A Tale of Haves and Have-Nots: The Financial Future of Pennsylvania School Districts

Policy Brief | January 2019The Financial Future of Pennsylvania School DistrictsTemple UniversityCenter on Regional PoliticsCenter on Regional PoliticsPolicy BriefA Tale of Haves and Have-Nots: The Financial Future of Pennsylvania School DistrictsWilliam Hartman & Timothy J. ShromJANUARY 2019In 2014, Temple University’s Center on Regional Politics (CORP), Penn State’s College of Education, the University of Pittsburgh’s Center for Metropolitan Studies, and the Pennsylvania Policy Forum (a group of faculty and researchers at 18 public and private colleges and universities) formed a consortium to support state legislators, local officials, and education policymakers in a review of options for improving public school finance. CORP has been periodically publishing policy briefs, papers, and studies to support the consortium’s mission. Note from the authors: We wish to thank the William Penn Foundation and Temple University’s Center on Regional Politics (CORP) for their generous support of this research project. The opinions expressed in this report are those of the authors and do not necessarily reflect the views of CORP, the William Penn Foundation, The Pennsylvania State University, the Pennsylvania Policy Forum, or the Pennsylvania Association of School Business Officials.EXECUTIVE SUMMARYcorp@temple.eduwww.cla.temple.edu/center-on-regional-politics@TempleCORP215-204-1600 The focus of this study is the fiscal condition for all 500 Pennsylvania school districts for the period 2017-18 through 2021-22. The fiscal elements included in the study are: revenues by major category, expenditures by major category, and the resultant shortfalls/surpluses for each district. The report consists of five sections:1. Introduction, Purpose, and Approach to Study2. Annual projections for 2017-18 through 2021-223. Actual results for the prior five years, 2012-13 through 2016-174. Comparisons of the two time periods5. Sensitivity analysis of projections to determine the im-pacts of each of the fiscal elements6. Appendix with: a. Definitions of terms b. Assumptions for projections used in projections c. Detailed description of analytical approach d. Fund balance analysis for 2012-13 through 2016-17The overall results are illustrated in Figure ES1.It is important to note that this study focuses on changes in fiscal condition, not absolute measures. Even some districts whose fiscal condition is improving may be doing so from a base that is inadequate to support the needs of their students.Fiscal StressThe key measure of a district’s fiscal condition is fiscal stress, which is defined as a condition where a district’s projected revenues are less than their projected expen-ditures. The condition is also termed “shortfall” in this report. The greater the shortfall the greater the degree of fiscal stress faced by the district. Since Pennsylvania stat-utes require a balanced budget, when a shortfall occurs adjustments have to be made in a district’s fiscal plans to 2Temple UniversityCenter on Regional PoliticsPolicy Brief | January 2019A Tale of Haves and Have-Notsreduce expenditures or raise additional revenues. In practi-cal terms, this translates largely to budget cuts in non-man-dated expenditure areas, such as instructional programs and staff.Overall Results• Over the five-year projection period, after 2017-18, statewide revenues and expenditures move into balance with revenues trending upward slightly more than expen-ditures creating small surpluses. But the aggregate results mask continuing fiscal stress for most districts and a persis-tent gulf between those with surpluses (the “Haves”) and those with shortfalls (the “Have-Nots”).• For a continuing majority of districts, the growth in state mandated payments for Charter School Tuition and the Pennsylvania School Employees’ Retirement System (PS-ERS) are expected to exceed the growth in their basic and special education subsidies. o Charter School costs will place an increasing burden on school district taxpayers as the state does not support these mandated district costs. o PSERS expenditures are projected to grow at a lower rate due to lower annual Employee Contribution Rate (ECR) jumps, but they will continue to place a sub-stantial burden on district budgets.• State Basic Education Funding (BEF) and Special Educa-tion Funding (SEF) are likely to have a limited impact in improving fiscal equity among school districts over the next five years unless significant increases are made in the historical annual increases. The number of districts facing fiscal stress drops from the prior period, but still almost 300 districts will have to raise additional revenues, likely through local property taxes, or reduce expenditures, likely through cuts to instructional programs and staff.• Total revenues are projected to increase at $650-$750 million per year, at increasing annual amounts. This growth is driven primarily by new local revenues increasing by