MILL HALL — Keystone Central School District Business Manager Joni MacIntyre outlined the district’s preliminary 2025-26 budget at this week’s board work session, detailing potential tax increase scenarios and financial challenges as the district works to close a multi-million dollar budget gap.

“This is a preliminary budget. We still have some work to do, but this shows you what we still have to work through and what we’re up against,” MacIntryre said before detailing the calculations in consideration as the board weighs potentially raising taxes for the upcoming academic year.

At the board’s most recent Finance Committee meeting, school administration said they were facing a $6.6 million budget shortfall, but by Thursday evening’s work session, the deficit had been shaved down by about $1 million.

Much of the recent savings can be attributed to the business office’s work with KCSD department heads to whittle down their operating budget requests, which is ongoing, according to MacIntyre. Additional savings on expenditures are expected to be realized through the attrition and repurposing of staff, which will be addressed through February, she said.

KCSD admin must also consider a planned increase in bond principal and interest payments. In the 2023-2024 fiscal year, the district’s expenditures for bond principal and interest totaled $1.8 million. In 2024-2025, that had increased to $2.25 million.

“Through the board approval of two Liberty Curtin Bonds, we have moved our bond principal and interest about $400,000,” MacIntyre said.

This brings the district’s total bond-related expenditures to $2.7 million.

“The good news is we will level out now,” she added. “The remaining years will be about $2.6 million. You won’t see any of those big increases. (They) will level out now after ’25-’26.”

Another significant challenge for the district is its increasing expenditure on cyber school tuition. Between the 2022-2023 and 2023-2024 school years, KCSD saw a $1.5 million increase in cyber school tuition. KC administrators’ research determined that both tuition rate increases and rising enrollment are to blame.

In the 2022-2023 academic year, 62 district students were enrolled in Commonwealth Charter Academy (CCA), one of several online charter school options. By the following year, that number had risen to 107. This increase was also seen in special education enrollment, which grew from 15 to 36 students — a 140% increase. KC’s business manager said that growing enrollment, like has been seen with CCA, is a trend among all cyber schools.

MacIntyre, however, did appear optimistic about a major proposed change in the state appropriations budget that could see KCSD realize up to $2 million in savings.

“The governor proposed to cap charter school tuition at $8,000. That’s huge,” said MacIntyre. “That is actually more important than any increased revenue that we could get at the moment.”

Based on MacIntyre’s calculations, the district would have saved $1.1 million if the cap had been implemented last year and could save KCSD nearly $2 million a year going forward.

“I would ask you and the community to go out and contact Harrisburg, contact our legislators. This is super important in the budget,” she said.

Though the change would only apply to cyber school’s tuition, legislators in Harrisburg are also reviewing possible changes to the tuition formula for brick and mortar charter schools.

MacIntyre also expressed optimism about potential revenue associated with Democratic Gov. Josh Shaprio’s budget proposal.

“The governor did have a proposal and it really calls for the most historic funding increase in public education,” she said.

Based on her calculations, the district is poised to gain about $715,000 in additional funding after a state court ruled in 2023 that Pennsylvania’s spending on public education was inequitable. In 2024, Pa. lawmakers passed a budget acknowledging an “adequacy gap” to the tune of $4.5 billion in funding for the commonwealth’s poorest schools and pledged to fill it using state appropriations. Of the $715,000 MacIntyre anticipates, an estimated $489,000 would come from the Adequacy Gap subsidy.

To determine how funding is distributed, lawmakers established a “Local Effort Rate” formula to ensure schools receiving the money have also contributed to their district financially to their district through taxation and other fundraising measures. KCSD is currently rated slightly greater than the 33rd percentile in the LER formula, meaning they fall in the goldilocks percentile where they will receive the maximum funding allocation from the state.

However, MacIntyre warned, “If we would take years off of contributing to any kind of tax revenue to our district, that local effort rate will drop,” which could jeopardize the total amount received by KCSD.

Administrators must also consider committing funds to necessary capital projects, if and how they want to use money from their fund balance or budget reserve, the long-anticipated loss of COVID era ESSER funding and their investment portfolio before determining how much to raise taxes.

On Dec. 5, 2024, the board adopted a resolution pledging not to exceed the Act 1 Index, which caps the district’s taxation at 7.1 percent. MacIntyre presented four scenarios in which the district could adopt a tax rate at 0, 25, 50, and 75 percent of the Act 1 Index for board members to consider.

The financial outlooks assume that all figures are approximate and do not represent decreased expenditures, that employee benefits and payroll increase and that the Public School Employees’ Retirement System (PSERS) rate and the starting reserve balance ($19,665,707) stay steady.

According to MacIntyre, the PSERS rate for 2025-2026 is 34 percent.

“That actually dropped a little bit, so we did see about a $250,000 savings from what I budgeted,” she said.

At the last Finance Committee meeting, representatives with Benecon, KCSD’s employee benefits provider, said the district is on track for a 15 percent increase in benefit payments.

“I don’t feel as if that can be moved until if by chance we happen to have a better rate, but I don’t feel comfortable moving that,” said MacIntyre.

With all of the above in consideration, with no tax increase, KCSD is projected to have a $5,655,087 budget shortfall.

A 1.78 percent millage increase (25% of the Act 1 Index) would yield the district $490,159, bringing the deficit down to $5,164,928. Doubling that, a 3.55 percent millage increase (50% of the Act 1 Index) would bring in only $980,317 — leaving the district $4,674,769 in the negative. Even a 5.34 percent millage increase (75% of the Act 1 Index) would only decrease the shortfall by about $1,470,476, a far cry from the $4,184,610 they need to balance the budget.