001Good evening and welcome to the Pittsburgh Public Schools first budget workshop of the year. It is Monday, April 13th, 2026. My name is Eva Diodati and I am the co-chair of the Business and Finance Committee. Tonight, we have one item on the agenda, the budget workshop presented by Chief Financial Officer Ron Joseph. I will turn the meeting over to Ron Joseph. Thank you. As Director Diodati stated, tonight is the first of three budget workshops. I believe last month we kind of had a uh prep prep meeting that kind of showed where we're going with some of these workshops and trying to establish some priorities and guardrails and have some alignment going into the budget workshops and the budget preparation season. So, tonight's agenda Okay. Tonight's agenda, uh the I'll do a review of the unaudited
002financial statements for the prior fiscal year being 2025 and then we'll look at how we're planning for 2027 and some of the implications on of our budget forecast and then detail some next steps. So, based on our our unaudited financial statements, we ended 2025 with a $26 million deficit. This is less than what our adopted budget uh deficit was, which was $28.1 million. Uh it's a little higher than we were projecting at the end of the year. Uh but it's uh leaves us at the end of the year out of fund balance compliance. So, if you look at the bottom of the slide where it said under uh the yellow bar where it says budgeted percent of budget the board policy requires that to be at 5% in the 5 to 15% range. It's slightly
003below that. So, right now, based on our uh financials, we're out of financial out of compliance with the fund balance policy. If we go to 2026, where our adopted budget was uh 5.7 is $5.7 million. Our adopted budget deficit is $5.7 million. Right now, based on the first couple months of actual information, we're projecting that we're going to end the year at three about $3.8 million deficit, but that's still very early. We've only gotten three months into the year. Uh this is based off of the first two months of actual data, so still a lot of work to go. Testing. Can anyone hear me? Okay. So, sorry about that. But if you look to 2027, our deficit is projected to increase to $15.3 million, an increase again to about $22 million. And one thing to
004note in 2028, at the end of 2028, we will have an ending fund balance of $9.8 million approximately. This would not be enough to allow us to fund the 2029 budget utilizing fund balance. So, if we are to be in operation in 2029, the budget needs to be balanced because we do not have sufficient fund balance to carry the projected deficit of $26 million. So, both our revenues and expenditures were below the budgeted levels. That's really good for the expenditures since the expenditures came in about $15 million less than budgeted, but our revenues also became came in $15 million less than budgeted. So, uh those expenditures really drove our better than budgeted performance, but those revenues coming in lower than anticipated really hurt our forecast. So, we did we did did end the year with
005a fund balance that was uh higher than anticipated. So, instead of our budget fund balance that we were projecting at uh $48 million, it is down to $51 million and that is a decrease of over $26 million from the prior year. So, when we start looking at some of our revenue uh indicators, uh when we look at our local local tax sources, we're looking at those two components of uh earned income and real estate taxes uh based on current and prior year revenues. So, current years are the amount of money that we taxes that we levied in the current year being 2025 that we collected in 2025 and prior year are all those collections that we levied in prior years that collected that we collected last year. So, both indicators are good to track so
006we can see whether our delinquent collections are up or whether our uh current revenue is down before some reason or whether it's way ahead of uh pace. So, if we go to our earned income, we see that our earned income continues to grow. It exceeded last year's uh last year's number that we took in of uh $167.6 million. It's just shy of what we budgeted, but still an increase. As well as our earned income, our prior year earned income tax, it's below budget where we were budgeting and we were budgeting at $16.4 million and it's just around $14.7 million less than last year. So, there was a little bit of a slide backward, but we still saw growth in our current tax collections. Similar to last year, our strong collections of prior year real estate
007really offset the decrease in current year real estate. So, we saw a dip even though we were budgeting an amount that's pretty much of level with last year's collections, we saw a dip. Part of that was due to uh decreasing uh property tax values due to property assessments and another portion of that was due to an increase in our property tax relief allocation from the state. On a bright note, our state revenue increased by $4.2 million, not enough to keep up with our increases in expenditures, but it's an increase that we welcome. So, we saw an increase in basic education subsidy, a slight dip in uh base on last year in our special education subsidy. Our social security reimbursement was up. Our retirement reimbursement was down and our transportation revenue was down significantly. Part of
008the reason for this is uh some revenue that should have been recognized in 2024 2025 was recognized in 2024 during our accrual period. So, that skews the numbers a little bit lower. So, realistically, that number should be around $9 million and the other portion of that reduction is as we've gone on and as a district, our aid ratio has gone lower. So, the amount of transportation reimbursement that we can expect to see, which is driven by our aid ratio, will continue to go down. So, we'll make sure that our projections for updated projections for this year and for subsequent years recognize that fact. So, we did see some growth in salaries in special education. Salaries, that's a significant jump, but part of that was in 2024, we still had SR funding. Uh SR funding expired,
009we used some of that to offset some of our operating expenditures under the continuity of services category. So, that led to some of the increase that funding going away and also uh we did have a contract settlement for some of our bargaining units and that retro pay that because the settlement was reached in 2024, uh some of those retroactive salaries were paid in the current year. That also affects our benefits and that has some of an impact of the impact of the increase for special education. Transportation, the largest increase in transportation that we've seen was our increases in our transportation for special education students, but also in our contracted carrier transportation. So, we'll make sure we work very closely with the transportation department to make sure that our uh projections are as up-to-date as possible.
