When new legislation passes, PSBA is seen as the leader in analyzing it and helping members make sense of it.

Testimony-Task Force on School Cost Reduction, East Penn SD

East Penn SD
February 2007

Cost Factors for Rapidly Growing Suburban School Districts
Chuck Ballard, East Penn School Director
Emmaus, PA 18049

Good Afternoon. Thank you for taking the time to hear testimony from those of us taking the heat for school costs across the Commonwealth, your local elected school directors.

My name is Chuck Ballard. I have been a school director for the East Penn School District for nearly 12 years now. In that time, I have faced many challenges trying to balance the needs of providing a thorough and efficient education to the students of our district, and the ability of our taxpayers to support those educational needs.

Today, I can say that school directors face unprecedented challenges to our mission to provide that thorough and efficient system of education, mainly due to political decisions based on expediency and trying to pass the buck to local taxpayers, without basic understanding of the true costs of education in Pennsylvania. I am hopeful that your Task Force will provide the basis for a rational discussion for solutions in the future, which will get us out of the mess that has been created by short-sighted political maneuvering.

Other school representatives here today have covered and will cover many other issues regarding the sources of district expenses. I want to concentrate my testimony on the cost impacts peculiar to rapidly-growing suburban districts like East Penn.

The East Penn School District is located in the lower southwest corner of Lehigh County, and borders on the Allentown School District. Our district encompasses the boros of Alburtis, Emmaus, and Macungie, and the townships of Lower Macungie and Upper Milford. Most of our boros are land-locked, and most of our growth comes from Lower Macungie Township, one of the fastest-growing areas in the state.

Zoning and development policies in Lower Macungie Township have tended to favor development of available land for large housing developments, whose phases tend to add many single-family houses to our real-estate rolls. At the same time, large-scale industrial or commercial development has tended to be discouraged.

Our current per pupil expenditure (2006/07) is $11,677, while the average property tax payment for a household in East Penn is $2,703. Simple math shows that under this scenario, even assuming just one child in school per house added, our costs are rising faster than the property tax revenue from the new houses. That is just part of the dilemma of growing districts.

Let us examine some of the factors of this dilemma.

East Penn Demographics and Finances
The East Penn School District is cited by real estate agents as one of the two most desirable school districts in Lehigh County, for parents desiring the highest quality of educational experience for their children. This has maintained and expanded our real estate values for almost 25 years.

Using the latest (2004/05) values from the Pennsylvania Department of Education (PDE) website, it is obvious that East Penn is considered to be a relatively 'wealthy' district:

  • Market Value $2.7 Billion
  • Personal Income $1.4 Billion
  • Aid Ratio Rank 435/501 (lowest aid ratios)
  • Size Rank 35th Largest (upper 10%)
  • Total Revenue $78.4 Million
  • Local Revenue $60.9 Million
  • State Revenue $17.1 Million (21.18%)
  • Federal Revenue $0.36 Million (0.5%)

Of the Local Revenue, the breakdown is:

  • Earned Income $5.9 Million
  • RE Transfer Tax $2.4 Million
  • Property Tax $52.6 Million

Figures 1-4 show historical and current figures for Enrollment Growth, Per Pupil Cost, Expenditures and Revenue Sources.

The district currently does not provide full-day kindergarten or universal pre-school services. There are no available classroom facilities to provide these services and additional construction, above and beyond that already necessitated by the growth of the district, would be required to provide these extra services. That is in addition to the extra teachers that would be required.

Cost Increase Factors for East Penn
 There are three major cost increase sources for East Penn:

  • Inflation (wage and materials)
  • Increased Enrollment (staff and buildings)
  • Unfunded Mandates (staff, equipment and facilities)
  • Inflation

Inflation is not much of a factor for East Penn under current circumstances. With the continued growth of the real estate market, and lack of recessionary factors, East Penn could probably cope with normal inflation without needing any tax increases. In fact, over the past twelve years, when we have not been engaged in building programs, it has been possible to have zero-increase budgets 2 times.

Should the housing market level off or collapse or health care costs resume double-digit increases, East Penn would have to consider inflationary tax increases. Health care is the biggest inflationary risk for East Penn.

Health care costs are no longer covered under an Act 1 exception for East Penn because the exception only applies to contracts in effect as of Jan. 1,2006, and specifically is not valid for any contracts signed after that date.

In two previous years, health care costs went up 28 and 35% per year. In those two budget years, East Penn had to physically budget more money for health care cost increases than we had to budget to cover negotiated salary increases. That means that Act 1 index raises in taxes would not be sufficient to deal with the increasing costs of health care if those rates of inflation were to occur again.

Proposed state health care plans we have seen to date will not help East Penn with these costs, because the statewide plan proposed cost was higher than what we are paying through our Lehigh Valley Consortium. The statewide plans we have seen appear mainly geared toward lowering costs in Philadelphia and Pittsburgh. (Unless, of course, the state was to take on actually PAYING for the entire cost of health insurance for district employees...)

Increased Enrollments
Over the past 25 years, the East Penn School District experienced fairly steady growth, averaging nearly 100 students per year for a number of years. This necessitated major building programs approximately every 8-10 years or so, to accommodate the student growth.

Lately, however, we have been experiencing growth that is phenomenal. Referencing Figure 1, you will see that between 2004 and 2006, we received 660 new students, almost the equivalent of an entire elementary school. Since new schools take on average, with the Plancon process, three years to build, we literally cannot build schools fast enough to meet this kind of demand.

In East Penn, building programs drive the largest millage increases. Except for times of building programs, our district could probably cope with most cost increases under Act 1 millage restrictions.

