The majority of Pennsylvania public schools are headed over a fiscal cliff in the next five years.

Although many have lauded the $210 million increase in education funding in the new state budget, a report issued earlier this year indicates it is not nearly enough to stave off a looming fiscal crisis in Pennsylvania public schools.

That's because the price of unfunded mandated costs — retirement and charter school tuition in particular — will soon exceed the amount of state aid many districts receive, even with the additional funding added this year.

In some cases, that has already happened. 

Districts are left with no choice but to raise local property taxes to balance their budgets. With the Act 1 Index tax cap on those increases, it may still not be enough, and many will have to resort to cutting programs to balance their budgets, say the report's authors.

This divide between wealthy and poor school districts, already one of the worst in the nation, may soon be irreversible without the state taking on a greater share of school funding, the report authors say.

A Permanent Divide

"There is a real possibility of the state being permanently divided into two groups of districts — A Tale of Haves and Have-Nots," wrote authors William Hartman and Timothy J. Shrom.

That's the title of the study released earlier this year by the Temple University Center on Regional Politics.

Hartman taught school finance at Penn State for 30 years. Shrom is director of research for Pennsylvania Association of School Business Officials and former business manager of Solanco School District in Lancaster County.

The picture their report paints is one of regional division, districts in financial hardship versus ease, and vastly uneven education experiences for children.

"The 'Have-Nots' will have lower expenditures, fewer educational resources, lower levels of staffing, and limited other opportunities for students.

"(The) 'Haves' will have higher levels of expenditures, appropriate educational resources, including advanced technology, adequate levels and types of staff, and additional educational opportunities for their students," they wrote.

What's more, according to the report, fully 60 percent of Pennsylvania's school districts will be among the "Have Nots," with revenues below expenses, forcing either additional local property tax hikes and/or program cuts to balance their budgets.

"By 2021-22, 60 percent of districts are projected to be facing shortfalls at an average of $373,000 each," they wrote.

William Hartman

William Hartman

"By contrast, in 2021-22, 202 school districts (40 percent) are projected to have surpluses at an average of $800,000 each," according to the report.

"There is a very clear trend this is turning into a permanent division," Hartman said in an interview with MediaNews Group.

The report states "almost 300 districts will have to raise additional revenues, likely through local property taxes, or reduce expenditures, likely through cuts to instructional programs and staff."

A $35.7 Million Local Gap

As years pass, the gap grows larger.

Tri-County Haves and Have Nots.xlsx

Chart shows five-year projected surplus and deficits for Tri-County Area school districts.

Among 10 school districts in the Greater Pottstown Area, the report's calculations, based on Pennsylvania Department of Education data, show five districts amassing combined surpluses of more than $23 million.

The other five districts will weather combined deficits of more than $12 million. It works out to a school funding gap of more than $35.7 million among just 10 school districts in Berks, Chester and Montgomery counties.

Hartman offered the following example of how that plays out.

"Let's say a 'Have Not' district spends $13,577 per student, or $325,848 per classroom of 24," he said. "The 'Have' district can spend $18,481 per student, or $443,544 per classroom of 24."

Over the course of a student's 12-year academic career, that difference adds up.

"Twelve years later, the 'Have Not' district has spent $162,924 on a student, but the 'Have' district has spent $221,772. That's a difference of $58,548," Hartman said.

Now multiply that times an entire classroom, he said.

The top Runs Away from the Bottom

This chart shows how the gap between the "Have" school districts and the "Have Nots" districts grows with each succeeding year.

Twelve years later, the 'Have Not' district has spent $3,910,176 on 24 students, while the 'Have' district has spent $5,322,528 on 24 students, a difference of $1.4 million in just one classroom.

Charter School Costs

Among the primary causes of the budget shortfalls cited in the report is rising charter school tuition.

"Charter school tuition is the second largest increase of any of the major expenditure categories, second only to salaries, and more than PSERS (Public School Employee Retirement System), health care and 'other,'" according to the report. "One out of every five district taxpayer dollar increases will be used to pay charter school tuition."

From 2007 to 2016, charter school enrollment increased by more than 65,000 students, a 97 percent increase, according to the Pennsylvania School Boards Association.

"However, tuition payments from school districts to charter schools increased over $865 million, which is a 139 percent increase," PSBA reported in 2016.

Although those increases have diminished, like higher retirement rate payments, the major increases have already been built in to each year's payment, with smaller increases on top of that base, explained Shrom.

"The projections estimate that charter school tuition payments by themselves will slightly exceed state (basic education funding) and (special education funding) subsidies in three of the five years," according to the Temple report.

"This leaves no net state funding remaining to support other mandatory expenditure categories or any other district operating expenditures.

"Charter school costs will place an increasing burden on school district taxpayers as the state does not support these mandated district costs," Hartman and Shrom wrote.

One reason charter school tuition is such a burden on public schools is the fact that "there are essentially no marginal cost savings to the district when a student leaves the district to attend a brick and mortar or cyber charter school," according to the report.

Fixed costs, like heat, utilities and salaries, do not diminish when a student leaves to attend a charter school.

Timothy Shrom

Timothy Shrom

Shrom explained it this way: In a school budget, "the local taxpayers have paid for a certain enrollment capacity at each district within their community. The charter choice then requires the taxpayers to pay in addition to that base," he wrote in an email to MediaNews Group.

"For most districts, there is room in the current system to house those students and the taxpayers have paid for that capacity. When some decide to go to a charter, the taxpayers must pay more on top of that already existing capacity, even though there is room in the district and a bus on the road for that student."

