Residents who live in the Northern Lehigh School District could see a 2.3 percent increase in their property tax rates next year.
District business manager Jeremy Melber informed the school board on Monday that the 2010-11 preliminary budget could see a 1.5 mill increase.
If approved, the $29,615,475 preliminary budget would raise the millage rate from 62.873 to 64.373 mills in Lehigh and Northampton counties.
That would mean a person with a home valued at $100,000, and assessed at $50,000, would pay $3,209 in property taxes to the district next year, $65 more than this year's $3,144 rate.
Melber said there are three major areas that will impact the district over the next three to five years: a 20-percent increase in health insurance, a 30-percent increase in electricity rates, and a retirement contribution rates.
He said all three areas are external factors and are mostly comprised of fixed rate adjustments that the district has no control or leverage over.
The 20 percent spike in health insurance in 2010-11 will result in a $401,840 increase to the district's salary and benefit cost center, Melber said.
A 15 percent increase in 2011-12 will result in another $361,656 increase, with increases of five percent after that in the range of $138,634 in both 2012-13 and 2013-14, he said.
With rates compounded over the next four years, Melber said the district will likely see a 50-percent increase in total health insurance premium payments from 2010-14.
However, Melber said the district currently has $450,000 set aside as a health insurance fund balance to offset the spikes.
"It is my recommendation that a percentage be used over four years, and still maintain 15-percent of the fund balance after the fourth year," Melber said.
That way, he said the district could use 15 percent, or $67,500 in 2011-12, 30 percent, or $135,000 in 2012-13; 20 percent, or $90,000 in 2013-14; and 20 percent, or $90,000 in 2014-15.
Melber said even though the largest increase would be seen in 2010, unbudgeted state subsidies in the 2009-10 budget would be reflected in the 2010-11 budget, which would offset the increase.
An initial jump would then be able to cover additional increases in 2012-13, followed by a declining scale that would slowly ease the raises into the tax base, he said.
As for electricity rate increases, Melber said the district will see about a 30 percent increase in 2010-11 costs.
He said last year the district did an ESCO project in an attempt to drive the costs down. While that project will have an adverse effect on the rate increase, it won't be able to offset it completely, Melber said.
Under the 2009-10 budget, $505,000 was budgeted for electricity, he said. Under the 2010-11 budget, Melber said about $406,000 was budgeted; however, the decrease was because under the ESCO project, $221,000 was the amount estimated to be saved.
Those estimates were under the old rates, and the new rates reflect the rate increase, which sets the new number at $406,000, Melber said.
He said a new expenditure line has been added to the budget under the debt service cost center, which is the principle and interest payment for the bonds that were incurred to pay for the project.
New debt service for this project for the 2010-11 budget will be $201,702, Melber said. Combined with the $406,000 budget for electricity, the district will see a total of $607,702 for the upcoming fiscal year, which represents a $102,702, or 20 percent increase over the current fiscal year, he said.
As a result, Melber said a $250,000 fund balance has been set aside to offset spikes.
In order to ease the increase into the tax base, Melber recommended the board go with moderate increases that would allocate over $150,000 to the budget over four years from 2011-12 through 2014-15, which would offset the first year's spike, and still leave $100,000 in fund balance for any further spikes or adjustments.
With regard to employer contributions for employee retirements, Melber said they are expected to spike over the next five years.
He said the contribution rates are scheduled to be 4.78 percent in 2009-10; 8.22 percent in 2010-11; 10.59 percent in 2011-12; 29.22 percent in 2012-13; 32.0 -percent in 2013-14; and 33.60 percent in 2014-15.
Melber said those rate increases will have a negative impact on the district's salary and benefit budget, which has a $1,059,514 budget at the 8.22-percent level for 2010-11.
Holding everything else constant, that particular line item will increase to $4,355,500 in year 2014-15, which doesn't account for pay raises, he said.
That, Melber said, would cause an increase of $3,395,986, half of which is reimbursable from the state. That, he said, would still leave an increase of $1,647,993 over the next five years, which would be equal to 7.66 mills.
Melber said there are several variables that will play into the increases over the next 18 months. He said the district currently has a fund balance of $500,000 set aside.
No recommendation will be made for the 2010-11 fiscal year, since the 8.2-percent is already budgeted, Melber said.
Director Mathias Green thanked Melber for the work he did on the spending plan.
In turn, Melber thanked the building principals, as well as Superintendent Michael Michaels, for keeping their budgets down.
Melber said the preliminary budget will be presented to the school board's Finance Committee in April. If approved, he said the preliminary budget would be listed for approval at the board's April 12 meeting.
Michaels said the district is doing everything it can to be "fiscally competitive" and to provide the "best education possible." He then thanked Melber and Karen Nicholas, assistant to the superintendent, for their work.
In a related matter, Melber discussed an option in which the district would borrow $20 million to cover the costs of a $20.4 million renovation project slated for Slatington Elementary.
Of that, he said it could take an $11 million bond out for the 2010-11 budget, and see what it would need next year.
Under that scenario, Melber said the district would be looking at using .95 mills of its tax base to this year's budget, .7 mills to next year's, and a one-third mill the following year.
Doing so would reduce the 2015 bond payments from $2.5 million to $1.9 million, he said. The board didn't take any action on Melber's recommendation.
Michaels lauded the board, as well as previous boards, for being prudent.
Director Donna Kulp thanked building principals for their work.
"I know it's tough every year to do a budget," Kulp said. "I do want to say thank you."
Last year, the board on an 8-1 vote approved the 2009-10 budget with a .6 mill, or .96 percent, increase.
The $28,958,961 spending plan increased the millage rate from 62.273 to 62.873 mills in Lehigh and Northampton counties.
That meant a person with a home valued at $100,000, and assessed at $50,000, paid $3,144 in property taxes to the district this year, $30 more than the $3,114 rate in 2008-09.