Ryan Kish had a warning for anyone expecting a positive financial outlook Tuesday night.

“I do not have good news,” the Palmerton Area School District assistant superintendent told the school board at its workshop meeting before presenting a proposed 2026-27 budget of $43,829,317, a figure that outpaces projected revenues by nearly $1.8 million and leaves the district with difficult choices before a June 16 budget vote.

The gap is stark: total expenditures of $43,829,317 against total revenues of $42,056,944 produce a deficit of $1,772,373. Under Act 1, the district may raise taxes by no more than 4.7%, generating an estimated $923,000, still leaving $849,373 that would come from the fund balance regardless of any tax increase the board ultimately chooses.

Health costs

The single largest cost driver, Kish said, is medical insurance. The district’s self-funded health plan, which covers employee claims directly rather than paying a fixed premium to a carrier, saw actual claims spike 48.7% in 2024-25 — the worst single-year increase in the district’s recent history. Claims have risen an average of 26% over the last three years. The budget projects a 23% increase for 2026-27, adding more than $1 million to spending. Kish originally projected 18% but revised the number upward after consultation with the district’s actuarial adviser.

“The fund balance in our health insurance trust is almost nothing,” Kish said. “This is the lowest it’s ever been since I’ve been here. We’re required to keep 25% of our prior year claims in the fund balance there, and we are well below that.”

Director Earl Paules said he didn’t think the public realized the district had a fund balance strictly for medical claims.

“When we do get good insurance years, we keep building up that fund balance,” he said. “So over the years, because insurance keeps going up, that fund balance itself keeps going down and when that keeps going down, that’s not a good thing.”

Charter schools

Charter school spending is the second major pressure point. The district’s charter school costs now stand at $2.47 million, a $147,000 increase over the prior year and a figure that has climbed steadily since before the COVID-19 pandemic. Kish attributed the rise to more than just student enrollment at charter schools.

“There’s an inadequate and outdated funding system from the state that says it costs as much money for a cyber school to educate a child as it does for a normal brick and mortar school,” Kish said. “Cyber costs are significantly less, but we contribute like they’re not. I don’t see this going down anytime soon.”

Director Kris Schaible pressed for continued action at the state level.

“It’s also why the charter school reform conversation needs to continue to happen,” she said. “We’re spending $2.5 million on charter school spending. If we could get some sort of reform from the state on how we have to pay for that, it would be significant.”

Kish noted that some reforms have been passed but said they did not affect Palmerton.

Special education

The budget also absorbs $431,000 in additional costs for special education outplacements and Carbon-Lehigh Intermediate Unit services, plus $305,991 in new debt tied to the district’s ongoing construction project; debt that matures in 2045. Support staff contract negotiations remain ongoing and could shift the budget further in either direction once settled.

Kish was asked whether the administration had solicited cuts from building and department leaders. He recommended against it.

“Unless the board gives me another direction, I’m not sure I want to punish the buildings based on this,” Kish said. “This budget is primarily insurance driven. Those department budgets are the ones that directly impact the kids the most.”

With staffing representing 64% of the budget, locked in through collective bargaining agreements, and tuition, outplacements, transportation and debt service largely fixed, the portion of the budget the district can actually influence is thin.

“I just want that mentioned to the public,” board President Sherry Haas said of the district’s budget flexibility, or lack thereof.

Director Brandon Mazepa cut to the heart of the fund balance discussion.

“No matter what the increase is, there is going to be a projected deficit, and that deficit is covered by our fund balance,” Mazepa said. “A lot of our families don’t have a fund balance. When we’re making decisions with their money, no matter what, we’re going to be taking money out of our fund balance at the cost of possibly making somebody displaced.”

Even at the maximum allowable tax increase — 3.01 mills, or 4.7% — the district would still draw down reserves, Kish said. That scenario would cost the average Palmerton homeowner, based on an average assessed value of $53,000, an additional $164 for the year and would leave a fund balance of approximately $11.6 million. With no tax increase at all, the fund balance drops to $10.7 million. Kish noted the district likes to maintain at least three months of expenditures in reserve, roughly $10.9 million, and that the district currently carries no capital reserve balance at all.

His recommendation to the board: Build the proposed budget at the index increase, not as a final decision, but as a starting point for public review.

“It doesn’t mean it’s the final budget and it doesn’t mean that’s what you’re going to vote on, but it allows the public to be aware of what could happen early,” Kish said. He also reminded the board that the district discussed the likelihood of two consecutive index-level tax increases when it committed to the construction project.

The board will vote May 20 on a proposed final budget, which will then be available for public inspection beginning May 21. The final budget vote is scheduled for June 16.