Northern Lehigh School District is tasked with a projected $2 million budget gap for the 2026-2027 school year, propelled by a spike in health care costs.

Superintendent Dr. Matthew J. Link and business manager Sherri Molitoris gave the 2026-2027 budget presentation at Monday’s school board meeting.

Molitoris prefaced the presentation by noting that the district’s adjusted Act I Index is 4.8%, and that the district’s Public School Employees’ Retirement rate shows a 33.59% in 2026; 34.12% (projected) in 2027; 34.63% (projected) in 2028; and 35.17% (projected) in 2029.

Molitoris said the district ended June 30 with a little over $18.5 million in its fund balance, and noted it has steadily grown since 2020.

Link said recommendations for each building are status quo at Peters Elementary School, Slatington Elementary School, and Northern Lehigh Middle School, all for budgeting purposes.

He said at the high school, they are recommending they reinstate one business teacher position to support ensuring they solidify their Pathways for students.

“We’ve been talking a lot about Pathways the last few months,” Link said. “Whether our students choose to go into higher education or directly into the workforce to make sure that when they leave us they have the skills to be successful in whatever the next step may be for them.”

Molitoris then reviewed the budgeted increased expenditures, and said cost drivers for the 2026-2027 school year include salaries and benefits (health care & PSERS); CLIU specialized education costs; business position at high school; Charter/Cyber Charter Schools — status quo; maintenance repair costs and utilities, and outplacements.

Molitoris then discussed projected 2026-2027 budget revenue streams. She said basic education funding was increased by $116,000, leaving an additional $76,000 unbudgeted, Molitoris said Gov. Josh Shapiro’s budget includes an increase in special education funding of $76,287, increased by $40,287, leaving $36,000 unbudgeted. She said if the governor’s budget passes as presented, the district will add the additional $112,000 to revenues at the completion of the 2026-2027 budget year.

The Ready to Learn Block Grant new base amount is $372,616, and an additional new proposed Adequacy Funding of $25,992 and tax equity funding of $24,008, which total $50,000, which is not currently in the budget because the district isn’t sure if it will get that Adequacy funding or tax equity funding, but if it does, it will add it into the budget, Molitoris said.

She said the district’s current fund balance as of June 30 was $18,566,762, and added the capital reserve fund transfer of $3 million as of Monday left $15,566,761 sitting in the general fund.

Link then discussed the long-term fund balance expenditures, which he said is different then capital reserve $3 million that Molitoris mentioned.

“These do not include items that are on that 10-year capital improvement plan because those will be funded through a combination of the capital reserve account as well as depending on how many of the projects the school board would like to do, we would probably recommend some bond issuance as well,” Link said.

He said that for the 2026-2027 school year, they are continuing to recommend the Northern Lehigh High School flooring replacement ($135,196); Northern Lehigh High School water softener and filtration ($75,000); Slatington Elementary furniture replacement ($55,000); Northern Lehigh High School furniture replacement ($45,000); and Math Curriculum K-6 ($383,600).

He said those recommended for the 2027-2028 school year include Peters furniture replacement ($45,000); Northern Lehigh High School furniture replacement ($55,000); security camera upgrades (researching cost); and math curriculum 7-8 ($75,000). while Peters furniture replacement ($55,000) is recommended for the 2028-2029 school year.

Molitoris said expenses total $44,184,677, while revenues (without fund balance use) are $40,789,928, leaving a budget shortfall of $3,394,749.

She said if the district would utilize its fund balance for those onetime purchases, plus PSERS, and health care increases, it would be $1,384,858, leaving a remaining shortfall of $2,009,891.

Molitoris said estimated ending fund balance for 2025-2026, if the district utilizes the $1,384,858 for onetime purchases, debt payments, PSERS and health care increases, would be $14,181,904, and if fund balance was used to pay for remaining budget shortfall which represents reoccurring costs, the estimated ending fund balance would be $12,172,013.

“However, I have not looked at our projections for ending 2025-2026 yet to see whether I think we’re going to realize any kind of increased revenues that outpace our expenditures, and that we would be putting more revenues or money back into general fund balance at the end of the 2025-2026 school year,” she said. “I will be working on that in the next couple of weeks, and I should have a rough estimate at the April board meeting for that.”

Molitoris said that because of where the district currently stands and the discussions that are going on about other things that are needed throughout the district, they are looking at the 4.8% as the recommendation from administration to do the preliminary there so that they have room to discuss and then know where they can go after that point in time.

She said if they do tax revenue projections at 4.8%, they would realize $885,000 in additional tax revenue.

Link said administrative recommendations and direction sought from the school board are utilization of fund balance for onetime purchase, debt service payment, and PSERS and health care increases.

“All school districts this year are struggling with a spike in health care costs,” Link said. “Health care costs are probably the primary driver behind all of this.”

Link said they are also recommending to pass a 4.8% preliminary tax increase in conjunction with utilization of fund balance to close the gap in addition to generating some revenue for upcoming years for capital improvements.

He said they are administratively recommending the additional position of one business teacher at Northern Lehigh High School.

Board President Mathias Green said “so only $2 million short,” to which Molitoris said that was “correct.”

Molitoris said the board will have to approve a preliminary budget in April, continue to refine it through May, and look for June approval of the final budget.