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What are some highlights from the PASBO/PASA School District Budget Report?

Today we are taking a brief hiatus from reviewing the BEF formula to cover some important research on prior year school district budgets as well as a study forecasting fiscal future of school districts. We’ll return to the BEF formula next week to cover the formula multipliers, adjusted weighted student count, and what school district shares of the BEF pie means.
Last week, PASBO and PASA released the 2019 School District Budget Report analyzing and surveying school districts' 2018-19 budgets and financial condition. Today's Daily Data provides some overview of the findings of the survey responses from administrators as well as analysis of annual finance reports and general fund budgets publicly available from PDE. We invite you to check out the full report here.

In our survey, we asked respondents to rank the largest areas of cost growth in their school districts for 2018-19, and not surprisingly, areas of mandated cost increase ranked in the top three for many respondents.
Of the nearly $30.5 billion in total expenditures in 2016-17 by Pennsylvania’s 500 school districts, nearly 11.1% was attributable to employee pension costs, so it comes as no surprise that those costs were among the top areas of anticipated cost growth for 2018-19. In fact, during 2011-12 to 2016-17, pension costs increased, on average, 52% annually across all school districts. Additionally, while employee salary costs have decreased as a percentage of total school district expenditures, pension costs have increased dramatically.

Another major area of anticipated cost growth for 2018-19 reported by survey respondents was special education costs. With state and federal mandates driving the provision of special education services to eligible students, school districts have limited flexibility in controlling these costs. When a student requires special education services, programs, transportation or private placements, school districts must cover those costs, pure and simple. As a result, special education instructional costs across all 500 school districts increased by $1.08 billion between 2011-12 and 2016-17, an average of 6.1% each year. Meanwhile, special education support services increased by $166.7 million during those years, an average of 6.7% per year. Based on final general fund budgets submitted to the Department of Education, school districts budgeted $4.649 billion in 2018-19, a $275 million increase from 2016-17 for special education instructional services alone.

Examining statewide data further elucidates the survey responses. Just between 2014-15 and 2016-17, the overall number of students receiving special education services across Pennsylvania increased by more than 21,000 students or 7.1%. Additionally, the number of students requiring costlier special education services (including outside or private special education placements) has increased as well. During that same time frame, the number of special education students whose special education programs and services cost between roughly $25,000 and $50,000 annually increased by 7%, while the number of special education students whose program and services cost in excess of $50,000 annually has increased by 21%.
These increases in special education expenditures, while mandatory costs for school districts, were minimally offset by small increases in state special education funding. While the combined cost of special education instruction and support services grew $1.25 billion between 2011-12 and 2016-17, state special education funding grew by $66.5 million. The result is that school districts shifted resources from other areas of the budget, cut programs or raised property taxes just to cover the difference.
In terms of some of the areas of the largest cost growth as identified by survey respondents—pension, special education and charter school tuition—increases in these mandatory costs certainly aren’t new. School district mandated costs for pension, charter school tuition and special education (excluding special education pension costs and special education charter tuition costs to avoid double-counting costs included under total pension and total charter tuition) increased by $3.97 billion between 2010-11 and 2016-17.
During this time, state support for these costs through increases in basic education funding, special education funding, pension reimbursement payments and factoring in the elimination of the charter school reimbursement resulted in an increase of $1.91 billion in state support. The result? School districts had to cover $2.06 billion in mandated cost increases in these budget items alone through cuts to programs and staff, increasing property taxes (which would have equated to a 3.07% annual increase in property taxes statewide) or both.
Instead of (or, more likely, in addition to) cuts or reductions to programs, services and staff, the other option school districts have to ensure that revenues equal rising expenditures is to raise property taxes, and it has become an annual endeavor in many districts across the state. While there are significant limitations and restrictions on school districts’ ability to raise additional revenue via property taxes, for those school districts that have the greatest mandatory cost increases and those that are most reliant on local revenue to drive the majority of their budgets, it is a necessary effort.

The extent to which a school district can generate revenue through property taxes is complex. Given that the reasons behind an increase are almost always diverse, looking behind the curtain to understand these factors helps to demonstrate the revenue challenges faced by many school districts. An important factor to examine is assessed value (AV)—the value upon which property taxes are based. PASBO found that in nearly 100 school districts, AV declined. For these school districts, doing nothing meant that property tax revenue would be lower than the prior year, so property taxes had to increase just to stand still. In these school districts, even before they were able to examine the impact of rising mandated costs on their budgets, they were starting behind the prior year when it came to revenue. On average, 109 districts had a decrease in AV each year from 2011-12 to 2016-17.
The extent of the need for additional state support to school districts is emphasized in the response to our survey question that asked what respondents would do if they were to receive a 5% increase in state funding for 2019-20. We gave them a list of possibilities and asked them to select all that were applicable. While the needs of each school district are unique, the responses were relatively uniform—school safety. Fifty-four percent of respondents indicated they would use additional state funding to purchase additional school safety or security equipment or technology, 48% of respondents indicating that they would use additional funding to expand behavioral health or student assistance programs and 33% indicating that they would use additional funding to hire or contract with additional school safety or security personnel.