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Preparing your district’s budget for the COVID-19 impact

05-06-2020

by Jared M. Wolfgang

The economic fallout from the COVID-19 pandemic will have long-lasting impacts on all segments of our community – including school districts.

Now is the time to start considering 2020-2021 budget revisions to prepare for potential – and likely – revenue losses. Take a hard look at planned improvements and transfers to your capital project/reserve funds. What has to get done this year? What can you delay until funding is more certain?

You may also want to look at staffing needs moving forward and perhaps consider working with your collective bargaining units to renegotiate contracts. Likewise, review your contracted services and see if there is room for negotiation.

 

4 coronavirus-related school revenue streams that may suffer

When looking at the finances of a school district, we advise districts to review the following revenue sources that are likely to be impacted by the pandemic and adjust budgets and spending accordingly.

  1. Earned Income Tax (EIT): With record unemployment claims filed, and more yet to come, EIT revenue will likely see the largest hit. Districts will begin to see the reduction in the second quarter of the calendar year and may continue at least into the third quarter. Perhaps longer, depending on the length of business closures and the level of eventual re-employment.
  2. State revenue: More than ever, districts rely on state money to provide services to their students. Much of the state revenue comes from income and sales taxes ­— both of which abruptly collapsed when the coronavirus lockdowns began. This will have little to no impact for the 2019-2020 school year but should be reviewed when considering the 2020-2021 budget revisions.
  3. Real estate transfer tax revenue: Residential home sales that were already in the works before COVID-19 have mostly still proceeded, but new interest is likely to be very slow as long as our economy remains in an uncertain status. If your budget relies on this revenue, you should monitor your real estate market to determine if (or by how much) this revenue amount will underperform compared to your 2020 budgeted amount. Additionally, you will need to monitor housing market forecasts to see if a lower revenue should be expected into 2021 as well.
  1. Interest rate income: Interest on deposits and investments have declined across the board. Additionally, the expected reductions in revenue will leave less money available for investing. The loss of interest income will especially impact the PSERS retirement funds. Districts should expect that the net plan fiduciary net position to decrease. This will have a negative impact on a plan that is already about only 50 percent funded.

 

3 additional ways to prepare

 

Moving forward, we suggest the following:

  1. Monitor the percentage change in revenue streams so you can more accurately predict how the shutdown will impact revenue. Stay in touch with other school districts through the Pennsylvania Association of School Business Officials (PASBO) to try and gauge what the average decrease in these revenue streams will be over time.
  2. Review what waivers are available for federal programs and determine if any apply to your school’s current situation. If not, you can shift most of the Title programs funds into the following year with a waiver.
  3. Keep up with the latest grant funding available to schools. Financial options and programs seem to change daily. PASBO, GFOA, and PDE have been providing daily updates and can offer guidance.

 

Unfortunately, only time will tell how negatively the COVID-19 pandemic impacts school districts. Each district will be unique, depending on the impact felt in their community. The best thing, for now, is to stay up to date on the funding options and consider possible revisions for your 2020-2021 budget.

If you have questions during these troubling times, please feel free to reach out to one of our public sector group professionals at Boyer & Ritter.

 

 

Jared Wolfgang is a Manager with Boyer & Ritter LLC and is a member of the firm’s Government Services Group. Contact Jared at 717-761-7210 or jwolfgang@cpabr.com

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