Pennsylvania school districts will need to consider options like tapping fund balances, cutting costs and raising taxes to overcome massive reductions in revenue due to the coronavirus, a new study shows.
The nonprofit Pennsylvania Association of School Business Officials last week released its projections of how 2020-21 budgets will be impacted by the virus and efforts to control its spread, which have closed wide swaths of the state's economy.
Statewide, depending on how quickly the economy turns around, the study projects losses in local school district revenue of $870.5 million to more than $1 billion.
In the Lehigh Valley, the total local revenue loss for 2020-21 school budgets is projected at $57.5 million to $68.1 million. Local school officials say those projections may be a little high, but they are still bracing for millions less than they had to work with in crafting the current year’s budget.
"Every school district tax source and other non-tax revenue will suffer a precipitous decline for the upcoming school year,” PASBO Director of Research Timothy Shrom said in a statement. “In an economic downturn we know that unemployment goes up, thereby reducing our local income tax revenue, and we know that the real estate market will be affected resulting in a reduction of our real estate transfer tax.
"We also know that our taxpayers will need more time to pay, thus reducing property tax revenues, and with the significant cuts in the rates, interest earnings will take a hit as well.”
PASBO released its projections as House Republicans in Harrisburg push for a property tax freeze to help homeowners facing financial hardships as a result of the COVID19 crisis.
The following chart shows PASBO’s projected local revenue losses in 2020-21 for the Lehigh Valley’s school districts. Click here if it’s not displaying.
The Parkland School District is projected by PASBO to be the hardest hit in Lehigh County, with a range of local revenue losses from $7.1 million to $8.5 million. Still, the district is working to keep property taxes unchanged from 2019-20, said Superintendent Richard Sniscak.
"We're shooting to do a zero-tax increase, so to do that we're going to have to make as many adjustments on the expenditure and revenues sides as we can, but in essence we'll be relying on reserves to close that gap," he said. "We anticipate pulling about $11 million from reserves to balance the budget."
The East Penn School District says it’s also focusing on cutting expenditures to cover the lost income. Simply using cash reserves would exhaust them within three years, the district says. The district’s own projections call for a revenue shortfall of about $6.2 million, which is within the range PASBO’s projections of $5.4 million to $6.4 million in local revenue losses.
Parkland says its business administrator, John Vignone, did his own projections based on PASBO’s methodology and came up with a lower but still significant impact on local revenue from coronavirus. Sniscak attributes the difference to PASBO’S reliance on district annual financial reports through 2018, rather than current data. The district’s projections are that local revenues will drop by about $6 million to $6.5 million, the superintendent said.
The Bethlehem Area School District is projected to lose the most local revenue in Northampton County, with PASBO projecting losses of $10.3 million to $12.1 million. That is around twice what the district is projecting in local revenue losses, Chief Financial Officer Stacy Gober said. Benefiting the Bethlehem Area is the fact that many local employers, like big box stores and warehouses, have remained open as essential businesses during statewide stay-at-home orders, she said.
"I agree that we are going to have a decline in revenue, no doubt about that," Gober said. "The question is what's the dollar amount."
"I think we need to look at where things progress and what the indicators are in the next two months," she said.
While schools have been closed since March 16 as part of efforts to halt the virus’ spread, districts have been required to continue to pay employees and contractors. Cost savings from shuttering buildings for one-quarter of this school year aren’t projected to significantly aid districts that may be facing a years-long financial recovery.
On top of lost revenue, districts still need to cover contractually obligated salaries and benefits that make up about 60% of budgets, as well as continually rising mandated costs for charter schools and pension obligations, PASBO says.
The following map shows PASBO’s district-by-district projected losses of local revenue in 2020-21. Click here if it’s not displaying.
Local revenues account for the largest chunk of school budgets -- on average about 58%, with another 38% coming from the state, according to PASBO. Pennsylvania has yet to finalize its Fiscal Year 2021 budget, which is due by June 30 -- the same as school budgets. PASBO also anticipates $500 million in emergency federal funding coming to school districts in a one-time shot for 2020-21.
"This is a multi-year event that school districts really have to plan for to try to weather the storm," said Jay Himes, leadership adviser with PASBO, during a conference call with reporters Friday.
PASBO bases its projections on two assumptions of the potential local revenue impact -- one looking at a quick turnaround in the economy and the other at a slower rebound. Both are informed by review of the actual impacts felt by school districts following the 2008 recession and use annual financial report data from 2006 through 2018, applying each assumption to the estimated 2019-20 local revenue base for each school district.
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Kurt Bresswein may be reached at kbresswein@lehighvalleylive.com.
For more information on the coronavirus, consult your state health department at health.pa.gov or covid19.nj.gov and the website of the U.S. Centers for Disease Control and Prevention.
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