Busting a budget: Wilkes-Barre Area School District projections show chronic deficits

By Mark Guydish - [email protected] | December 25th, 2015 5:11 pm

WILKES-BARRE — It has become a recurring mantra from Wilkes-Barre Area School Board members and district officials, used most often to support the unpopular decision to merge two of three high schools: If things don’t change, the district is on a course to bankruptcy.

Board Member Dino Galella, who has voiced strong reservations even while backing the consolidation, offered the bleak assessment again at the Dec. 14 monthly meeting.

“I’ve always been an advocate of the three-school system,” Galella said. “But the professionals convinced me there is no alternative to keep our kids safe, and that if we go down that road we bankrupt the district. I don’t think any of us wanted to go down that road.”

Galella added he’s not fully convinced borrowing up to $100 million to build a new school won’t lead to the same financial fate.

How did the district come to the conclusion it is heading for insolvency?

The business office did an internal analysis of projected revenue and spending from 2014-15 through 2019-20 and, while there are plenty of caveats, a Times Leader review of that data shows an underlying problem: A structural annual deficit that remains even if, as predicted, revenue grows faster than spending.

No one culprit

While critics have long pointed to teacher salaries as a leading cause of high spending, the projections actually eliminate much of that by simply assuming no raises after the current contract expires in 2017. For three years after that, the salary figure for all employees stays flat at $53.3 million —about 45 percent of total spending.

Business Manager Leonard Przywara acknowledged that assumption, as well as several others, can mean the projections will be proven “very inaccurate,” but said the idea was to avoid speculating too much, using available figures. If anything, he noted, the deficits in the projection are conservative.

The business office added no raises after 2016-17, but did increase payments toward the teacher pension fund, basing that on the increases projected by the state’s Public School Employees Retirement System, the agency that runs the fund.

The state retirement account has fallen woefully short of generating enough money from investments to cover expected future costs and, as a result, district contributions have been and are projected to continue rising steeply.

In the Wilkes-Barre projections, payment toward retirement is the fastest growing cost, rising 61 percent by 2020, from $10.6 million this year to nearly $17.2 million in 2019-20, a 61 percent increase. Payment toward retirement make up about 13 percent of total spending.

Other caveats

The projections also assume no increase in health insurance costs, an unlikely scenario. And there is scant change in projected debt service of about $3.4 million most years, despite the fact that estimates for the new consolidated school project run as high as $100 million.

Districts can and often do structure new debt to kick in while old debt is paid down, keeping annual debt service relatively level while stretching those payments out another 20 or 30 years.

Some other assumptions very much up in the air:

• Income from local property tax was increased by 2.7 percent each year in the projection, the maximum rate allowed by law this year. But the school board has traditionally been reluctant to hit the maximum, one reason the fund balance dropped from about $13.4 million in July 2014 to $7.4 million this summer.

• The maximum property tax increase often varies from year to year. The state recently released the limits for 2016-17, and the maximum increase for Wilkes-Barre Area is 3.4 percent.

• The projections show no increase in state or federal education funding going forward, but one of the reasons Harrisburg has failed to pass a budget since the June 30 deadline is an ongoing dispute about increased funding for education. On the federal front, Congress recently approved a bipartisan education bill that does modestly increase education funding, though federal dollars only account for about 5 percent of the district’s total budget.

Bottom line

In the end, the district runs multi-million dollar deficits each year of the projections, despite assuming no increases in salaries or health insurance. Income rises by 10.8 percent while spending rises at a more modest 8 percent, but that merely shrinks the annual projected shortfall.

Under the scenario calculated by the business office, the shortfall totals $6.8 million in 2016-17, $5.6 million in 2017-18, $4.6 million in 2016-19 and $3.5 million in 2019-20.

All that red ink makes a fund balance that provided a $7.4 million cushion at the start of this year shrink to $2.9 million next summer before falling into negative numbers, ending up a deficit of $17.6 million in 2019-20.

Przywara conceded the numbers are strictly hypothetical, and that part of the task of his office and the board is to keep the budget balanced each year. But past may be prologue in this case.

For years, the school board has started the annual budgeting process several million dollars in the red, typically using a mix of cuts, tax increases and a dip into the fund balance to even things out.

Pryzwara said one of the key reasons for making the projections, however flawed, was to show that the fund balance option will quickly evaporate unless other steps are taken.

“The problem is the board doesn’t want to raise taxes; they want to do what’s right by the taxpayer,” Przywara said. “So the only opportunity we have is to use the fund balance, and that’s a one-time thing. Once you use it, it’s gone.”

By Mark Guydish

[email protected]

Reach Mark Guydish at 570-991-6112 or on Twitter @TLMarkGuydish