Q: How will a project resulting from the Feasibility Study be funded?
A: Options that are developed through the Feasibility Study process will each have an associated cost. One of the challenges faced by the District and the community is how to fund any project developed as a result of the Study, and more specifically if a tax increase will be necessary in order for the project to be funded.
Whether a tax increase will be necessary to fund the project depends on the scope of a project resulting from the collaborative process being undertaken by the District in conjunction with the community through the Feasibility Study. A tax increase may be necessary based on the scope of the project recommended. The FAQ’s that follow provide additional background related to the funding of a project as it relates to the District’s budget, debt service, reserves and Pennsylvania Legislation, which are all factors in determining whether a tax increase may be used to fund a project resulting from the Study.
Q: The District is maintaining its buildings annually. What funds are currently allocated annually for facility maintenance and can this allocation be used to finance any project developed by the Study?
A: The District’s General Fund Budget funds the operations of the District, including maintenance of the District’s facilities each year. The 2014-15 General Fund budget includes ~$1,000,000 for facilities maintenance. These funds are used to maintain our facilities and prevent significant deterioration of these facilities over time. While options identified in the Study may include items beyond the scope of what this portion of the General Fund budget is allocated to address, a portion of these funds may be used to supplement a project identified as a result of the Study.
Q: The District’s General Fund Budget includes an allocation for debt service. Can these funds be used to fund a project resulting from the Study?
A: The debt service allocation within the District’s general fund budget includes principal and interest payments on the bonds previously issued by the District. Debt service included in the 2014-15 Budget is ~$8,000,000. These funds are specifically allocated for past debt issuances. However, as a project would be funded over the long-term, the District’s future debt service schedule must be considered when considering funding for a future project. The District’s current debt service decreases to ~$4,000,000 in 2020-21 and will be completely satisfied 10 years from now in 2024-25. This is an important element that will be looked at with the District’s financial advisors as we determine how that gradual drop off in our debt service can be used to fund a portion of a new project within our current debt service allocation.Q: What Revenues does the District receive that could be used to fund a project resulting from the Study?
A: The District’s General Fund budget expenditures are funded through local, state & federal revenues. State and Federal Revenues make up ~15% of the General Fund Budget and are allocated to the District by the state and federal governments. The District has no control over these allocations and in many cases the allocations are designated for specific expenditures. The remaining 85% of the District’s budget consists of local revenues, primarily real estate tax. The real estate tax is the funding source the District does have some control over, but that level of control is also limited by the state through legislation referred to as Act 1 of 2006.
Q: What authority does the District have within the parameters of Act 1 of 2006 to increase real estate taxes to fund a project that may result from the Study?
A: Act 1 of 2006 limits a tax increase levied by a school district to a financial index based on specific economic indicators. The formula for the Act 1 index is calculated by averaging the percent increases in the Pennsylvania Statewide Average Weekly Wage (SAWW) and the federal Bureau of Labor and Statistics' Employment Cost Index (ECI) for elementary/secondary schools in the previous year. Beginning in 2012-2013, the index is determined by averaging these numbers over three years. The Act 1 index was 1.7% for 2012-13, 1.7% for 2013-14 & 2.1% for 2014-15. There are also several exceptions that can be used by the District to increase taxes by an amount greater than that index (related to retirement and special education), but those exceptions are specifically defined and do not include an exception related to the financing of a new project. The Board could not increase taxes for any project resulting from the Study above its authority as defined by Act 1.
Q: Can real estate taxes be increased beyond the Board’s Authority as prescribed by Act 1 for a project that may result from the Study?A: Act 1 does provide a mechanism for which a tax may be levied for the purpose of the type of project that may result from the Feasibility Study. If a project has been recommended that does not fit within the parameters of the District’s budget as limited by Act 1, an additional tax increase may be levied through voter referendum. A referendum is a direct vote in which an entire electorate is asked to either accept or reject a particular proposal. In this case, this means every registered voter who is a resident of Upper Merion Area School District would have an opportunity to vote yes or no to a single question on the ballot regarding the funding for a proposed project.
Q: Does the District maintain reserve funds that could be used to finance a project that may result from the Study?
A: The District does maintain reserves known as fund balance within its General Fund and its Capital Reserve Fund. As of June 30, 2013 the General Fund’s balance was ~$10,600,000. As of June 30, 2013 the Capital Reserve Fund’s fund balance was ~$3,000,000. At the end of each fiscal year, the District reviews the net result of revenues over expenditures in the General Fund. If expenditures exceed revenues, the District’s reserves are decreased. If revenues exceed expenditures, the District can increase its capital reserve funds or assign the additional fund balance within the General Fund to specific costs expected to be incurred in future years such as increasing retirement expense or expected assessment appeal losses. These reserve levels are annually considered as part of the analysis of the District’s long term fiscal sustainability and will continue to be considered in the analysis inclusive of the funding of any project resulting from the Study. Dependent upon the fluctuation of the reserve levels and future anticipated expenditure increases, a portion of these funds could be considered for use in a project resulting from the Study.
Q: Please summarize how the funding of a project identified by the Study may affect my real estate tax.
A: As the District in collaboration with the community works through the Feasibility Study process to formulate options for the long term sustainability of the District’s facilities, the costs of each of those options will also be considered. Once the costs of those options have been estimated, the District in consultation with its financial advisors will analyze the funding options and related long term effect of each option on the fiscal sustainability of the District. Based on this analysis and the scope of the project, the required funding could result in any of the following local real estate tax implications:
- No tax increase related to the project as costs can be absorbed by the General Fund budget based on the future debt service schedule, current budget allocations and reserve levels.
- A tax increase to fund a project resulting from the Study authorized by the Board within the limits of Act 1 as discussed above.
- A tax increase to fund a project resulting from the Study approved through voter referendum by the entire electorate above the Board’s authority within Act 1.
Whether a project resulting from the Study results in a tax implication consistent with #1, #2 or #3 along the continuum above will be directly correlated to the scope and related cost of the project. As the options are considered, the District will be able to indicate the actual change in real estate tax that can be expected related to each option.