North Penn CFO Steve Skrocki, inset, shows possible tax increases for 2024-25 and the resulting revenue and projected deficit, during the school board finance committee meeting on April 23, 2024. (Screenshot of NPTV video)
Preliminary budget numbers being crunched to close $9.3M gap
District officials have gotten a preview of North Penn’s preliminary budget for 2024-25 and a decision they’ll have to make in May about a possible tax hike.
“5.3 percent is our limit. We really don’t expect a scenario where we would recommend anything to the board that’s 5 percent or higher. It’s just simply not needed, for a variety of reasons,” said district CFO Steve Skrocki.
“If you ask the question, what does a balanced budget look like? What would that take to get to a balanced budget? That number is about 4.49 percent,” he said.
Each year the district’s school board and staff hold a series of finance committee meetings to outline department budget requests ahead of preliminary budget adoption in May and the final budget vote in June, in time for the start of a new fiscal year on July 1.
In June 2023 the board approved a $312 million budget with a 4.1 percent tax increase that staff said would cost the average district homeowner an additional $173 and would generate roughly $8.3 million in new revenue compared to the year prior.
Starting deficit
Following several more departmental presentations on Tuesday night, Skrocki gave an update on the big picture: The first draft of the budget currently contains a significant deficit, but one smaller than in prior years.
“Our first draft of the budget, with a zero percent tax increase, has a $9.3 million deficit. That is an incredibly large number, but compared to our first draft in recent years, that actually is pretty low. We had one year, the first draft of the budget had a $15 million deficit,” he said.
That first draft deficit will be narrowed over the next two months as details are finalized on year to year budget variances, year-end surpluses from 2023-24, state budget negotiations that could affect the district’s subsidies, and investment income affected by the interest rate environment.
“Our budget this year was passed with an $832,000 (starting) deficit. There’s a number of factors, in particular investment income, earned income tax, and realty transfer tax, where we think we’re going to have some major positive variances on the revenue side,” Skrocki said.
“So we think we’ll end this fiscal year with a surplus. However, there was a budgeted deficit, as has been the case the last five or six years,” he said.
Costs going up
Five factors make up the projected $9.9 million increase in spending for 2024-25 over the current year, Skrocki said. Roughly $6.7 million of that total is for salaries and benefits for teachers and staff, per union contracts under a new deal approved in February and including “a number of new positions” that are still being discussed by staff and the board’s personnel committee.
Charter school tuition costs are projected to increase by $460,000, while contracted transportation costs for certain school bus runs will increase by $590,000 per a new contract recently awarded by the board. Tuition for district students attending the North Montco Technical Career Center will increase by just under $398,000, Skrocki told the board. One line item in the preliminary budget is new — a $2 million transfer to capital reserves for planned renovations to North Penn High School.
“To the extent that we can fund the high school project from general fund funds, that reduces our borrowing costs for the overall project,” he said.
“I say many times during budget presentations, if you want to know where the money is, follow the money. And districtwide, roughly 75 to 80 percent of our budget is salaries and benefits. It’s people. Which makes sense, since we are a service organization,” Skrocki said.
The state-set Act 1 index, which limits how much local districts can raise taxes per year without voter approval, has been set at 5.3 percent for 2024-25, well above the 4.1 percent index for 2023-24 and the highest since that act was adopted in 2006, Skrocki said, as he showed a graph.
“It has been increasing, because there’s been some pressures on pricing and inflationary increase over the past couple of years, and that’s expected to subside,” he said. “Quite frankly, I’m not sure if we’ll ever see 5.3 percent again. That is an historical high, but we were in unprecedented times.”
Current reserves for the district total just over $54 million, with roughly $28 million of that total designated for capital projects across the district, another $22.4 million unassigned, $2.7 million assigned for self-funded insurance costs, and $1.2 million for non-spendable items.
If all revenues stopped immediately, the reserves would cover 26 days of average spending per day, worth noting for years when Harrisburg politics prevent the state budget from being passed on time.
“Our fund balance, in pure dollars, has increased quite a bit over the years. But our fund balance percentage, as a (proportion) of our overall general fund budget, has really maintained around the 15 to 18 percent level,” he said.
“Were it not for the upcoming high school project, perhaps that fund balance percentage could be a little lower, maybe in the 13 to 14 percent range, but that 17 percent is going to allow us to help reduce our interest expenses, because we can use some of that fund balance to offset borrowing for the high school project,” Skrocki said.
Tax options
He then showed a chart detailing several tax scenarios, with the $9.3 million starting deficit at a zero percent tax increase, and the corresponding additions of revenue at various tax increases. Each one percent of increase would add roughly $2.1 million in new revenue and cost roughly $44 for the average homestead in the district, thus a 4 percent increase would yield $8.4 million in new revenue, cost $176 for the average taxpayer, and leave a starting deficit of $849,000, and a 4.49 percent tax hike would bring $9.5 million, cost $197, and yield a starting surplus of just under $187,000.
“That’s about the closest we can get it, without rounding out another few decimals,” Skrocki said.
Staff are still refining the total personnel numbers and costs, investment income projections, and 30-plus-year financial modeling for the high school renovations that could slightly impact the budget projections, and updated projections will be presented at May finance committee meetings before a full board vote on the tax rate on May 16 and final budget adoption on June 20.
“These numbers change daily. They’ll continue to change, before we present the proposed final budget,” he said.
Board President Tina Stoll asked for a reminder of the exceptions that districts can use to exceed the Act 1 index, and Skrocki said three exist: for special education costs, which North Penn used in 2019-20; for retirement costs, which only a handful of districts in the state still use; and for electoral debt, which the board sought but voters vetoed for the high school project in January.
“Had our referendum been passed back in January, that would’ve been something we would’ve been eligible for,” he said.
Only one public comment was made on the budget, by resident Jason Lanier, who questioned whether the recent attack at Pennbrook Middle School that left a student hospitalized reflected a board and district focus on political goals or priorities ahead of student safety.
“No one likes property taxes, and nobody likes to see increases in property taxes. But it comes down to: are these taxes being well spent by the district? The job of the school board is to make sure the school isn’t, I wouldn’t say overextending, but going way beyond their mission of education,” he said.
North Penn’s school board next meets at 7 p.m. on May 7 and the finance committee next meets at 6 p.m. on May 7 and 21; for more information visit www.NPenn.org.
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