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As budget season nears, school districts face formidable foe: Fixed costs

Fixed costs are school nemeses. An Inquirer-Daily News analysis finds that about 85 of school district dollars are already spoken for before the budget process even begins.

In the West Chester Area School District, Superintendent Jim Scanlon (right) and Director of Business Affairs John Scully  anticipate a budget increase driven largely by growing fixed costs — a teachers’ contract, pension contributions and special education services. “A lot of it is pretty locked up,” Scanlon said of the budget.
In the West Chester Area School District, Superintendent Jim Scanlon (right) and Director of Business Affairs John Scully anticipate a budget increase driven largely by growing fixed costs — a teachers’ contract, pension contributions and special education services. “A lot of it is pretty locked up,” Scanlon said of the budget.Read moreWest Chester Area School District

The West Chester Area and Upper Darby School Districts operate in separate economic realities: West Chester is among the wealthier districts in the region, while Upper Darby is one of the poorer.

Yet as the school budgeting season gets underway in the coming weeks, they do share one thing in common: Most of the 2018-19 budget already is spoken for.

After fixed costs such as already-negotiated increases in benefits, state-required pension payments, and special-education placements, Pennsylvania school officials say there's little wiggle room. An Inquirer and Daily News analysis based on data from the state and the Pennsylvania Association of School Business Officials found that on average, about 85 percent of all costs for the state's 500 school districts are set before budget hearings even begin.

"That's probably the Number One shock of new school board members," said Jay Himes, executive director of the school business officials association. "By the time you look at the budget and look at something you could do unilaterally … there's not a heck of a lot there."

In New Jersey, the state picks up all pension costs. But fixed costs still eat up the majority of school budgets in a high-tax state where tax increases are capped at 2 percent, and special-education costs have jumped, consuming more than a fifth of budgets, said John Donahue, executive director of the New Jersey Association of School Business Officials.

Special-education costs also are growing in many Pennsylvania districts, along with charter-school payments in some, and the state has been requiring districts to make escalating contributions to the underfunded Public School Employees Retirement System.

All this has increased pressure on budgets.

The West Chester district is proposing to spend an additional $12 million next year, an increase just shy of 5 percent over its $243 million budget. But the added spending doesn't represent a wish-list splurge.

Apart from $765,000 for book replacements, most of the cost increase is mandated, said John Scully, the business affairs director — "short of breaking contracts or laying people off."

Fixed Costs at Local School Districts

On average, school districts in Philadelphia and its suburban counties start every budget season with 85 percent of their budget dedicated to fixed costs, such as salaries and benefits, contracted services, and physical-plant operations. Cost figures below are in millions, from the 2015-16 school year.
Staff Graphic

Salaries, while the biggest portion of Pennsylvania school district spending at 39 percent, have declined both as a percentage of spending and in overall size since 2010-11, as health-care and pension costs increase and as districts cut their payrolls. "Nobody fills positions anymore," Himes said.

The fixed-cost calculation includes costs that may not be legally mandated but are operational necessities: "You wouldn't be required to have a lot of insurance to cover fire at your building," Himes said. "But it's stupid not to do it."

In Upper Darby, where about 80 percent of the budget is dedicated to salaries and benefits, school district officials are trying to account for mounting special-education and pension costs. The district's chief financial officer, Patrick Grant, projects the $199 million budget to increase to between $205 million and $210 million in the coming school year. But some of the biggest costs are still unknown, including contracts currently being negotiated with its teacher and support staff unions.

The district is also planning for increases in payments to charter schools and — like all districts — larger pension contributions. PSERS has set the employer contribution rate for 2018-19 at 33.43 percent; in 2010-11, the rate was 5.64 percent. The state reimburses districts at least half the cost. Upper Darby expects to spend an additional $800,000 on employee pensions.

Student placements and retirement benefits aren't the only mandates. Teacher evaluations and testing requirements also carry costs, said Dan McGarry, assistant superintendent of curriculum and instruction.

Upper Darby has been trying to update its technology, but fixed costs are forcing choices. "What can we live with and live without? Do we let class sizes go up?" McGarry said. "The only other way we can do it is raise taxes."

The school board this month passed a resolution certifying it will not increase taxes more than 3.4 percent, the index set by the state. Even if it does raise taxes, the district could face a budget gap, Grant said.

Upper Darby's property-tax base hasn't been growing, and it has about a third of the taxable market value of the West Chester district. Upper Darby also receives less state aid than more affluent counterparts: It ranks among the bottom third of Pennsylvania's districts in wealth, yet got less money per pupil from the state than two-thirds of districts in 2015-16, according to state data. It spent less that year than every other district in Delaware County — $13,943 per student, compared with $18,047 in Haverford and $24,402 in Radnor.

Such disparities are at the heart of a lawsuit reinstated by the Pennsylvania Supreme Court last year challenging the state's school-funding system. While the state has implemented a funding formula that sends more money to districts with needs like Upper Darby's — where about 1,000 of the district's nearly 13,000 students are English-language learners — it applies only to new spending.

How much money the state will spend in the coming year is unknown, but school districts aren't banking on an influx: "I think the expectations are awfully low," Himes said.

In the West Chester Area School District, the tax base has grown, with an influx of new development in one of the state's wealthiest counties. The district expects to net an additional $1 million next year before raising taxes, said Scully, the business affairs director.

But the added money is a fraction of the $12 million spending increase Scully forecasts in the $243 million budget, driven by costs including a new teachers' contract, larger pension contributions, and growth in special education. Even if taxes increase — the board has received exceptions to raise taxes above the state index, to 4.5 percent, largely because of special-education costs — Scully projects a deficit.

West Chester doesn't plan to add programs next year. While it began offering full-day kindergarten last year, it recouped some costs by keeping students who otherwise would have gone to charter schools, said Superintendent Jim Scanlon. (Upper Darby has also taken steps to retain charter students, starting its own cyber academy.)

"It's not like we're going nuts," Scanlon said. Of options for trimming the district's budget, he said: "A lot of it is pretty locked up."