What does the budget impasse mean for Pennsylvania K-12 schools?

Extended stalemate could force some districts to apply for a line of credit or draw from their reserves for educational needs

By: - July 20, 2023 11:00 am

About $1 billion has been proposed to fund Pennsylvania’s K-12 schools. (William Thomas Cain/Getty Images)

 (This story was updated at 8 a.m. on Friday, July 21, 2023, to correct a Senate procedural detail.)

Pennsylvania is still without a finalized spending plan, and K-12 school districts could feel the impact of the impasse if the standstill over a $45.5 billion budget drags into the upcoming academic year.

State lawmakers will not return to Harrisburg until September, making the budget, if finalized then, nearly three months past the June 30 deadline. Most students and educators will have returned to the classroom by then. But the $1 billion allocated for K-12 education — delayed by a disagreement over private school vouchers — will have yet to be formalized for districts statewide.

A short delay in the annual process is unlikely to affect school financial planning as administrators prepare for the upcoming academic year. However, an extended impasse could force some districts to apply for a line of credit, resulting in additional costs and fees, or rely on their reserves to meet educational needs. 

The House and Senate approved a budget before adjourning for the summer break. However, the bill still needs a signature from Lt. Gov. Austin Davis in front of the chamber before going to Democratic Gov. Josh Shapiro for final approval. Senate President Pro Tempore Kim Ward, R-Westmoreland, however, has authority to call the Senate back to session.

After the GOP-controlled Senate approved a spending plan that included the voucher program, Shapiro said he would line-item veto the initiative because House Democrats, who controlled the chamber at the time, opposed it. The end-run from Shapiro prompted accusations of betrayal from Senate leadership, who recessed until Sept. 18.

Whether a school feels the restraint of state funding being stuck in legislative limbo depends on the district and how long the impasse lasts, Kate Krueger, director of advocacy for the Pennsylvania Association of School Business Officials, told the Capital-Star. 

“In most districts, the shortfall in payments will not be drastically felt until September. They can utilize their inflow of property tax payments to maintain cash flow,” Krueger said. “However, those districts that rely more on state funding to stay afloat will have to borrow or consider borrowing much sooner than others to avoid cash flow issues.”

Borrowing, she added, “will only exacerbate the underlying inequities between school districts with higher local revenue and those who have a smaller or poorer tax base.”

In the School District of Lancaster, a petitioner in the landmark school funding case, 48% of revenue comes from state funding. The total operating budget for the 2023-24 school year is $279 million, district Director of Finance Kimberly Reynolds told the Capital-Star. The district serves roughly 10,000 students across 19 school buildings.

Until lawmakers send a budget and code bills, which direct state funding, to Shapiro, the School District of Lancaster will have to rely on real estate tax revenue to fund payroll and expenses, Reynolds said.

“At this time, the district has reserves to continue operating as normal to start the school year,” she said. “The longer the impasse goes on, cuts to the educational programs, such as supplies, field trips, etc., may be necessary.”

The School District of Philadelphia, which enrolls more than 197,000 students, doesn’t expect the impasse to impact operations in the short term, spokesperson Monique Braxton told the Capital-Star. But if it continues, the district — which estimates that more than half of its general fund revenue will come from state sources this year — might need to borrow additional funding by late August, she added.

As of June 30, the district’s projected operating fund balance was $656 million, Braxton said. She added that cash balances typically decrease during the summer while spending continues without receiving state revenue.

If there’s no movement on the budget, the district board plans to propose the issuance of Tax Revenue Anticipation Notes, a short-term bond, at its Aug. 17 meeting, Braxton said.

“This will allow the district to borrow funding for operations, including payroll, charter school payments, and vendor invoices,” she said. “In the prior prolonged impasse in 2015, the district was able to maintain operations through costly borrowing. In the current interest rate environment, this would be far more expensive.”

Republican lawmakers have also argued that some programs — like Level Up, which supports the 100 poorest schools in Pennsylvania — could be held up unless lawmakers advance enabling legislation, the code bills, to instruct spending. The proposed spending plan also includes funding for student-teacher stipends and universal free breakfast.

The most recent record-setting impasse happened in 2015 and 2016, with a nine-month standstill between then-Gov. Tom Wolf, a Democrat, and the Republican-controlled Legislature.

Schools hope the impasse is short-lived, ideally before the academic year starts, Krueger said.

“If it is not, eventually, school districts will be tasked with reducing programs and staff as a result of lost funding, which will have an impact on students, parents, and staff,” she said. “Additionally, budget impasses have long-lasting impacts on the local community.”

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