Penn Hills School District's preliminary budget adopted, tax increase likely

Jan. 30--Penn Hills School District officials moved a step closer to plugging an estimated $6 million budget shortfall and possibly raising real estate taxes more than 7%.

School directors voted 7-0 Wednesday night to adopt their 2020-21 preliminary budget, which includes a 2.0319-mill hike and no program cuts.

Board members Evelyn Herbert and Kristopher Wiegand were absent.

District Business Manager Eileen Navish said nothing's set in stone and she expects to see changes in the proposed spending plan before its final adoption in June.

"This is the very beginning," she said. The preliminary budget is posted on the district's website, phsd.k12.pa.us.

The approved preliminary plan was the third option presented at a special meeting in early January.

The first scenario included no tax hike and a $6.1 million deficit. The second included a tax increase of 1.0319 mills, or 3.6%, and a $4.6 million deficit. That would raise taxes to the Act 1 index ceiling, a state formula that limits tax hikes. The third option included an additional mill tax hike due to pension and special education expenses.

There's an estimated $3.2 million budget shortfall even with a maximum tax hike.

District officials said they plan to review staffing and look into cutting other expenses in order to fill the budget gap.

"We're making progress, but we still have a long way to go," board member Rob Marra said. "We're doing the right things to bring us to a sustainable balanced budget."

Navish said the largest increase in spending is a $1.1 million spike in charter school costs. About $16.4 million was budgeted for charter/cyber schools. She encouraged families in charter schools to come back to the district.

"Reducing charter school costs will positively impact this budget," she said.

Projected revenues were listed at about $89.3 million and expenses at $92.5 million.

Expenses include $45.39 million for salaries and benefits, an increase of about $645,000 from the current school year, $17.38 million for charter/vo-tech schools, an increase of $1.38 million; and $7.48 million for transportation, a $345,000 decrease.

The current millage rate is 28.6646 mills. One mill generates about $1.44 million in revenue.

The total increase, should it be approved by the state, would generate about $2.93 million for the district.

It also would mean the owner of a property assessed at $50,000 would pay about $101 more in taxes. They now pay $1,433; that would increase to $1,534.

Owners of properties assessed at $75,000 and $100,000 would pay about $152 and $203 more in taxes, respectively.

The district needed to move forward with a preliminary spending plan in January in order to seek Act 1 exceptions that would allow the district to pass a tax hike of more than 3.6%.

The district is roughly $172 million in debt, largely because of high school and elementary school construction.

Bond refinancing

District officials received some positive financial news Wednesday night.

Scott Shearer, managing director for Philadelphia-based Public Financial Management Co., announced a projected $12.5 million savings via bond refinancing.

The district is refinancing about $101 million, including $90 million in construction loans and $10 million in 2013 bonds.

The refinancing goal was to stave off a debt service spike projected over the next few years, maintain the 2043 payoff date and create some financial relief.

Shearer said they were able to accomplish all three and plan to close on the deal Feb. 13.

"Things really worked out well and the stars aligned," Shearer said.

Debt service payments were expected to be more than $12 million in 2023, 2024 and 2025. Shearer said refinancing brings that number down to about $10.4 million.

Bond refinancing savings are also expected to impact the 2020-21 budget.

"We're really doing good things for the school district and trying to save the taxpayers money," Navish said.

Financial recovery

District Chief Recovery Officer Dan Matsook said progress has been made in Penn Hills' financial recovery plan.

He said of the 73 initiatives in the plan, 50 have either been completed or are in progress. More initiatives may be added.

An audit of the district's buildings and grounds was recently completed. Audits of transportation and technology are underway. Reviews of special education, security, insurance and food service have yet to be completed.

"I feel really good about where we've gone the past 12 months," Matsook said. "The board's been working hard, and I have real confidence moving forward. I can tell you we're definitely in a better place today than we were last year at this time."

District officials approved a financial recovery plan June 29. State Department of Education officials did the same in mid-July. It's available for review on the district's website, phsd.k12.pa.us.

Matsook also stressed the need to bring charter school students back to the district, and finding more continuous revenue instead of one-time funding options.

Board President Erin Vecchio said state Sen. Jay Costa, D-Forest Hills, assisted in acquiring about $3 million for the cash-strapped district last year if it did not raise taxes.

"We're never going to turn down any kind of gifts we get from the legislators, but it can't be in lieu of us getting revenue that's guaranteed every single year," Matsook said. "It's a big part of who we are in Penn Hills, and a story that we have to clean up."

Vecchio encouraged Matsook to set up a meeting with state officials to discuss increasing its subsidies.

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