Year was full of surprises for districts trying to manage balance sheets

Last updated: July 12. 2014 11:35PM - 2111 Views
By - mguydish@civitasmedia.com

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When Gov. Tom Corbett belatedly signed the state budget into law Thursday, a complex process closed and the picture for area districts finally cleared:

• Ten of 11 Luzerne County districts raised taxes.

• State money increased, but by less than first promised.

• Talk of pension reform wilted faster than spinach in a hot pan, leaving school districts with a hefty increase in payments to a fund they can’t control.

Surprises cropped up almost from the start of a budgeting season that begins in February, when the governor typically releases his proposed state budget, and they didn’t really stop until Corbett etched that last “t” on the solid line Thursday, 10 days after the legislature had sent him their final version.

For starters, Corbett proposed the first increase in special education funding in six years, a move universally welcomed locally, albeit with laments about the insufficient hike.

“We’re getting about $2.9 million,” Wyoming Valley West Finance Manager Joe Rodriguez said, a 4.2 percent increase that proved pretty close to the 4.4 percent he had budgeted. “I’m grateful, but the only thing that bothers me is that we have such a large special education enrollment, I felt we received a minimal increase.”

Corbett also proposed a new “ready to learn” block grant that would increase money flowing to schools, though he limited how the money could be spent.

But a funny thing happened on the way to a final budget: The state discovered a gaping hole in this year’s budget that seemed to grow every time someone measured it, reaching as much as $1.7 billion.

As that gap grew the block grants shrank.

Budgeting issues

Some districts, including Wyoming Valley West, didn’t budget Corbett’s proposed increases and thus weren’t impacted when they didn’t materialize. Wilkes-Barre Area Business Manager Leonard Przywara said he had put the block grant increases in, but budgeted spending it as a separate category. Losing some of the anticipated increase didn’t impact the overall budget.

Districts that had integrated the block grant increase into their budgets are now faced with a need to find cuts or other money to cover the loss.

At Dallas, Business Manager Grant Palfey said the district is getting about $135,000 less than it expected from Corbett’s preliminary budget, and he’s already found ways to save that money elsewhere, primarily through changes in transportation.

The district may sell a handful of smaller buses it still owns to the company currently contracted to do the bulk of student transportation.

Drivers now working for the district could also go onto the contractor’s payroll, Palfey said. He expects to present a more detailed proposal to the school board at the next meeting, and estimates the changes could save about $80,000.

Corbett also pushed hard to reform the pension system for teachers, a system controlled by Harrisburg that has been seriously underfunded for years. Teachers pay a set annual percentage of their wages into the fund,with the state and school districts splitting any other required payments between themselves.

The amount districts pay depends on how stable the fund is. In good years when the pension fund is flush with strong return on investment, the rate districts pay has dropped to near zero percent of wages.

But the fund suffered big losses in the economic downturn of 2001, and again in the more recent recession. As a result, the percent districts must contribute has soared.

The rate climbed to 16.93 percent this year and goes up to 21.4 percent next year. It is projected to top 30 percent in the 2017-18 fiscal year. Corbett has pushed hard for pension reform without success.

At one point there was talk of lowering the 2014-15 rate a few percentage points by deferring the increase for later years, but went nowhere.

But the hefty increases have been predicted for years, so the failure to reform the system only hurts districts that didn’t take the predictions seriously.

Pension preparations

Wilkes-Barre Area has been following state recommendations to set money aside in anticipation of the increases, Przywara has said.

Hanover Area earmarked a property tax increase last year for pension contributions, Business Manager Tom Cipriano said, adding that the increase generates about $225,000 a year. At Wyoming Valley West, Rodriguez said he had budgeted for the projected increase, ignoring talk of reform.

“We try to err on the side of caution,” Rodriguez said. “Nothing was definitive when we adopted our budget.”

Hanover Area was the only district in the county without a tax increase in its final budget, though there was a hike in the preliminary proposal. Cipriano said a few pieces fell into place that helped erase the planned tax hike, most notably a change in the contract for cafeteria service that now guarantees the district will get $175,000 from the program.

The district also saved about $120,000 through a new transportation contract, even though it contracted with the same company it was using. Cipriano credits the savings to the fact that the district sought proposals from other companies rather than negotiating a contract extension without shopping around.

And Hanover Area saved $200,000 in health insurance premiums when the consortium they belong to — the Northeast Pennsylvania School District Health Trust — gave all members a one-month reduction in premiums this May.

Even with those boons, Cipriano said, school district budgeting has become so volatile he didn’t put the full amounts into the budget. The new cafeteria contract may promise $175,000, but he budgeted $150,000.

“We’re conservative when it comes to revenue,” Cipriano said. “Unless we know we’re getting it, we’re not going to budget it.”

Northwest Area

At the other end of the spectrum, Northwest Area has the biggest tax hike in the county, 4.8 percent. And that wasn’t enough. The district furloughed four teachers and terminated two others.

Those moves came despite impassioned pleas from students and residents at a May 21 meeting when the cuts were first publicly discussed. For nearly two hours people spoke in defense of the staff being cut, sometimes breaking into tears.

But Business Consultant Albert Melone said the district had little choice, and that money was so tight in the county’s smallest district it still faces a potential of being declared “distressed” by the state, a label that risks a state takeover.

A bit ironic, considering that Melone and other business managers and administrators contend local school budget woes are primarily caused by the state’s failure to pay it’s share of the costs.

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