North Penn sees tax increase options for 2025-26 budget

As budget season continues for the North Penn School District, board members will soon have a six-figure decision to make.

School board members saw a first draft of their 2025-26 budget last week, and previewed a decision on the district’s tax rate that will need to be made within weeks.

“The good news is, you are well within the Act 1 index,” said interim CFO Chuck Linderman.

    North Penn interim CFO Chuck Linderman speaks about a draft 2025-26 budget during the district school board finance committee meeting on April 8, 2025. (Image courtesy of North Penn School District)
  

“You really only need about a 3.8 percent increase, but we are strongly recommending you consider going to four percent, for a couple of reasons,” he said.

Each year the school board votes in the fall on whether to stay within or exceed the state-set Act 1 index of a maximum tax increase that can be approved without a voter referendum, then hears a series of public presentations detailing various departmental budgets throughout the spring, before adopting a preliminary budget in May and finalizing it in June before the fiscal year starts July 1.

Last June, North Penn’s board approved a $322 million 2024-25 budget, with a 4.49 percent tax increase, equaling a $197 hike for the average taxpayer, then voted last fall to stay within the Act 1 level of a 4.0 percent increase for 2025-26.

The district has also spent the past several years planning a roughly $260 million renovation of North Penn High School, with a first phase slated to start this summer, and held talks last fall on the series of bond borrowings needed to pay for the project, and in January on using $10 million from capital reserves to pay for part of the first phase.

Since then, Linderman told North Penn’s finance committee on April 8, the annual operational budget has continued to take shape, with the expense and revenue numbers in the latest draft reflecting that $10 million transfer from reserves.

    North Penn’s school board saw a comparison of the 2024-25 and 2025-26 budget revenues and expenses during the board finance committee meeting on April 8, 2025. (Image courtesy of North Penn School District)
  

“The first draft of the budget for next year has (projected expenses of) $348 million, and an $18 million deficit between revenues and expenditures. That’s an 8.1 percent increase, and is a little bit inflated because $10 million is in there, to take out of your fund balance, that we have to budget so you can move it over to your capital project fund,” Linderman said.

“So really, it’s about an $8 million increase, if you take out the $10 million from capital —- about a five percent increase” year over year, he said.

Superintendent Todd Bauer added that the $10 million transfer from reserves was not part of initial plans for the high school borrowing, which initially called for borrowing $25 million to $30 million in the first year, but several years of budget surpluses, higher-than-expected interest earnings, and pandemic stimulus funds have helped build up reserves.

“Because we’ve been fiscally responsible, and because we’ve had some grant monies over the years due to Covid and some things, we have $10 million that we’re allocating. That $10 million must be reflected in this budget,” Bauer said.

Board member Christian Fusco added that spending those reserves reflect the board hearing feedback from the community: “We are spending our own savings, on the project, at least in part. We hear that a lot from the community: ‘Borrow, borrow, borrow.’ There is a significant portion of phase one that’s being paid for from our reserves, which in family terms is our savings account. So that is happening,” he said.

Budget breakdown

Year over year increases in the draft 2025-26 budget include $6.8 million in employee salaries, a roughly four percent increase over the prior year, plus an additional $3.6 million in benefits, just under $830,000 in higher costs for utilities, and roughly $650,000 in increased transportation costs, Linderman told the board. Another budget increase: $236,000 in costs for charter school tuitions, which the board and prior CFO Steve Skrocki have repeatedly called on state lawmakers to address.

    North Penn’s school board saw a list of increased expenses projected in a draft 2025-26 budget during the board finance committee meeting on April 8, 2025. (Image courtesy of North Penn School District)
  

“There’s still a lot of talk about some kind of cyber and charter relief, at the legislative level. I would encourage you: don’t hold your breath. I’ve been saying that for the last 20 budgets I’ve done; there’s always something they’re going to change, and it never happens,” Linderman said.

Board President Cathy McMurtrie asked if the utility costs were locked in long term or expected to further rise in future years: “It is a big driver, and not much we can control.” Linderman said staff are getting ready to go out for a new set of contracts, using a third-party consultant with expertise in energy markets.

