The Octorara Finance Committee and Board of Directors met on Monday, February 22, 2016. Eight members were in attendance. Hank Oleyniczak was absent, and Linda Bicking was the first to attend a meeting electronically.
Status of State Funding
Despite current issues, Governor Wolf has a proposed budget, for the 2016-2017 school year, that adds $200 million to Basic Education Funding and $50 million to Special Education. This is on top of a budget he has not gotten the State Assembly to pass. If Wolf gets his way, the Octorara Area School District would receive $692,302 in State funds above 2014-2015 levels.
The Pennsylvania Association of School Business Officials (PASBO) has made their own projections based on the amounts already distributed as a “best guess” for 2016-2017 increases. Based on those projections, the Octorara Area School District could expect to receive an increase of $422,344 above 2014-2015 levels. However, amid the uncertainty, the District is moving forward with the budget process factoring a zero increase.
2016-2017 Budget Summary
The current Draft Budget included $52.4 million. Existing revenue is $49.4 million. This requires the District to find or cut $2.97 million to cover the difference.
How we are currently looking to pay for it:
- 3% Property Tax increase – $964,727 in new revenue
- Budget Contingency – $350,000 removed from budget
- Debt Service Savings – $340,000 credit from bond refinancing
- Budget Cuts – $420,000
This leaves a deficit of $895,996 that will need Reserve Fund Balance. If we receive the projected $422,344 increase from the State, that deficit would change to $473,652.
Why should you be concerned?
For years, the District was passing budgets showing deficits that needed the Reserve to balance. The reason for concern now is these deficits are now real. In the past, the District over budgeted to the point that by the end of each year, rather than having a $1 million deficit, they were gaining $1 million surpluses.
Starting in 2013-2014, the District started to have real deficits, requiring using Reserve Funds. This was caused by allowing the budgets to grow at a rate greater than the Act 1 limit. The Act 1 limit controls how much a District can increase taxes. It does not limit the growth of budgets. Over the years, new spending (such as going to full-day kindergarten, the iPad program, and armed security) have been the drivers.
You may be saying, “But Tim, What about PSERS?” It is true that the District’s contribution to the Pennsylvania Public School Employee’s Retirement System has driven up costs. However, think about this in terms of your household budgets. If you are paying your bills and able to save, is it a good idea to take on extras beyond your means? If you buy an expensive car that forces you to dip into savings to pay your bills… well, it is not the electric company’s fault. Is it?
When the District built the Intermediate School, they bought more house than they needed, adding to our debt. Other new spending, like full-day kindergarten and the iPad program, have continued to push costs higher, beyond what the District could afford. So, now the District is essentially house rich and cash poor.
Alternative Tax Increases
We are truly living in Bizarro World when Tim Alexander is arguing for the need to tax to the Act 1 limit, and Brian Norris is “concerned” about the impact to the community. It was just a few short months ago that Norris supported taking exemptions, and pushing property tax increases to close to 5%. Now, he is concerned a 3% increase is too much for the community.
As a result, the Board was presented with a spreadsheet showing the revenue generated by lower taxes.
- 0.5% – $160,667
- 1.0% – $321,333
- 1.5% – $482,000
- 2.0% – $642,677
- 2.5% – $803,333
- 3.0% – $964,727
Back in August, I agreed I would vote for a tax increase up to the Act 1 limit if there was a flat budget, meaning zero increase from 2015-2016 total expenses. I agreed to this because of the financial reality of the District. The Reserve Fund is shrinking. The Capital Expense Fund is disappearing. Two years of keeping taxes flat while allowing the budget to grow at 3% and 3.5% accelerated financial issues. In my opinion, the best and the only option is to get the deficit to zero. Then, going forward, control spending to more reasonable levels.
Norris, back at the beginning of the budget process, expressed frustration that there wasn’t support to take exemptions and push property taxes beyond the Act 1 limit. We did not agree on the cause of the financial crisis or the solution, but we did both see the need to find a way to get the deficit to zero. Today, he seems to see the deficit differently. I’m not sure what changed.
If we don’t resolve the deficit this year, there will be the need for more cuts next year. We will start the 2017-2018 budget process in the red between $400,000 and $800,000 before any expenditure increases. This means the first 0.5 to 1 mill of any tax increase that year will go directly to paying the deficit from the 2016-2017 budget. The Reserve and Capital Expense Funds will continue to disappear, and we are one step closer to a major financial collapse and not being able to pay our bills.
At the Finance Committee Meeting, Sam Ganow asked Board members about budget goals. He wanted to know if there was the support to push cuts greater than the already $420,000. The Capital Expense Fund is disappearing with no way to replenish it, risking the ability to make facilities repairs over the next few years.
Also, the spending down of the Reserve Fund will hit a policy wall in 3 years, and even if we change the policy the benefit is short-lived. If we continue deficit spending and the Reserve Fund goes to zero then there will come a day when there is not enough money to pay bills, and the cuts to resolve that will be massive in comparison to what is being talked about today.
As the discussion went around the table, besides myself, other Board members wanted to see what the $420,000 will look like before agreeing to increase the goal. In fact, some of the conversation seemed to indicate there was not a consensus on even approving cuts to the initial goal. I may be getting the wrong sense of what is going on, but I fear that in the minds of some Board Members, the initial goal may have been smoke and mirrors to just say “we tried.”
Numbers don’t lie. There needs to be a major change or the money simply runs out. It can be fixed with massive cuts, It can be fixed with massive tax increases, It can be fixed with a combination of cuts and tax increases. But half-hearted efforts do little to nothing.