With revenue off because of coronavirus pandemic, MASD might increase taxes to balance budget
With a projected decrease in revenue and already-made cuts to expenses, Middletown Area School District is now anticipating a $3.5 million deficit next school year.
Administrators plan on using fund balance to fill a large part of that hole — $3,238,000. Revenues have decreased because of the coronavirus pandemic.
How much more the district still needs to cut before the budget is adopted by the end of June depends on several factors.
Right now, additional cuts or revenue is needed to fill the remaining $309,504. But this variation of the budget presented to the school board on May 19 includes a 3.4 percent tax increase, which would raise taxes by $77.14 for a property valued at $100,000.
If the district opts not to increase taxes, that deficit grows to a total of $1,051,021.
The board voted to have the draft budget available for inspection during the May 19 meeting.
“I can honestly tell you that this administrative team, as a whole collectively, has made a valiant effort over the last several weeks, going line by line. We have cut every possible thing that we believe was more of a want versus a need,” MASD Superintendent Lori Suski said.
Both Suski and Chief Financial Officer David Franklin have offered to freeze their salaries and not accept 3.4 percent increases. According to MASD Director of Human Resources Heidi Zula, under the projected 3.4 percent salary increase, Suski would have been earning $5,401.78 more to her current salary of $158,875.94, and Franklin would have received an additional $4,573.20 to his current salary of $134,505.96.
“Desperate times call for desperate measures,” Suski said. “I fully understand why the board would want to have a 0 percent tax increase considering the economic impact that this pandemic has had on our community. We have a lot of people that are out of work right now.”
The board commended them.
“That’s pretty impressive leadership from the two of you — the fact that the two of you would even contemplate something like that during these times is amazing. It’s unfortunate you even have to think about it,” board member John Ponnett Jr. said.
Before the school board meeting June 30 during which they will vote on a 2020-2021 budget, staff plans to find additional budget cuts or revenue sources to fill the remaining deficit. Suski proposed coming up with options detailing how to reduce the deficit for the board to choose.
Suski said it may be possible to revisit the budget and find cuts to close the $309,504 deficit, but it would mean some departments would not get materials for which they were hoping.
The largest area in the budget is salaries and benefits, and the district is beyond the time when MASD would be permitted to furlough staff, and she wouldn’t recommend it.
“I really don’t know, short of considering a wage freeze, what other things could be offered up,” Suski said.
Projects like the proposed synthetic turf field are being funded through the capital reserve fund which has no effect on this budget, Suski said.
How MASD got here
“I think from my perspective, this has got to be the most unnerving budget development year that I’ve had in my getting-to-be-rather-long career. Because at this time of drafting the budget, I always had some level of certainty as to what my revenue was going to look like and what the expenditures would be. It is truly a crystal ball that we are using,” Franklin said.
When the budget was presented in December, there was a $6.4 million gap between projected revenues ($48.8 million) and expenditures ($55.2 million).
Now, the district is anticipating that it will receive about $2 million less in revenue at $46,969,240, and since the budget was last presented in December, staff cut just under $5 million from the expenditures.
Before the COVID-19 pandemic, the district planned to review and reduce expenditures and increase revenue where needed, including any state subsidy increases once Gov. Tom Wolf presented his budget. But it’s been silent at the capitol as to revenue, he said.
So Franklin is proceeding, assuming and hoping there will be no changes in revenue.
What is being cut
The largest expense is salaries at $19.5 million, which is about $1 million less than what was proposed in December.
“This is all vacant positions that were in a preliminary draft of the budget that no longer are in the draft of the budget that we’re looking at tonight,” Franklin said.
Gone are a proposed assistant elementary principal and eight professional staff positions. In an email, Franklin explained that the proposed position might not be the same position that’s being cut because MASD shifted staff using existing certifications. One more position will be eliminated due to retirement.
The staff also proposed to add nine support positions — six aides, a secretary and two psychology interns. Franklin said previously the secretary was hired this school year, but budgeted for the next. That position is still in the budget, as are the psychology interns. The district still plans to hire two aides.
A computer technician position was eliminated through outsourcing, as was a part time intern position for the maintenance department from the Dauphin County Technical School that started this year. Also gone is MASD’s transportation coordinator, who is retiring in June. Franklin said the duties will be absorbed internally.