“Pricing is going up overall, so they try to monitor that market, and get us a great deal,” he said.

On the income side of the budget, revenues are projected to increase by roughly $7.7 million before any tax rate increase, with roughly $1 million projected in natural growth of the district tax base at current rates, another $1.4 million projected in earned income tax revenue, and a projected $1.5 million in interest earnings on investment income that Linderman said may vary based on changes to interest rates at the national level.

“This is probably the last year you’re going to be able to increase your investment income budget, unless interest rates go awry again. Our guess is they’re going to continue to slope down a little bit, but a lot better than five or six years ago when your total investment income was under $1 million because you were getting 0.0-something percent,” Linderman said.

Several line items in the draft budget are also based on the district’s reimbursements from the state, and won’t be locked in until lawmakers in Harrisburg finalize their budget: $2 million in social security and retirement revenues; $632,000 in basic education subsidies; and $436,000 in special education subsidies are all placeholder figures that could come into further focus before the district’s final budget adoption in June.

“If it does turn out to be better, you will just realize that next year,” Linderman said.

As for the tax rate: the 5.3 percent state Act 1 index for 2024-25 was the highest since that act became law in 2006, and the next two years are projected to drop to 4.0 and 4.1 percent respectively, before falling again to 3.6 and 3.5 percent for 2027-28 and ’28-29 respectively. And as for those reserves: savings that have been committed to capital projects now total $49 million, plus an additional $22 million in unassigned fund balance in the operational budget each year, and an additional $3.5 million assigned for self-insurance costs, inventories and prepaid items.

“Our unassigned fund balance is the one that people focus on. Moody’s does recommend 8 percent, or at least one month’s expenditures, and you 7 percent, close enough,” the CFO said.

Tax impact

As for the tax increase: each one percent increase in the district’s tax millage would generate just over $2.2 million in new revenue, and cost the average homestead an additional $47, based on an average assessed home value of $150,000, according to the CFO. A tax increase of 3.8 percent would generate enough new revenue to offset the projected $8.6 million deficit, Linderman said, while a 4.0 percent tax hike would yield a surplus of roughly $265,000, at an increase of $186 for that average resident.

Final numbers may vary depending on personnel hires and retirements that will be discussed by the board in executive sessions over the next few weeks, Linderman said, and his recommendation is to opt for the larger increase because of the imminent start of the high school renovations, and the bond borrowings to pay for it.

    

“You are about to embark on a $200-some-million project. Which is desperately needed. You don’t want to defer it any more: every time you defer maintenance, you’re just adding costs, and you really owe it to your community to make sure your facilities are the best around,” he said.

“You have a long-term borrowing plan, and it’s just a little bit, but $264,000 next year is worth $520,000 every year after, because you already have the millage in place,” and any tax increases in future years would start with that additional revenue built in, Linderman said.

One other consideration: the 2024-25 budget was adopted last summer with a roughly $185,000 starting deficit, and since that vote the district has learned of roughly $1.2 million in subsidies from the state, plus $3.6 million in investment income, and roughly $800,000 in transfer tax revenue not included in that year’s budget. Current projections indicate just shy of $9 million in unexpected revenues and roughly $3.6 million from spending below budget, totaling roughly $12 million in possible surplus that could be transferred into capital reserves for the high school and/or smaller capital projects once the 2024-25 fiscal year ends and the budget audit for that year is complete.

“You’re in pretty good shape right now,” said the CFO.

Next steps include continued presentations of departmental budgets, and further refinement of the staffing costs for both new hires and retirements, and state budget projections, ahead of a vote to adopt a proposed final budget on May 15 and a final adoption slated for June 18. Linderman added thanks to Skrocki for his work on the 2025-26 budget and bond borrowing plans prior to his retirement in April, and said the final budget approvals will include incoming CFO Tara Houser.

“Hopefully, the final budget  will be what you want. Tara will be here then, and hopefully I’ll pass the baton off and she’ll run it home for you,” he said.

North Penn’s finance committee next meets at 6 p.m. on April 24 and May 6 and the full school board next meets at 7 p.m. on April 24; for more information visit www.NPenn.org.

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