NASD Budget Discussion

I wanted to present the budget and possible tax ramifications in a separate post. As I mentioned in the meeting notes, it now appears that NASD is recommending a budget that will tax over the Act 1 index limit of 5.4%. Ms. Rischoff pointed out that NASD is allowed $3.7M in Exceptions by the state. This is the amount over the Index that can be taxed without going to a voter referendum.

Act 1 was passed a couple years ago as an attempt to slow escalating property taxes in the state of Pennsylvania. Each year an tax index (maximum tax increase) is established for each district. Each school district must hold the tax increase below the index or else it goes to a voter referendum. Basically, the voters then decide if an increase in their property tax is worthwhile. A loophole of sorts was added to help those districts offset increases in special education, debt expenditure, etc. Basically, these Exceptions allow a district to tax above the index without going to referendum.

For the 2008-09 year, the NASD Act 1 index is 5.4%. This is the amount that the district can increase taxes. However, due to our debt expenditure and “growth”, NASD has been granted by the Pennsylvania Department of Education (PDE) $3.7M (that’s million) in Exceptions.

Our preliminary budget already has the 5.4% tax increase built in. Our 2008-09 preliminary budget is “balanced” (expenditures = revenues). However, subsequent years show increasing deficits and the need to tax well above projected Act 1 indexes. As of 4/21/2008:

2008-09: Revenues (proj.) = $60.21M; Expenditures (proj.) = $60.21M

This is accomplished with a 5.4% tax increase. Subsequent years are as follows:

2009-10: Rev (proj.) = $63.1M; Exp (proj.) = $66.6M - Deficit = $3.5M

Our revenues are are going up based on two things. An expected 2% increase in the real estate assessment (ie., more development) and an already built in 4.2% tax increase. As you can see, we are still WAY short. In order to get there, we need to tax an ADDITIONAL 9.74% above the index value (that’s added to the 4.2%).

2010-11: Rev (proj.) = $66.6M; Exp (proj.) = $70.5M – Deficit = $3.9M

Same thing applies here. On the revenue side, we have an expected 2.5% increase in real estate assessment and the same 4.2% tax increase. And yet, we’re still short. An additional 10.10% tax increase ABOVE the index is required.

NASD forecast extends out to the 2012-13 year and that year is the worst of all. We are looking at a budget deficit of $5.2M in this year. As you can see, unless NASD does something, this district and community is looking at Voter Referendums on the school budgets in the very near future.

It should be noted that the above does not take into consideration any debt restructuring that NASD is looking at.

Well, what about Exceptions? Aside from this year, Exceptions are expected to be very low until 2013. NASD currently expects the Exceptions to be:

2008-09: $3.7M (already approved by PDE)
2009-10: $0.09M
2010-11: $0.07M
2011-12: $0.37M
2012-13: $3.25M

So, NASD will not be able to expect Exceptions to be much help during the next couple of years.

All of which supports Ms. Riscoff’s position that the NASD is looking to tax above the index for THIS year.

Legally, NASD can add the $3.7M worth of Exceptions into the budget and raise taxes to meet that number. Considering that each mill is worth approximately $843K, the extra $3.7M is the equivalent of 4.4 mills. Added to the 2.5 mills already built into the budget and NASD could (I’m not saying they will) raise the millage rate by 6.9 mills from 40.32 to 47.22. This would be a 17.11% tax increase.

To be honest, I don’t think they would do this. I think it would be political suicide. A more realistic scenario (again in my opinion) would be to keep the overall tax increase below 10%. It’s the $9.99 phenomena…(it looks better than $10). By adding an additional 1.5 mills to the already built in 2.5 mills, NASD would be looking at a 9.92% tax increase, but more importantly an additional $1.26M to sock away in the General Fund for use in future years.

In addition to having the money for future years (realistically the 2009-10 budget), NASD would have a larger base from which to tax from. In other words, get as much as you can now so subsequent tax increases are bringing in “bigger slices of the pie”.

Again, I don’t know that this is what NASD is planning to do. I do know that they are having a “special” Audit and Finance meeting next Tuesday, May 6th at 6:30 PM in the board room. If you are there, you’ll be able to find out more.