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As school districts across the state work to set this year's budget, the unexpected expense and drops in revenue due to COVID-19 shutdowns are forcing officials to take another look at the budgets they began preparing months ago.
The Pennsylvania Association of School Business Officials said the state's school districts could lose more than $1 billion in local revenues due to COVID-19.
According to Dr. Timothy J. Shrom, PASBO director of research, every school district tax source and other non-taxable revenue will suffer a "precipitous decline" for the upcoming school year.
Rising unemployment due to coronavirus shutdowns will cost districts' revenue from income tax as well as real estate taxes because of the slowing market.
Altoona Area School District Superintendent Charles Prijatelj said that COVID-19 is going to cost the district 10 to 20 percent of its earned income tax money, which could mean a loss of about $1.2 million.
"Nobody is working," he said. "You don't pay earned income tax on unemployment. For almost two months, nothing was being built. We still have stores closed. People are not making income so therefore we are not getting any income tax."
Prijatelj said the district is also facing an estimated $900,000 loss in business privilege and mercantile taxes.
"The district is very dependent on its retail businesses, but retail has been shut down," he said.
Hollidaysburg Superintendent Robert Gildea said the loss of real estate taxes is going to be a big hit for the district.
"For a lot of school districts, that's where the majority of funding comes from," he said. "Real estate values are projecting to drop by 1.5 to 2 percent."
Gildea said the district is anticipating a 35 percent drop in real estate transfer taxes.
"For Hollidaysburg, the drop in real estate is going to have a significant impact," he said.
COVID-19 is also projected to have an impact on the funding the state gives to school districts. Gildea said districts are not anticipating a state funding increase this year to keep up with rising costs, which could lead to cuts.
"We are hearing rumors from the state that, at best, there is going to be level funding," he said. "Which means it won't increase from last year's funding, and when your expenses are going up and you are not getting any more revenue, the money has to come from somewhere."
Prijatelj said the lack of an increase in state funding could cost the district about $500,000.
"When you look at all of our shortfalls and put on top of that the state is not giving us an increase," he said. "If we are lucky, we are looking at flat funding from the state. That is another $500,000 that we were planning on."
Gildea said that Hollidaysburg does not rely on the state as much for funding as districts in lower income areas, with 54 percent of its revenue generated locally. By contrast, Altoona receives about 65 percent of its funding from the state, and with no increase and a drop in tax revenue, Prijatelj said the losses add up quickly.
"We are looking at approximately $3.7 million revenue lost in taxes and state funding due to COVID-19," he said.
When revenues are down but costs keep rising, districts are forced to look for ways to cut into the budget, but unfunded mandates, programs and services that are required by the state but receive no state funding, are untouchable when it comes to making cuts.
"Special education is an unfunded mandate," Prijatlej said. "We have training mandates, reporting mandates. All those things have costs."
Prijatelj said the document that lists the mandates is about 20 pages long.
"It gives you hard operation costs that you just can't change," he said. "When it comes to the unfunded mandates, it creates non-negotiable overhead where you just have an expense that you can't cut."
Gildea said Hollidaysburg usually enters the year with a deficit but school officials close the gap by finding savings during the year, something he says is going to be difficult this year.
"Historically over the past few years, we have entered into a budget year with a deficit and throughout the year we have been able to generate savings in one area or another in order to close that gap and end up in the black," Gildea said. "This year we could end up with about a $400,000 deficit."
Prijatelj said Altoona started its budget process with an $8 million deficit and through restructuring heath care, eliminating some positions and retirement incentives, were able to cut into it, but not as much as projected before COVID-19.
"If COVID-19 had not happened, we would be looking at a deficit of approximately $2.1 million without a tax increase," he said.