With district purse strings ever tightening and expenses rising, are local schools ready for their budgetary future?

A new report from Eric Holmberg at Publicsource.org has raised questions about increased property taxes, and found that school pensions and other expenses could be a significant part of the cause - and a potential problem in the coming years.Act 1, which was put into effect about 10 years ago, limited Pennsylvania tax hikes in school districts to the rate of inflation. However, it allowed for exceptions where districts could increase the rates to cover such increasing costs as pensions."Pensions are a big figure," Lehighton School District Business Manager Brian Feick said. "This district puts it as 30.03 percent of the salary cost. Last year was 25.84 percent."Fortunately, Lehighton has not had to use Act 1 exceptions."We budgeted ahead of time. We consolidated some things. When some teachers and staff left, we didn't replace them," Feick said.Pleasant Valley School District ranked as the 14th highest in the state for Act 1 exception requests and approvals. Pleasant Valley has put in 10 requests over the past decade, and was approved for $18,224,833. However, this is more of a precautionary step for the district - while they maintain the ability to raise taxes, they have yet to do so."We've been able to make it work pretty well without increases," Superintendent Carole Geary said. "We have actually been seeing a zero percent increase in the past few years. We have declining enrollment, some staff retiring that we aren't replacing. We've actually been able to manage an increase in pension with a decrease in staffing."Some districts, like Panther Valley, have followed suit in simply applying for the exceptions as a precautionary measure."Every year we've applied for them, but we hardly ever use them," Panther Valley Business Manager Ken Marx said. "We haven't raised taxes in about five or six years."Pension fundingSchool pensions are funded by contributions from the employees (teachers, administrators, etc.), investment income and state government. While employee contributions have been relatively consistent over the past decade, investment income has varied, and state contributions - which are split with the school district - have skyrocketed. In 2005, the state and school districts spent about $456,878,000 on pensions. Just last year, the expense was $3.4 billion.This largely stems from state investment decisions dating back to the early 2000s. Essentially, the state was not putting in its required contribution amount, and it was failing to keep losses and gains in check. Revenue from the accounts was being used immediately, instead of being spread out over a number of years to cut losses. Several factors led to some big hits to the funding, such as the dot-com bubble burst in 2004. A stock market slump ensued, but the state figured that the market would bounce back soon enough, which it did not."I've been here a long time, and truthfully, the state and schools didn't put in their share because things were good, they didn't need to," Feick said. Later on, a large portion of the funding was lost during the housing collapse and recession in 2008, Feick said."Employees put all the money into it, but they didn't have a chance to choose where it was going," Feick said.Increasing taxesWith the rise of pensions and their tendency to eat up a significant portion of salary budgets, this could mean the potential for an increase within the next few years.Even Lehighton is planning on a small increase to provide a safeguard for taxpayers in the future."In 2020, or 2021, we'll have to go for an exception if we don't increase in 2019," Feick said.Marx suggests that a similar approach, indicating that tax increases in the past could have prevented the potential for more extreme measures in the near future."We really should have been raising taxes," Marx said. "But taxes are already high, and the board decided instead to cut expenditures."Solutions for the underlying problem are equally troubling. A new pension plan that is caught between the state House and Senate could capitalize on the misfortune of the state and districts' investment strategies of the past. Feick said that the proposed plan would place any money beyond $50,000 of pension contributions into a 403(b) plan, which is invested by the state. This "hybrid plan" would help alleviate some issues for pensions in the future, but it is not a complete solution."It's only for new employees," Feick said. "The school district will still have to put in their percent. But doing this will not fix the damage from the old plan."Essentially, the Act 1 exceptions are serving as a backup to some schools at the moment. While several schools in the area are maintaining a right to increase taxes, internal budgeting measures seem to be keeping the practice at bay for now. However, Marx seems wary of the potential for many districts to become reliant on the Act 1 exceptions due to the state and its below-par contributions."It's going to be more important that you file with the mindset to get the most money out of it," Marx said, whereas previous filings came off as a mere standard procedure.As for where that leaves taxpayers in the near future, where pensions are bound to increase, only better planning and investment strategies can guarantee a mutually beneficial outcome."In case there happens to be a year when we need the taxes, we are covering all of our bases, so we can do the right thing for our school district," Geary said.