It appears as though a 3.4 percent increase in next year's spending plan is no longer a sure thing in the Palmerton Area School District.

After a budget workshop on Tuesday, conducted by interim business manager Donna Les, the board said it may want to reconsider its prior stance on the 2012-13 budget.

Last month, the board approved the advertisement of the 2012-13 budget, which called for a 1.67-mill increase, which would raise the millage rate from 49.14 to 50.81 mills.

Such an increase would mean a person with a home valued at $100,000 and assessed at $50,000 would pay $2,540, or $83 more in property taxes to the district next year.

Les said at that time, that while the proposed $27,265,782 spending plan does not take into account gaming revenue, it does reflect the governor's proposed budget, whereby the district would lose $20,168 in Social Security reimbursement; $1,194 in Basic Education Funding; and see a $178,389 increase in transportation costs.

The proposed budget also calls for the use of $272,486 from the fund balance to pay for the 2011-12 positions that were restored, Les said.

As part of her presentation, Les said there were several major concerns: state funding; maintaining educational programs; the impact of cyber charter/charter schools; contractual agreements; special education costs; and the economic status of the community.

With regard to state funding, Les said the governor has proposed combining three funding sources Basic Education Funding, transportation funding, and Social Security reimbursement into a new funding stream called "Student Achievement Education Block Grant."

The new funding proposal would: eliminate some year-end reporting requirements; allow districts to utilize funds to best meet its needs; and provide funding in 2012-13 at least at the 2011-12 level for the combined items, Les said. The estimated funding amount for the district in 2012-13 would be $7,101,371, she said.

In addition, Les said the new funding proposal would: no longer fund school districts based upon the number of pupils transported, and other transportation factors; require districts to pay the state's share of IU transportation of special needs students; no longer fund based upon total number of students in the district; and no longer reimburse district's half of the cost of the employer's share of Social Security.

Also with regard to state funding, Les discussed retirement funding, which she said reflects reimbursement of state share; function of salary; and would call for a retirement rate increase from 8.65-percent to 12.36-percent of salary, which is a rate set by an actuarial study whereby the school district has no control.

Concerning special education funding, Les said there is no proposed increase. She also mentioned that Accountability Block Grant funding has been cut per the governor's proposed budget, and also eliminates dual enrollment funding program. Other areas are expected to be level funded, Les said.

As for federal funding, Les said all areas are budgeted at the 2011-12 level, and calls for no new programs.

Les said the current millage proposal reflects a 1.67-mill, or 3.4-percent, increase, which includes the state index of 2.3 percent, or 1.13 mills.

She said Act 1 of 2006 permitted exceptions for millage increases above the index, and noted that applicable exceptions the district has qualified for include 1.10 additional mills for special education, and .49 additional mills for retirement.

Therefore, the total millage the district could use under the Act 1 index would be 2.72 mills, or a 5.53 percent increase.

Les then discussed expenditures with the board. She said the 2012-13 budget calls for a $65,277 increase in instruction; a $432,123 increase in support, most of which is due to proposed funding of IU transportation; and a $26,731 increase in noninstructional costs. Facilities are level funded, said Les, who added that the debt service shows a decrease of $27,113, while transfers show an increase of $55,059.

Expenditures by object include: a $78,835 decrease in salaries; a $42,271 increase in benefits; a $68,739 decrease in public services; a $435,210 increase in purchased services; a $196,974 decrease in supplies/fuel; a $13,649 decrease in furniture/equipment; and a $32,794 increase in dues/fees/debt service.

"You people did just an outstanding job with this budget," Les said. "You're targeting things where they need to be targeted."

Les then mentioned budget adjustments made for the 2012-13 budget: a $23,415 reduction in department and building budgets; a $351,752 increase to the Special Education budget; a $342,053 decrease to the Carbon Career Technical Institute budget; a $66,164 reduction in salary, benefits, and added back all coaching positions; a $200,000 increase in cyber school enrollments; a $20,598 reduction in debt service due to refinancing; a $30,000 reduction in natural gas contract; and a $129,796 increase in IU transportation due to the governor's budget.

