Warwick School District anticipates $295,000 deficit

By on May 10, 2017

As the Warwick School District’s 2017-18 budget nears final adoption in June, an update on the proposed budget has been presented.

A summary of the current state of the 2017-18 budget shows that revenue is projected at $70,776,134 and expenses at $71,633,474. The deficit is expected to be $857,340, less bond refinance savings of $562,287 for a true deficit of $295,053.

“The district is having a sound financial year this year and is in a position to mitigate the budgeted deficit due to both revenue and expense favorability,” Nathan Wertsch, district business manager, said. “As we look to future budgets, it’s important for the Finance and Legal Committee and Warwick School Board to weigh the balance of fund balance use, revenue generation, and expense mitigation, especially in light of the current feasibility study and long-range planning.”

Revenue is more than $2.5 million over the 2016-17 budget, due to increases in real estate taxes, EIT (Earned Income Tax), PSERS (Pennsylvania State Employees’ Retirement System) reimbursements, and PlanCon reimbursements. This includes 50 percent of the proposed state budget increase in basic education funding and special education funding, as well as a decrease in the transportation subsidy.

Expenses are increasing $1.9 million over the 2016-17 budget, adding debt service back in, significant special education increases, increased salaries, increases in the PSERS rate, normalized health care estimates, increased transportation costs, and budget “right-sizing” based on trends.

Wertsch noted that the school board voted back in December to stay within the state’s adjusted maximum tax increase index for the fourth year in a row, which is 3 percent. The board continues to stay within the Act 1 index and has not sought exceptions. Some other districts have been hit with or are considering tax increases above 4 percent, some in the 6-7 percent range, he added.

Based on January 2017 taxable assessed values of $2,007,814,000, and a median assessed value of $146,700, the increase at the 3 percent index would be $91.31.

“On the revenue side, the majority of the budget increases is due to local revenue, as we receive little to no help from state or federal sources,” Wertsch said. “On the expense side, the majority of the increases is due to salaries and benefits which account for 68 percent of our overall budget. We are still working with imperfect information at this point, so there are still budget impacts that could happen between now and the adoption of the final budget.”

A potential positive impact is real estate tax revenue. It is hoped that updated totals from the county show increased assessed values since January. Also, if Governor Tom Wolf receives his full education increase as proposed, the additional revenue will fall to the bottom line. And with enrollment here continuing to decline and retirements in, all vacancies will continue to be analyzed.

Potentially negative budget impacts include property tax reform. Even if nothing happens this year, the potential for school boards to have no local tax control in the future is a concern. With reassessment, there is the likelihood that a lower aid ratio in the future would impact taxes with a lower adjusted index and state reimbursements.

Another concern is the loss of real estate tax revenue from Lancaster Regional Hospital if the acquisition by the non-profit PinnacleHealth goes through, a $27 million assessment and $559,000 in real estate tax revenue.

Wertsch explained that a number of things impact the final budget, including assessed value increases, (not from reassessment), state funding clarity, personnel and program changes, and health care updates. Financials are reconciled every month and the district budget continues to build on any trends, both positive and negative, into the future.

“From a state budget perspective, we really don’t have any new information at this time other than it does appear as if major property tax reform is not likely to happen this year,” said Wertsch.

Wertsch explained further that budget development is a very fluid process that occurs throughout the year. With either the budget opt-out resolution or preliminary budget due in the January time frame, the core of the budget and the district’s financial position is already put together by then and then adjusted regularly as more information becomes available up to final adoption in June.

“Warwick is like any school district in that public schools are faced with expenses rising at rates higher than what we can get in revenue every single year,” said Wertsch, adding that salaries, PSERS, health care costs, special education costs and other expenses all rise at rates far above the assistance the district gets from the state or from the rate at which the local economy grows.

The current fund balance for the Warwick School District is $13,447,830. Of that more than $8 million is committed to PSERS and health care stabilization, projected operating deficit, construction and improvements and capital expenditures. It could be less with the 2017-18 budget deficit of $295,053.

Wertsch noted that Warwick has just completed one more bond refinancing at anticipated savings of $619,996 and actual savings of $975,405. These savings were attributed to the district’s good credit rating and other factors. The refinancing was the last that the district can complete and there are no additional opportunities for savings there. The district has saved almost $5.8 million since 2013 with the refunding that has been completed.

Regarding developments in the state budget process, the outlook has changed since the beginning of the year. In January, property tax reform seemed destined to happen, and increases in basic education funding was expected to increase by $100 million, special education funding by $25 million, and transportation funding cut by $50 million. Now the property tax reform seems unlikely. The basic education and special education increases are “likely.” The transportation cut is “not likely.”

“Fifty percent of the proposed state budget is built into our proposed final budget,” Wertsch pointed out.

The proposed final budget is available for more detailed review at www.warwicksd.org under the Business Office tab. The updated final budget is scheduled to be presented to the Finance & Legal Committee and the Committee of the Whole on June 6. The deadline to publish the notice of intent to adopt the final budget is June 10, and the Warwick School Board will vote on adoption of the final budget on June 20.

Laura Knowles is a freelance reporter who covers the Warwick School Board beat for the Record Express. She welcomes reader feedback and story tips at lknowles21@gmail.com.

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