PENNSYLVANIA SCHOOLS With no aid, districts to seek loans

Fund reserves in districts that have them will be depleted quickly.
By PETER H. MILLIKENand LAURE CIOFFI
VINDICATOR STAFF WRITERS
As local school districts cut nonessential spending, delay bill payments, deplete fund reserves and incur interest and legal costs from borrowing, the repercussions are hitting home for Shenango Valley residents.
That situation is the result of the Pennsylvania Legislature's failure to agree on a school subsidy package that meets Gov. Ed Rendell's approval.
With the current fiscal year already more than 5 months old, local districts haven't received any state basic education subsidy to run the schools since July 1. Most are relying on local property tax revenue to get by.
"The options there are pretty bleak," said Anthony Trosan, Reynolds superintendent.
If the district cannot continue to borrow money and if the legislators don't enact a subsidy, Trosan said he has only two options: Close the schools or try to keep them open with payless paydays and no payment of bills or health benefit expenses.
State law requires 180 school days a year. Any days the schools would be closed would have to be made up to get the daily state subsidy, which the district can't afford to lose, he explained.
But, at Reynolds, the matter has an even greater sense of immediacy. "We are not paying some of our bills at all, and others are not being paid promptly," he said. The district is also deferring nonessential textbook and supply purchases.
"We have no reserve. We'll start to operate on borrowed money in January," Trosan said, adding that the district will borrow as needed against a $1 million line of credit. If the district borrowed the full $1 million, that would be enough to operate the schools for about one month, he said. In just arranging to borrow the money, the legal fee meter would be running at $100 an hour, he said. The district has a $14 million annual budget.
The financial crisis looming over Reynolds schools didn't arrive overnight. Having experienced four consecutive years of deficit spending, the district was confronted with an audit report showing a $1.1 million deficit and a $1.5 million debt. "That's why we have no reserves," Trosan noted.
The district was forced to swallow a distasteful remedy. It reduced staff from 239 to 199 employees by layoffs, resignations and retirements and cut athletics and other extracurricular activities over the past two years.
To recover from the $2.6 million combined deficit and debt, local taxes had to be raised 5 mills last year, 4 mills this year and probably 5 mills next year, Trosan explained.
Sharpsville
"To say that you're out of money and you have to close down is not a viable option. We're supposed to borrow money to keep the schools open," said Derry Stufft, Sharpsville superintendent.
Stufft said his district would soon have to dip into its meager reserves, and he expects borrowing will begin in February if no remedy is enacted by the Legislature and signed by the governor by then. Stufft said he's frozen all nonessential spending and delayed payment of some bills. "I haven't cut any programs yet," he added.
"This is ridiculous. We're obligated by law to have a budget by June 30, but there's no recourse by us to the state to make sure that they have their budget on time," he said.
Mohawk
The Mohawk school district has already run through most of its real estate tax revenue and its $3.4 million reserve fund. The school board agreed last week to apply for a $3.5 million line of credit from First Commonwealth Bank. They won't know until later this month if the money is coming.
"If we don't get the line of credit, I won't meet payroll on Dec. 20. I'm going to have a rough time meeting payroll tomorrow," said schools business manager Lois Pacillo last week. "It's going to put me right down to zero."
Pacillo said the line of credit should take the district through to May if no basic subsidies are paid by the state.
"It's an ugly, ugly situation. I don't know if we could close our doors. You can't legally close the doors until you exhaust all resources," she said.
Others in Lawrence County have started using their reserves but are hoping state legislators pass a budget before they have to consider taking out loans.
Union School District pulled out about $400,000 from its $2.1 million fund balance to make payments, said Superintendent Dom Ionta.
Shenango schools just started to dip into a $3 million reserve fund, Assistant Superintendent Dan Bell said. It should last about three months, he added.
New Castle
New Castle has also started dipping into its $11 million fund balance, but the district is also using federal grants and Social Security payments to keep the district afloat, officials said.
"We're robbing Peter to pay Paul right now," said Superintendent George Gabriel.
School officials in Laurel, Ellwood City and Neshannock say they are still working off tax revenue but will dip into reserves if needed before taking out a bank loan.
Wilmington Superintendent Joyce Nicksick said her district is preparing paperwork for a loan. She said the district's $2 million reserves should last the district an additional four to six weeks.
Nicksick said the district has cut back on expenses that don't affect pupils, such as teacher conferences and travel.
Farrell
Farrell School District will begin dipping into its $800,000 in reserves this month, depleting them by mid-January, at which time it will begin borrowing, said Michael Stabile, business manager. The district has been approved by the state to borrow just over $1.4 million at 2.68-percent annual interest from First National Bank of Pennsylvania.
"We'll use all of it up if we have to," Stabile said, adding that, even if the district borrows the full amount, it would only be enough to operate the schools through early March if no additional subsidies are forthcoming. If the full amount is borrowed and paid back in six months, the interest alone would be just under $19,000, he said, adding that he's not sure how the interest would be paid.
Without cutting instruction, "We've taken a closer look at expenditures," Stabile said. "Anything that's not considered necessary at this point, we've put on the back burner," he said. Nonessential expenditures, including some supply purchases, have been deferred, he said. The district's general fund budget this year is just under $12 million.
Hermitage
Even the more affluent Hermitage School District, which has $6 million in reserves, can't weather the storm for long. Of that amount, $700,000 is due in February and March for bond debt payments. The remaining $5.3 million would pay only the district's payroll and bills for 21/2 months, said Monique Barber, business manager. The district plans to spend almost $22 million in its general fund budget this year.
By the end of December, the state will owe the district more than $2.1 million in basic education subsidies, and the district will likely begin dipping into its reserves and borrowing money in February, Barber said, adding that the district likely will seek to borrow up to about $2 million. School officials are trying to avoid spending money on anything that's not immediately necessary, she said.
Although state officials have discussed the possibility of enacting stop-gap school funding at last year's level now, and possibly adding to it later, no such arrangement has materialized, Barber observed. "I don't think the Legislature has put the best interests of the school districts first. It's not that they don't have the funds to pay us," Barber said.
But a local legislator says the governor, who vetoed an earlier education budget, needs to step up to the plate. Said Sen. Bob Robbins, R-50th, of Greenville: "The governor has to become part of the process and negotiate with the Senate, both Democrats and Republicans, to come up with a solution that we can all agree on."