These staffing adjustments make up about $890,000 of the cuts, Franklin said during the meeting.
Franklin said the Middletown Area Education Association agreed to have the rates paid to coaches and advisers frozen at the 2019-2020 rate. Overtime has also been cut.
Benefits and professional and technical services have been cut by about $1 million. Supply needs have been deferred for a year.
“I think across the board, every line item there’s going to be cuts that was made. It was an attempt to be equitable and prioritize instructional needs above most other things,” Franklin said.
Costs for equipment was cut from a proposed $2.3 million in December to about $894,000.
The technology equipment budget is expected to increase from $450,360 this year to $827,170, including $571,000 for iPads.
He said the district was able to implement its remote learning districtwide using iPads MASD planned to sell. Those devices are past the end of their lifespan, and it could be challenging if classes need to be held remotely again.
The district is proposing to replace the middle and high school kids’ devices using grant funds, and have their iPads available for the elementary students if school needs to be held remotely again. If it doesn’t, then the iPads can be sold.
The iPads that the elementary students are currently using would then be sold.
MASD received a $452,342 grant through the federal CARES Act. According to Franklin, the money will be used in four ways — $238,000 will be used to replace the iPads for remote learning, $60,000 for salaries and benefits for teachers for after school tutoring to help kids who may have fallen behind while learning at home, $57,000 for transportation to tutoring, $25,000 for professional development for mental health needs, $27,000 for technology supplies for remote learning such as hotspots, and $29,000 for other supplies.
“Is it absolutely necessary that we replace [the iPads] this year versus waiting until another year? Next year?” asked board member Andrew Kinsey.
Could the iPads be replaced on an individual basis? asked Vice President Mike Corradi.
Franklin said the iPads wouldn’t be guaranteed to be able to perform with a year’s worth of updates. Plus, the district would want to have a supply available so a student wouldn’t have to go without a device if theirs broke, he said.
The district did consider renting the devices for six months at a time, but Franklin said he didn’t know if the district would be able to use the grant funds for it.
Revenues take a hit
In December, the district was anticipating that its revenue would increase by several hundred thousand dollars next school year. But now MASD is bracing for a loss of revenue of just more than $1 million from 2019-2020.
MASD is anticipating it will bring in $46,969,240, and about $28.3 million would come from local sources. A majority of the local revenue comes from the real estate taxes, and while the district is anticipating that it will receive more revenue than last year, it’s about $450,000 less than what MASD anticipated in December.
Local services and earned income tax revenue is also anticipating to take a hit to the tune of about $869,000 for a total of approximately $4.4 million. Also anticipated to decrease is the parking tax, delinquent taxes, and real estate transfer tax, as Pennsylvania had deemed real estate sales non-essential until last week.
“Maybe that is one thing that will be positive that we can change by the time of adoption on June 30. It won’t have to be so drastic as a reduction there,” Franklin said.
President Linda Mehaffie, who is a Realtor, said people have been “biting at the bit” to both buy and sell real estate. Some properties have been under contract, waiting to go to closing, Mehaffie said.
MASD is also bracing for more than a $40,000 decrease in the money it makes from admission fees for athletics if social distancing is still required in the fall or fans are less comfortable attending large gatherings.
MASD’s budget-balancing plans
One new concept the district is facing is the loss of non-recurring revenue compared to how much Franklin had anticipated the district would typically receive in real estate, local services, earned income, real estate transfer, parking, and delinquent taxes; transportation subsidy and gate admissions. He estimated this revenue loss at about $2.3 million.
The district only uses fund balance for non-recurring expenses, and Franklin said the district uses its fund to balance the budget every year. But he is proposing to consider using the fund balance for this loss of non-recurring revenue because as Franklin sees it, the revenue will return. Using the fund balance will prevent the district from having to make even more dramatic budget cuts.
“I’m comfortable saying that at this point in time recovery is hopeful and we will again return to this state where what we once collected in revenue will come back again,” Franklin said.
He also proposed to cover instructional supplies, equipment, curriculum materials, furniture, non-recurring professional development, water treatment feeders, hurdles, data networks and the budgetary reserve to a total of $3,238,000.
Franklin said about $1 million would come out of the district’s unassigned fund balance (which has $3.5 million in it), and the remainder could come from fund balances dedicated for future debt service stabilization and self-funding of health insurance.