Budget shortfalls loom as state subsidies lag, assessment settlements and earned-income tax shifts take effect

Mr. Tracy, presenting a budget update to the finance committee on March 3, said the district’s share of key state subsidies in the governor’s proposed Pennsylvania budget will increase only slightly and will not meet the preliminary assumptions used in the district’s draft budget.

Tracy summarized the department’s high-level review of three major state funding streams: the basic education subsidy, special education subsidies, and the Ready-to-Learn block grant. For basic education he said Kennett’s allocation is projected to increase by less than 1% (about $82,922) over the current year; “that is less than a 1% increase overall,” he said. For special education he said the district’s allocation would rise by roughly $57,000. For the Ready-to-Learn block grant—used to maintain the district’s full-day kindergarten program—Tracy said the district would see a much smaller increase than in past years and that the grant’s formula favors districts with lower per-pupil spending or higher tax burdens.

Tracy summarized the district’s current position relative to the preliminary budget: projected state subsidy updates leave the district roughly $96,000 over what it had included in the preliminary draft. He also warned the committee of other near-term revenue risks: two tax-assessment settlements in the borough will likely cut assessed values and reduce revenue by an estimated roughly $322,000 (Tracy characterized his earlier $341,000 estimate as now closer to $322,000), and he said East Marlborough Township is likely to implement a 0.5% local earned income tax that would shift $450,000–$500,000 in collections away from the district over two years.

Why it matters: those combined impacts—smaller-than-expected state subsidy increases, assessment settlement losses, and the local earned-income tax change—could force the district to identify roughly $800,000 to $1 million in offsets across this and next fiscal years if offsets are not found elsewhere.

Details from the presentation Tracy walked the committee through PDE spreadsheets and methodology, noting that some subsidy amounts still depend on average daily membership and other weighted counts the state uses in formulas. He said basic education payments total roughly $8.47 million for Kennett this year and that the $82,922 proposed increase is small relative to inflation and district costs. On special education, he noted that the $57,000 projected increase “barely covers the cost of a single teacher” once benefits and payroll taxes are considered.

On the Ready-to-Learn block grant, Tracy explained the formula’s adequacy and tax-equity components, which allocate more funds to districts with lower per-pupil spending or higher tax rates. He said Avon Grove and other districts that had lower per-pupil spending are receiving larger increases to bring them closer to a target per-pupil figure the state used in its calculations.

Local revenue risks and next steps Tracy confirmed negotiations on assessment settlements remain in process with the county and borough; once those settlements are accepted, the reductions will be recorded in the proposed final budget. He also said the district has been in active conversation with Keystone Collections Group about East Marlborough’s likely earned-income-tax enactment and that the district is modeling $450,000–$500,000 in revenue loss over two years from that change.

Tracy said the district’s practice is to refine the preliminary tax requirement as more final numbers arrive, and he told the committee the board will need to consider additional cost savings or new revenue to produce a proposed final budget for April board action.

No formal votes were recorded during the committee discussion; committee members asked questions and staff said they would include finalized assessment and EIT impacts in the proposed final budget materials.