Retirement Costs

Another big mandated cost driver is school employee retirement benefits, known as PSERS, according to Hartman and Shrom. 

PSERS costs "are projected to grow at a lower rate due to lower annual Employee Contribution Rate (ECR) jumps, but they will continue to place a substantial burden on district budgets," according to the report.

"Just because pension increases have leveled off does not mean it's not an incredible amount of money. A 4 percent increase still means $100 million," said Shrom.

"Sure, it was scary when increases were 37 percent, and now that it’s 8 percent it seems smaller, but you have to remember how much bigger the base number has become," he said.

"PSERS is far from over," added Hartman, referring to the impact of the system's costs on school budgets.

Forcing Local Tax Hikes

All these mandated costs eating up state aid leaves districts with few places other than local property tax hikes to pay for other cost increases, said Shrom and Hartman.

"Legislators do not want to raise state taxes," which is exactly what happened in the budget Gov. Wolf signed Friday. "And so in our projections, all taxes increases will happen at the local level," Shrom said.

Montco Mandates Vs Aid

This graphic, from the new report by Public Citizens for Children and Youth report "Underwater: What's Sinking Families in Montgomery County," shows the gap between increases in state education mandates with increases in state funding for each school district in the county.

That's true even in wealthy counties like Montgomery County, according to a new report from Public Citizens for Children and Youth.  

"The mandated costs of pensions, special education and charter school payments are skyrocketing, growing by $293 million in Montgomery County school districts since 2010. Meanwhile state funding for these districts has grown by just $119 million," PCCY reported.

"State mandated costs have grown more than state funding for every school district nearly every year since 2010. This imbalance forces districts to make up the difference through local property tax increases," according to PCCY.

From 2012 through 2017, property tax increases across Pennsylvania increased at an annual average rate of 2.6 percent, according to the Temple report. During that same period, state funding provided only about 22 percent of local education funding on average statewide, according to the report's findings. 

"Despite the state’s recent funding increases, it still funds just 35 percent of education costs, placing Pennsylvania 46th out of 50 nationwide for the share of education costs provided by the state," according to PCCY.

"These continuing and growing mandated expenditures place an escalating burden on district taxpayers since the state eliminated its support to mitigate the costs for Charter School Tuition in 2011-12," Hartman and Shrom wrote. "These circumstances will require districts to raise local taxes or cut budgets, predominantly from instructional and instructional support areas."

The forecast of financial shortfalls in the coming years for the majority of Pennsylvania districts comes after years of financial uncertainty, courtesy of Harrisburg, the authors wrote.

"Since 2008-09, the condition of school funding for districts in Pennsylvania has been highly changeable, uncertain from year-to-year with unpredictable shifts and serious delays in state and federal revenues. Rapidly rising expenditures, most of which were out of the districts’ control, consumed increasing amounts of available funds," they wrote. "These fiscal trends and circumstances combined to place greater reliance on local funding sources, particularly property taxes."

Cutting School Programs

The harm inherent in the current circumstances "is not just in per-student spending, there is a wide variance in program," said Shrom.

"The spending pays for programs, which is something no one really pays attention to," said Shrom. "One district can fund all kinds of interesting programs and you have another hanging on by its fingernails just trying to keep what they have."

He said "the schools should be trying to improve their programs, not creating collateral damage just to pay charter school tuition."

That usually means first cutting things not mandated by the state, like athletics, art, music and foreign language instruction.

Told of a recent public outcry in Pottstown when the school board considered not replacing retiring long-time band director Michael Vought, Hartman and Shrom said that is a perfect example of the kinds of choices 'Have Not' districts will increasingly have to face in coming years unless something changes.

What's the Answer?

"There is no silver bullet," said Shrom. Different districts require different fixes.

For example, "special ed costs have grown like crazy in the past couple years," said Shrom. "For some school districts, a (basic education fund) increase does not address their problem. It’s a question of multiple buckets for school funding."

Some districts with high special education populations would fare better with a larger increase there, he said.

"The problem is, when you get hit in two or three of those areas, and they are on the wrong side of basic ed, the only thing left is local taxes."

That means an increased role for the state, he said.

The question for Pennsylvania legislators is "do we keep pounding away at the local level, or do you try to lift it some at the state level?," said Shrom. "With state revenues barely covering charter school tuition and special ed and pensions, you’re just pouring water in the glass and pouring all the water out of the glass with nothing left to drink at the local level.

"You might have one school district that has fiscal stress, but has some resources available to handle it," said Shrom.

"Then you might have another school district that sees their 2.5 percent increase in state funding walk right out the door to pay for charters and PSERS," he explained.

“Getting $12 in your right pocket does no good if someone is taking $13 out of your left pocket," said Shrom.

"In short, the clear majority of Pennsylvania school districts will continue to face hard choices in the years ahead, and for many, the choices are likely to be extremely painful," according to the report's executive summary.

Hartman said this latest report is getting more attention in Harrisburg than previous efforts.

"We presented it to the Senate Appropriations Committee staff, and we were getting reactions like 'my God, we didn’t realize …,'" Hartman said. He said there is talk of an education funding task force being formed.

Shrom said many in Harrisburg thought once PSERS rates stopped increasing so much, the problem would level out.

"Now people are realizing they have been painted into a corner. This is a direct result of the state’s fiscal policies," he said. "It’s not school boards. They have to do what they can to balance their budgets by law."

"If we could say one thing to the legislature, it's stop passing mandates without paying for some or all of them," said Shrom.

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