.
“That $6.4 million budget deficit, I’m hopeful by the end of the fiscal year, we can have that cut in half,” he said.
“Especially on the expense
side, with the pandemic, there’s been a number of expenses we’ve been able to forego: substitute costs, for example, are way down, and there was a reduction in hours for a period of time,” Skrocki said.
Earned income tax revenues do appear to be up over 2020 levels, and real estate taxes should become clear over the next several weeks, while investment income remains at near-zero due to
current low interest rates.
More detail will be given in future meetings, Skrocki told the board, but as of now the district school nutrition services program appears to be back on the positive side of the ledger, while the extended care and community education department budgets have been hit hard by COVID and may run negative balances requiring transfers from the general fund.
“The budget is populated, every line is populated, we’ve already started the proofreading process, there’s a lot of work to be done, it’ll be an uphill challenge, but we’re certainly up to the task,” Skrocki said.
North Penn’s school board next meets at 7 p.m. on Jan. 21 and the finance committee next meets at 6 p.m. on Feb. 9; for more information visit www. NPenn.org.