Alle-Kiski Valley school districts taken to Act I limits
School districts in the Alle-Kiski Valley will be able to raise property taxes between 2.1 percent and 3.1 percent for the 2014-15 school year.
Although slightly higher than this school year, the limits could pose difficulties for districts struggling with rising costs — pension contributions chief among them.
“Many, many districts, certainly a majority, will not be able to afford to pay their mandated state pension increases” with the money they can raise within the tax increase limit imposed by the state, said Jay Himes, executive director of the Pennsylvania Association of School Business Officials.
The limit is imposed by the state's Taxpayer Relief Act, also known as Act 1. The state Department of Education calculates the limit based on wages earned by state residents and the national employment cost for elementary and secondary education.
Statewide, the base limit, or index, is 2.1 percent for 2014-15, up from 1.7 percent for this school year. A rebound in wages from historical lows contributed to the increase, Himes said.
The index is adjusted for each school district; wealthier districts are set at the base, while it is increased for poorer districts. Statewide, the highest rate for 2014-15 is 3.4 percent.
By Jan. 30, school boards must either formally declare that they will not raise taxes by more than their index, or pass a preliminary budget.
A school district can increase taxes beyond the limit if it asks voters in the spring to approve the increase. That has been rarely done, and the few that tried have failed, Himes said.
More commonly, districts seek special permission, called exceptions, from the state. Himes said he expects more districts to use them.
For the current school year, five Alle-Kiski districts — Armstrong, Franklin Regional, Freeport Area, New Kensington-Arnold and Riverview — got permission to raise property taxes higher than their limits without voter approval. Of those, Freeport Area, New Kensington-Arnold and Riverview raised taxes over their limits.
Freeport Area Business Manager Ryan Manzer said his district will again prepare a preliminary budget to keep the district's options open.
Manzer said Freeport Area officials will have to determine if the district can handle rising pension and health care costs within the tax hike limit.
“Hopefully, we can stay within the (limit). If we can't, we know we have the exceptions that are out there,” he said. While the hope would be for no tax increase, “we all know with all the things in play that may not be the case.”
Pension costs are one of the reasons the state will allow higher tax increases without voters' approval.
For the 2014-15 fiscal year, which begins July 1, school districts will have to contribute 21.4 percent of their payrolls to the Public School Employees' Retirement System, up from 16.9 percent.
The state reimburses school districts for at least half the cost.
School districts are facing “historical financial conditions,” with pensions driving spending up, while the economy has held revenue down, Himes said.
If districts don't have enough new property tax revenue to pay pension bills next year, they'll need to cut personnel and programs, spend down reserves, get exceptions or all of the above, Himes said.
Districts prepare, react
Kiski Area's retirement costs will increase by $418,000 next year, Gillespie said. If taxes were raised by the district's 2.9 percent index, that would generate $597,000.
“There's no way that index can keep pace with the rate retirement is increasing,” Kiski Area Business Manager Peggy Gillespie said.
“We've done our best to contain costs,” Gillespie said. “There needs to be meaningful pension reform.”
Kiski Area is among the districts that have been saving money specifically for pension costs. Himes said that has brought criticism.
“It is essentially a hedge against significant property tax increases,” he said. “It's the financially prudent thing to do.
“Clearly, these pension expenditures, which are out of school district control, are escalating at rates way beyond what normal inflation would be.”
Gillespie said she expects the Kiski board to declare this month that the district will stay within its tax hike limit.
Allegheny Valley's board will do the same in January after having talked about it this month, Business Manager Brad Rau said.
“We're able to live within the (limit),” he said. “We are going to evaluate the budget and look for things we can trim.”
Leechburg Area has avoided raising taxes the past three school years, but is at the point where an increase of “a little bit” may be necessary next year, Business Manager Mark Lukacs said.
A bond refinancing helped minimize the impact of rising pension costs. But health care and salaries also are increasing, while the district expects no funding increases from the state.
“In Pennsylvania, the school board raising taxes is the last recourse,” Lukacs said. “We're doing what we can to hold the line.”
Deer Lakes Business Manager Dennis Thimons is hopeful a tax increase can be avoided next year after the school board raised taxes for the current year by 1.7 percent. He expects the district to at least stay within its index, helped by money that has been set aside for pension increases.
Raising taxes “was a hard decision for them to do last year. I'm hoping this year we can make the necessary cuts and squeeze so we don't have to raise taxes,” he said.
Thimons said looming increases in pension contributions are “brutal.”
The district is sharing its long-term projections with its teachers union as the two sides negotiate the terms of a new contract.
Thimons said Deer Lakes will have to look at is programs closely to figure out which are “least valuable” and could be given up while not hurting the district's mission.
“It's the reality of education today in Pennsylvania,” he said.
Brian C. Rittmeyer is a staff writer for Trib Total Media. He can be reached at 724-226-4701 or firstname.lastname@example.org.