The governor's proposed budget, which calls for the implementation of the "Student Achievement Education Block Grant," would reduce Basic Education funding by $1,194; reduce Social Security reimbursement by $20,168; increase transportation funding by $178,389; and eliminate $115,249 in ABG funding.

Les then discussed budgetary implications; specifically, the use of fund balance, of which she said the estimated amount available for 2012-13 is $2,475,378. She said the district should maintain around 8 percent of its fund balance, or about $2.2 million.

The district is expected to see a 42.9-percent increase in the retirement rate in 2012-13, from 8.65 percent of salary to 12.36 percent of salary, Les said. That continuation of increase is expected for the next 10 years, she said.

Les said that right now, the state pays about half of the retirement costs. The retirement rate in 2013-14 is estimated at 16.69 percent, Les said. Under the assumptions that there would be no salary increase in 2013-14; that total wages would be $10,321,382; that the Act 1 index would result in a 1.13-mill increase; that referendum exceptions would not be available; and the state would continue to pay its share; she said the district's share of expenses would be $775,187, and revenue from millage, $321,873, which would result in a shortfall of $453,314.

Director Susan Debski said she was concerned, and added "it's important to look ahead."

"If we're looking at a projected $400,000 increase in the retirement fund, and with all of these possibilities, wouldn't it be prudent to increase the percentage this year to plan ahead for a possible deficit next year," Debski said. "We can hope, but maybe it's wise to plan."

Board President Barry Scherer instructed Les to work out several different millage scenarios for a potential 2-mill, 2.36-mill, and 2.72-mill increase. If the board were to approve a budget with a 2-mill increase, it would raise the millage rate to 51.14 mills, which means a person with a home assessed at $50,000 would pay $2,557, or $100 more in property taxes.

A budget with a 2.36-mill increase would raise the millage rate to 51.50 mills, which means a person with the same home assessed value would pay $2,575, or $118 more in property taxes.

Finally, a budget with a 2.72-mill increase would raise the millage rate to 51.86 mills, which means a person with the same home assessed value would pay $2,593, or $136 more in property taxes.

Mary Brumbach, principal of S.S. Palmer and Parkside Education Center, asked Les what her recommendation would be if she were running the district, to which she responded.

"If it were my sole decision, I would go someplace in between," Les said. "You're running a very, very lean budget to begin with."

Resident Terri Roselli told the board she was glad she attended the meeting.

"Nobody wants taxes raised; you guys don't really have anywhere to cut your budget," Rosselli said. "I do like to hear what's going on; it does keep me informed."

Director Tammy Recker said that while it might not be a popular decision to raise taxes above the current projection, it could be in the district's best interest.

"In the bigger picture, for the right reason, it makes sense," Recker said. "I think we're heading in the right direction."

Les said final budget adoption is slated for June 19. By law, the final budget must be approved by June 30.

In December, the board approved a $27,817,801 preliminary budget, which at the time called for an 8.55-percent, or 4.2-mill increase.

However, Les noted at that time the millage rate had to be artificially inflated in order to provide a balanced budget, and that it didn't reflect the actual millage impact.

That budget would have raised the millage rate from 49.14 to 53.34 mills, which would have meant a person with a home valued at $100,000 and assessed at $50,000, would have had to pay $2,667, or $210 more in property taxes to the district next year.

Also at that time, Superintendent Carol Boyce announced that, effective Dec. 31, a freeze would be put on spending on everything except for emergencies and ongoing expenditures.

In February, the board discussed a budget with a 2.31-mill increase, that would raise the millage rate from 49.14 to 51.45 mills. That would mean a person with a home valued at $100,000 and assessed at $50,000 would pay $2,573, or $116 more in property taxes to the district next year.

This year, residents saw a 12.6-percent increase in their property tax rates after the board, on a 5-4 vote in June, adopted a $26,595,297 spending plan for the 2011-12 school year that called for a 5.506-mill increase.

The 2011-12 budget raised the millage rate from 43.64 to 49.14 mills, and meant a person with a home valued at $100,000 that was assessed at $50,000 had to pay $2,457, or $277 more in property taxes to the district.