After initially projecting a fund balance depletion by the end of next year, the Pittsburgh Public School District is now preparing to pass a budget that will keep them afloat at least through 2023 without a tax increase.
Propping it up, though, is approximately $61 million in federal COVID-19 relief funding from the American Rescue Plan’s Elementary and Secondary Schools Emergency Relief. But this will soon dry up, leaving tough choices ahead for school officials.
“Regardless of ESSER funding, our cost drivers remain the same,” CFO Ronald Joseph tells Pittsburgh City Paper. “The true cost of charter schools did go up. We’ve had escalating mandated costs at the state level, such as our retirement reimbursement that has increased. We have rising costs everywhere and our costs are rising at a higher rate than our revenue rises.”
The PPS 2023 preliminary budget of $675.9 million was released to the public on Nov. 23. It projects an operating deficit of $9.2 million, which will draw down the unreserved fund balance to $59.1 million by the the end of 2023.
Last year, the district released a deficit presentation anticipating its reserves would be depleted by 2023 if school officials couldn’t find a way to cut costs or raise revenue.
The ESSER funds, which can be used until 2024, are helping protect the district from the worst effects of its rising costs. Alongside these, the district also carried over some budgetary reserves and implemented a tax increase in 2022.
Joseph’s strategy for deploying the ESSER funds has been to limit long-term investment spending to prevent future funding drops. Instead, he says, the funding is being predominantly allocated to one-time expenditures, like enrichment programs to address lost learning, as well as technology and building upgrades.
“We were intentional about not just using it to purchase a whole bunch of staff because we know that if we’re not targeting specific interventions and programs, then at the end of the funding we’ll fall off a cliff and won’t have a means of continuing those expenditures,” Joseph says.
Joseph says the district's financial woes began in 2011, when there was a significant reduction in revenue from the state. Since then, continued rising costs have added to the troubles, Joseph says.
“We’re always at a point right now where our costs are growing at a rate that’s higher than our projected revenues, so that presents the structural deficit,” Joseph says.
Declining enrollment is among the key factors driving the district’s structural deficit. Consequently, the revenue contributed by the state is lowered, and costs to charter schools have risen.
Staff salaries and charter school expenses make up 66% of the total 2023 appropriations, with charter schools costing PPS roughly $120 million and staff costing around $329 million. This is coupled with increases to the general fund requirements that outpace growth in enrollment.
School board members are set to vote on the budget at the Dec. 21 legislative session. As for future decisions to address the district’s persistent budgetary concerns, nothing has been announced, but district board members have a multitude of options to consider.
Efforts to Increase Revenue
To address future funding issues, the district may have some options for increasing revenue streams but Joseph warns the effort can be ultimately problematic.
“That’s not really the game that we’re in. There are ways we might be able to generate some revenue, but it’s about who we’re charging,” Joseph says. “The main service we offer is education, and we’re not charging our residents for education because it’s free public education and they already indirectly pay via taxes.”
During recent years, the district has sold unused buildings to generate revenue, but that, Joseph notes, is not sustainable. The district has also recently implemented a program using cameras on buses to help fine drivers who unlawfully pass stopped school buses. Some revenue will be generated from the program, but the average revenue per year is unknown.
Alternatively, the district could try to invest in efforts to increase enrollment or continue to petition the city to return to an earlier wage tax formula that would provide around $20 million to PPS.
In 2005, Pittsburgh reformed the formula for wage taxes to address the city’s fiscal distress at the time. City residents paid a 3% wage tax and 2% went to the school district. After the reform, only 1.75% went to the schools. In 2021, the school board requested that the formula be converted back since the city’s fiscal distress had passed and the city was proposing that the district was in a state of financial distress, but the city resisted returning the funds.
Efforts to Decrease Costs
Limiting costs to the district might be a more feasible option for the budget in the next couple years, but Joseph is uncomfortable proposing options before the board indicates what actions it wants to take.
With legacy and structure costs already consuming large portions of the budget every year before funding can be manipulated to meet district goals, there are limited options as to how the district can cut costs while maintaining its education initiatives.
With growth in staff not corresponding to the growth in enrollment, limiting staff is a possible solution. Closing schools to sell buildings and consolidate resources is also plausible.
“What I can say is those discussions have to occur between the board of administration, and I anticipate those discussions will be held publicly,” Joseph said. “Any plans that we will have for addressing our projected shortfalls will be a discussion that will be had publicly and will require tons of stakeholder engagement.”
PPS CFO Ronald Joseph said there were no new major investments or reductions to the budget because of the recent transition in the district’s leadership from previous superintendent Anthony Hamlet to Dr. Wayne Walters.
“Now with that permanent leadership, we can expect that there will be more changes coming forward because we do need to address this issue. But this year, for this budget, it was just basically about maintaining services, not any major new investments or any reductions, but just maintaining the services we need to provide to our students.”