Erie School Board ends its wait on state as it passes budget with tax increase

No longer able to wait on the state to pass a budget, the Erie School Board has passed the Erie School District's own 2023-24 budget with a 2.46% tax increase — a hike based on what the district estimates it will get from the state once the General Assembly and the governor approve a final spending package.

The 2.46% increase will raise school taxes by $45.53 for the owner of a home assessed at $100,000, according to district figures. The increase will raise $1,194,894 more in revenue for the district, which ended its protracted financial crisis when the state removed it from financial watch status in September.

The district's state-mandated financial recovery plan recommended annual tax increases of 2.46% to prevent the district from sliding back toward insolvency.

Erie schools Superintendent Brian Polito recommended the 2.46% increase to help the 10,000-student district offset increased costs due to inflation and to ensure that the district has a fund balance for years to come.

On Thursday, when the School Board approved the budget at a special meeting, Polito cautioned that the school directors would have to raise taxes at a higher rate in later years if they declined to raise taxes in 2023-24.

With no increase in 2023-24, the district would have to raise taxes more than 2.46% "in future years, in order to balance the budget," Polito said.

The Erie School District got a huge boost in the state budget a year ago, but Polito said another large increase is not guaranteed for 2023-24. The 2022-23 state budget included an additional $15.8 million in basic education funding for the Erie School District, including an estimated $6.6 million in Level Up funding designated for the state's poorest school districts. The increase lifted the district's total basic education allocation for 2022-23 to about $104 million.

"I haven't heard anything about Level Up" in 2023-24, Polito told the School Board.

The Erie School District gets 60% of its funding from the state and 19% from local real estate taxes, according to district figures. The rest of the funding comes from the federal government, at 17%, and other sources, such as earned income taxes, at 3%.

Relying on figures in Gov. Josh Shapiro's proposed 2023-24 state budget, the Erie School Board on May 10 approved a preliminary budget with a 2.46% tax increase. The school directors said then that they would revisit the amount of the proposed tax increase based on how much state funding the district gets in the final state budget.

That comparison has yet to happen.

By the time the School Board voted, the state was still not close to passing a final 2023-24 budget to go into effect on July 1. A dispute over school vouchers was fueling a contentious debate over the budget, the first for Shapiro, a Democrat who has come out in support of vouchers, angering many fellow Democrats in Harrisburg.

State law requires school districts to approve their annual budgets by June 30 so they can go into effect on July 1, the start of the fiscal year.

The deadline led the Erie School Board to hold its special meeting at noon on Thursday to approve its 2023-24 budget. It is balanced at about $281 million, excluding $17 million in an unassigned fund balance, or money in reserve. The amount of the unassigned fund balance is within the allowable range under state law, according to district figures.

Uncertain is whether the district could adjust the 2.46% tax increase if the final state budget includes more funding for the Erie School District than the district anticipated in its final budget. The district has 30 days to reopen its budget, but still faces timing issues if the School Board wanted to reduce taxes based on the final state funding.

As soon as it passes its budget, the district must get the new tax information to the Erie city Treasurer's Office so the office can mail tax bills by its legally mandated deadlines, according to the district. The bills are to go out by the end of July.

Polito told the School Board on Thursday on whether the district would have time to adjust the tax rate once the state passes its budget.

Erie School Board voted 6-1 to approve budget

The vote to approve the budget with the 2.46% tax increase was 6-1. Two of the nine school directors were absent: Lauren Gillespie and Lori Pickens.

School Board Vice President John Harkins cast the only vote in opposition. He also moved that the district amend the budget to include no tax increase, but amendment failed.

Harkins said he was upset that the state had yet to pass a budget, creating more uncertainty for the school district. He also criticized Harrisburg for not providing more money for public education, leaving taxpayers in the city of Erie with more of a financial burden.

"They constrain us by the chronic neglect to leave us only the property taxes as an available source of needed revenue," Harkins said of state lawmakers. "They hold us to the June 30th deadline, while they cavalierly chose to disregard it."

The other directors said they agreed with Harkins, but they said they supported passing a budget with the tax increase in response to the district's financial projections and lack of certainty on the state budget.

"This is crazy that we have to deal with this, especially coming out of our financial situation," School Director Zakaria Sharif said.

Board President Daria Devlin urged her fellow board members and district officials to consider setting up meeting with state lawmakers to express the district's frustrations over funding issues.

"I also feel this anger that we are putting this on our taxpayers," Devlin said. "But I think we have to take a little responsibility on ourselves and say we need to engage with these people.

"I absolutely feel the frustration here today. I also feel we do have to pass the budget as it stands, but not forget this is incredibly important to our city and our taxpayers."

Tax increase is less than last year's hike

The School Board's approval of the 2.46% tax increase comes a year after it approved a tax increase of 4.45% — the largest tax hike in the Erie School District since the School Board passed a 7.3% increase in 2013. The board followed that increase with no tax hikes or tax hikes of 0.5% through 2018.

The board raised taxes by 2.46% in 2019 for the 2019-20 budget — the first budget the board passed following the guidelines established in the state-mandated financial plan, which the the state Department of Education approved in May 2019.

The district had to abide by the plan in exchange for the General Assembly's approval, in 2017, of an additional $14 million in state funding each fiscal year for the district to keep it solvent. The district started receiving that money in 2018.

The School Board did not raise taxes in the 2020-21 budget, which went into effect during the pandemic, and raised taxes 3% in the 2021-22 budget.

In raising taxes 4.45% a year ago, the Erie School Board also had a cushion. Higher gaming revenue increased the homestead exemption for homeowners in the city by $91.13 in 2022-23, from $344.49 to $435.62 per homeowner, no matter what the assessed value, according to the final district budget figures for 2022-23.

Gaming revenue — including from online sports betting and revenue from Presque Isle Downs & Casino in Summit Township — helps fund the state's homestead tax exemption program. It reduces school taxes for the primary residences of homeowners enrolled in the program. The addition of online sports betting in Pennsylvania in May 2019 led to a surge in gaming revenue.

In the 2022-23 budget, the 4.45% tax increase added $78.85 to the school tax bills for homes assessed at $100,000. But the $91.13 increase in the homestead exemption offset that increase so that those with homes assessed at $100,000 came out ahead by just over $12. The savings was less for homes assessed at more than $100,000 and more for those assessed at less than $100,000.

No such cushion exists in the 2023-24 budget. The homestead exemption for homeowners in the city of Erie for 2023-24 is $436.57 — just 95 cents more than the exemption in 2022-23.

Contact Ed Palattella at epalattella@timesnews.com. Follow him on Twitter @ETNpalattella.

This article originally appeared on Erie Times-News: Frustrated with state, Erie School Board passes budget with tax hike