Many ask why taxes increase when there is a surplus
The Upper Dublin School District’s Board of Directors recently voted to increase taxes in the township by 2.07% with its approval of the 2024-25 budget. And, while two board members made a last-minute attempt to reduce that rate hike, a majority of the board said they had concerns that reducing the figure would hinder additions to the capital reserve.
“We have $32 million worth of projects over the next five years we need to consider,” said Board Member Alima Redding during the directors’ June meeting.
As part of the 2023-24 budget, the directors had already earmarked a $3-million contribution to the capital reserve. As the previous school year ended, it was announced that the surplus of $7.2 million the district did not spend would also be put into the capital reserve funds.
The figures were also a hot topic among public speakers who were frustrated at the tax hike coinciding with such high surplus totals. Rita Brewster, of Fort Washington, spoke at the June session
“I’m not against a savings fund,” Brewster said. “I am against over taxation. To raise taxes every year, while you’ve got a big surplus, is not only unfair, but I think it’s unethical.”
Nevertheless, the board voted to deposit the $3 million in March, while approving the additional $7.2 million at its June meeting.
The contributions to the Capital Reserve Fund for the most recently closed school year technically started in September of 2023. As a result of something called “value engineering credits,” or insurance proceeds which totaled $1,537,000 designated for “impacts of the tornado damage.”
“This transfer is recorded as an expense, and while not planned in the budget, there was no impact to the overall financial results,” explained Lechman. “It was a direct offset to the revenue received.”
In other words, the district was 100% covered by insurance for any tornado damages, and did not have to pay out of pocket, despite estimates of over $1.5 million being projected as necessary.
“The board authorized a transfer of these funds to the capital reserve fund in September 2023,” wrote Lechman.
Citing the need for capital project funding, a March memo from District CFO Andy Lechman to the board of school directors recommended the transfer of $3 million in planned funds to be moved out of the General Fund and into the Capital Reserve Fund.
Lechman noted that the funds were “an approved appropriation” for the budget. He also said that, since the general fund was tracking in such a way that a hefty surplus was likely, he was confident in the transaction.
In the memo, Lechman also explained that the coming five years of capital projects had been mapped out.
“The Capital Reserve Fund is being actively used to fund these projects without the need to incur additional borrowing costs,” wrote Lechman. “Current reserves in the capital fund are estimated to be able to fund all essential capital maintenance projects through the 2027-28 fiscal year, and this only represents a portion of the total projects that are in the longer 10-year plan.”
The CFO said that strategic additions to the fund lessened the need for future borrowing.
Sensible spending and revenue trending far over expectations were just some of the reasons Lechman outlined in a June memo recommending the deposit of the 2023-24 surplus from the General Fund and into the Capital Reserve Fund as the school year came to an end.
How did revenue track better than budget expectations? According to Lechman the following factors had a positive impact on the district’s overall revenue:
Estimates for the 2023-24 school year budget guessed that interest rates would drop to around 3%. However, as the rates stayed above 5%, an additional $1.6 million was added to the budget.
Projected estimates of income from settlements in new developments ended up $640,000 under where they actually fell.
A continued strength in the EIT collection, as well as local wage growth, accounted for an additional $600,000 ahead of budget estimates.
Because the state budget did not get approved until after the Upper Dublin School District’s budget, a projected $500,000 was gained over estimated funds.
Total spending for the school year was down, saving $840,000 better than budget. Additionally, $2.3 million was saved due to unplanned savings resulting from “staff turnover, retirements, leaves of absence.” When payroll savings occur, payroll taxes and medical benefits are also reduced.
With multiple contributions and a repeated need for such funds, what precisely is the Capital Project List? As part of the recommendation memos to the board, Lechman also included detailed spreadsheets to answer just that.
Data on the provided spreadsheet included in Lechman’s memos shows district projects outlined until the 2028-29 school year. As of June’s figures, the Capital Reserve Fund itself closed with a total of $37,456,981. This included the spending of $5,266,421 in the 2023-24 school year.
According to the funding sources listed, the following was added this school year to the reserve:
Where did more than $5.2 million get spent this school year? Totals in the “completed” category for the school year included:
Several projects are already underway for the 2024-25 school year, including natatorium rooftop units for the high school ($1,231,770), Thomas Fitzwater Elementary HVAC, lighting, fire protection, and casework ($4,860,000), and a transportation facility design and land development project ($1,075,030).
Other projects slated for 2024-25’s budget also include a $125,000 Jarrettown Elementary School playground equipment project, $70,000 allotted for asphalt repairs, $85,000 for a domestic water boiler replacement, and an estimated $750,000 set aside for softball field improvements all to take place at Upper Dublin High School.
Directors also noted that Jarrettown Elementary School had not yet been included in the Capital Projects list, meaning any of the building and grounds needs there are not calculated in the spreadsheet.
School Board Director John Held said that, while an analysis is still yet to occur and its needs not yet established, “at some point that building will need some attention.”
“That’s going to cost money,” said Held. “The hope is that we don’t have to increase taxes even more down the road. I think where [taxes] are now is the right place.”
Ultimately, all described projects are paid for by the already-saved Capital Reserve Fund of the school district. Funds do not need to be taken out as loans (bonds) by the district. Interest does not need to be paid. Instead, the board of directors has put funds aside knowing the need for such projects will continue.