It is clear from Act 1 language, prevailing wage legislation, and state construction reimbursement levels, that the state legislature does not understand the real costs of building construction.

The February 2006 issue of School Planning and Management (page c-31) lists construction costs for schools in NJ-NY-PA as currently running $220 per square foot. The most recent construction experience in the East Penn School District, for the Alburtis Elementary School bid nearly 4 years ago, came in over $187 per square foot.

To calculate exception figures, Act 1 uses an artificially low construction value fixed at $137 per square foot, and then uses an arbitrary 60% factor on that artificial value to calculate the amount useable for an exception. As shown by the calculation in Figure 5, this makes the construction 'exception' practically useless for East Penn in trying to finance our construction projects.

Prevailing Wage requirements raise the total costs of projects in East Penn by an estimated 15%. We are subject to Philadelphia wage rates because of our proximity to that market. In my opinion, prevailing wage is a disgraceful example of public money being used for pork-barrel politics.

Unfunded Mandates
 In the 70's in Pennsylvania, the state 'share' of educational costs was approximately 50%. In the East Penn School District, that value is down to under 21% of our budget by the state's own figures. In addition, the state 'reimbursement' for new construction is down to less than 15 cents on the dollar for East Penn.

In a very venial strategy, the state legislature has reduced their share of the costs and stuck local taxpayers with outrageous property tax levels. The legislature has done this in two ways to districts like East Penn - they have increased basic education subsidies at less than the rate of inflation [2% minimum increase - even less than their indices for Act 1] and by sending mandates down to school districts to provide materials and services to certain special groups without sending the funding to pay for those materials and services.

A recent example of how this can work is shown in proposals being considered by the legislature to DOUBLE the number of school nurses in our district by changing the required ratio of school nurses to students. With nurses in general being in short supply, and school nurses requiring special certifications, the cost to districts to find, or more probably create, new school nurses, could easily raise our millage rate .2 to .5 mils, just for salary and benefits of the new personnel. This is when we are arguing about adding one or two teachers to programs where they are really needed, because of the additional cost.

There are literally dozens of these unfunded mandates we are forced to deal with, and must raise local taxes to fund. As shown by the breakdown earlier of local revenues, the only place this can effectively be done is with the property tax.

The so-called 'property tax relief' formulas of Act 1 do not work for the majority of East Penn residents. The required referendum that we are mandated to put on the ballot in May will raise total taxes on more than a majority of our residents to fund property tax relief for a minority of citizens. Many of that minority already have tax relief opportunities not available to the rest of our taxpayers.

Another major unfunded mandate for the East Penn School District is transportation of non-public school children. The average cost for the transportation of a private school student is currently running over FOUR TIMES the cost of transporting a public school student. The requirement to transport these students as far as 10 miles beyond our district borders is just one of the reasons for this increased cost. The lack of incentives for private schools to match their schedules to ours, and the necessity to run several buses over the same route at the same time to accommodate different private school attendees also increases these costs. State transportation subsidies do not cover this disparity in costs.

In An Ideal World
What would East Penn School District like to see accomplished by the Task Force on School Cost Reduction?

We would like to see you develop the framework for a rational discussion of the actual, not legislative imaginary, costs of providing not only the educational component of schools, but the buildings and transportation costs associated with them.

We would like to see a discussion of what the 'fair share' or cost allocation, based on the cost figures you come up with, for various parts of the state, should be, between the Commonwealth, and the local taxpayers.

We would like to see some innovative proposals for removing the costliest burdens on local taxpayers, such as state funding for actual building construction, or state takeover of the cost of providing health care coverage for school employees (like they do for other state employees). We don't want more 'plans' that put the burden on local taxpayers to solve statewide problems, or the problems of two or three large cities.

We want a fair and level playing field, so we can concentrate on delivering the quality educational product that is the hallmark of the East Penn School District.

Any attention you could give to these requests and hopes would be greatly appreciated by the students, parents, taxpayers, administrators, teachers and Board Members of East Penn School District.

Figure 5
ALBURTIS ELEMENTARY SCHOOL (Project bid May 2003)
Actual total project costs - $11,172,211
Building Square Footage - 59,500 sq. ft.
Actual cost per s/f - $187.77
Average annual debt service - $833,000

Act 1 Academic elementary school exception calculation on this building:

59,500 x $137 x 60% = $4,890,900

Allowable referendum exception: principal and interest payments due in 2006-2007 for a bond issue up to $4,890,900.

Or

44% of the actual principal and interest payments on this project. ($4,890,900/$11,172,211=44%)

Annual Debt Service Breakdown:

  • Total annual debt service - $833,000
  • Eligible for exception (44%) - $366,540
  • Ineligible for exception (56%)- $466,480 *

*Would have to be funded under Act I index restriction amount together with other costs

Note:
In order to qualify for this exception the District would be required to deplete all funds currently held in the Capital Reserve Fund. Example -$1,100,000 was recently expended from the Capital Reserve Fund for the capital improvements required to re-open a closed elementary school during the summer of 2006 to meet unanticipated population growth.

That $1,100,000 would have not been available if EPSD had eliminated the Capital Reserve Fund in order to qualify for the $366,540 debt payment exception. The $1,100,000 for the elementary school re-opening project would have been required to be budgeted in the general fund budget and paid for under Act 1 tax increase restrictions. In this case it would have been financially beneficial to the taxpayers of East Penn to not apply for the academic elementary school exception and continue to use the Capital Reserve Fund for necessary capital projects and provide relief for the general fund. This exception mechanism discourages prudent financial planning for capital projects for the future.