South Middleton School District appears to be ending 2018 on a promising fiscal note for officials.
A proposed Act 1 tax increase along with an adjustment in projected earned income tax revenue might be just enough to close a potential deficit in the budget for 2019-20.
Business and Operations Manager Matthew Ulmer recently briefed school board members on a very early and preliminary budget that calls for no deep cuts in education programs or transfers from reserves.
Based on his projections, a tax increase of 2.3 percent could generate about $445,000 in new revenue for the district. Ulmer also increased revenue projections for the earned income tax by about $500,000 to better reflect actual numbers and collection trends since 2017-18.
This total of $945,000 should be enough to cover the following $867,369 in projected expenditure increases:
- $166,547 for salary hikes
- $310,645 for health insurance costs
- $294,867 for the district contribution to the Pennsylvania Public School Employees’ Retirement System
- $80,000 for debt service payments
- $15,310 for transportation
Ulmer said central office administrators have yet to meet with building level administrators or subject matter department heads. For now, the plan is to keep education programs at the same level as the 2018-19 year.
Total expenditures for 2019-20 are projected at $37.4 million with an ending unassigned reserve of $2.85 million. But it is very early in the 2019-20 budget cycle and the board is months away from a May vote on a proposed budget and a June vote on final budget adoption.
The board would need to discuss in January whether to pursue an Act 1 exception for PSERS that would allow the district to increase the real estate tax beyond the base index of 2.3 percent. Ulmer has estimated that an exception, if granted by the state, could generate about $90,000 in additional new revenue.
Though it is possible that the state will increase its basic education subsidy, Ulmer is not banking on it and has kept the state revenue projection at the current level.
Board president Michael Berk has called on district administrators to prepare a calendar of meeting dates to review the proposed budget as the business office continues to process the fiscal plan.
Berk suggested the board convene an early meeting in 2019 where the administration could present an overview of the process to the board and the public. He saw this meeting as an opportunity for the board to provide feedback on what was missing and what was too much from the last budget cycle. While 2018 ends on a promising note, board members have to be wary of a developing trend.
Ulmer’s presentation included a five-year projection of the district budget out to fiscal year 2023-24. He based his projections on an annual tax increase of 2 percent along with an average annual salary increase of 3 percent, which is the trend among school districts in the Capital Area Intermediate Unit.
The five-year projection shows a gradual increase in annual budget deficits coupled with a steady decline in the unassigned fund balance the district could draw upon to offset shortfalls.
In 2020-21, Ulmer has projected expenditures of about $38.1 million compared to revenues of about $37.9 million for a deficit of $209,986. Assuming no cuts in programs or other major changes, this deficit would reduce the unassigned fund balance to about $2.65 million.
For 2021-22, Ulmer has projected a $653,243 deficit based on expenditures of $38.6 million and revenues of $38 million. That would reduce the fund balance from $2.65 million to about $2 million.
In 2022-23, Ulmer has projected expenditures of $39 million revenues of $38.1 million for a deficit approaching $900,000 and a drop in fund balance from $2 million to about $1.1 million.
In 2023-24, Ulmer has projected a $1.15 million deficit that could exhaust the unassigned reserve and result in an ending balance of negative $63,591. The deficit represents the difference between $40 million in expenditures and $38.85 million in revenue.