010Charter schools, that's a bright spot because if we look at our uh 2025 actual numbers, they're pretty much level with our 2020 uh 2024 numbers and that never really happens. Our our charter expenditures tend to grow year over year, but this is due to uh cyber charter tuition reform that was part of the uh governor's budget that was settled in November and those expend those uh changes took effect for this current school year. So, we're beginning to see the benefits of having that lower rate for uh lower rate for cyber cyber schools cyber charter schools. Our debt service number is lower based on us basically structuring our debt in a manner that we get some relief in the earlier years as well as some of the our uh more expensive bond issues starting to roll
011off. And for our tax appeals, that number is significantly down and that has a lot to do with not that we're not still having uh appeals that are currently going on specifically affecting the central business district, but the the volume of appeals has decreased in in the uh last year versus the prior year. So, as those appeals process through, we hope to see that number go down even more and not have to pay as as nearly high as amount in uh budget appeal and tax appeals that we had in prior years. So, this just summarizes uh what we saw on the previous slide. So, we had a decrease in our fund balance, so it decreased by 20 uh 26 million dollars. Uh we do have two components of those fund balance. So, one component is
012for future specified uses and the other one committed specified uses like um contracts that roll over from one year to next that we haven't fully expended and prior and uh future year budget deficits. And when we look at our general fund, our revenues increased by about 2%, but our expenditures increased by 4 and 1/2%. So, you can start to see that strategic that uh structural imbalance and that our expenditures and if you look in the forecast, will continue to grow at a much higher rate than our revenues causing our increasing and widening budget budget deficit. So, if we look at our state funding sources, this is just a recap of the previous slide. So, state uh re- state revenue sources increased by 4.2 million. On the local uh revenue side, our earned income was up
013by almost 10 million dollars over 5 and 1/2%. Our current real estate tax collections were less than last year by 6 and 1/2%, but but that was offset slightly by the increase in collect and prior year collections from the prior year. Did mention that our salaries were up and provided some explanation for that. Charter school expenditures being uh only at a slight increase and relatively level due due to uh largely to cyber charter tuition reform. And our debt service number uh being lower based on some of the items that we've done to make sure that we're very aggressively managing our debt portfolio. Our prior year tax refunds being down, that's a bright spot almost almost 42% down from the prior year. So, when we go to 2027, which is the budget that's we're going to
014be that we're going to be working on uh throughout the course of this year with um a requirement that we adopt that budget at the end of uh this calendar year by December 31st. So, if we look at our current forecast, wanted to call your attention to that um ending fund balance in 2028 of 9 9.8 million dollars, which if we go down to the yellow bar of unassigned fund balance, that would be negative, which means that we do not have we would not at the end of 2028 have enough reserves to be able to continue uh with a unbalanced budget. So, we won't have fund balance to be able to continue our district operations. So, this an illustration of showing that uh based on the total fund balance that we have, the unassigned takes
015into account any of your uh future obligations, we see that in 2028 that unassigned fund balance based on our current projections would be negative. We would still have some fund balance uh some fund balance fund balance would be positive, positive, but that would be total fund balance. So, going into 2029, we cannot operate using any fund balance because the fund balance won't be there based on our current projections. Should things change and should we make the necessary uh reductions in our expenditures and continue with any necessary restructuring or looking at our allocations, then we can avoid that. So, taking taking a look at our uh governor's budget because part of the revenue we receive is from the state, so it's roughly a 50/50 split between local and state uh revenue. We see that we saw
016a we're projected to have a small increase of about uh about 1.3 million dollars based on the governor's projected uh budget, but that's just a projection uh uh anticipated budget. It's his uh proposed budget, but as we can see from last year, sometimes those budget uh processes don't don't uh complete in a timely manner. So, we don't know what we'll actually get, but we this the best case scenario for what we would get most likely because that's the governor's budget and governor's budget tends to be the most uh optimistic uh scenario that's put out for funding. So, as you can see, we're not uh slated to get a lot more from the state uh state uh government and um don't really even know what the picture is going to be like at the federal level.
017So, as we look ahead, the district closed the 2025 fiscal year below the 5% minimum fund balance threshold. So, uh we would need to either increase revenue or reduce our expenditures and in all likelihood both to get back to replenish our fund balance and get back to that threshold. Our projected deficits for the next two years are at 15.4 and 22.1 million dollars respectively. And some of our barriers to addressing our deficits are a decre- decreasing real estate tax base that's um and we also have limited ability to increase our tax revenue because our ability to raise taxes is capped by the state act one index. So, we can't just have an unlimited tax uh increase and nor would we want to do that because that puts an undue burden on our uh on our
018tax uh payers who have had to deal with um increases for the past two years, one at the county level and this past year at the school district and the city level. And we also are budgeted to have our expenditures increase by 60% at a 60% uh greater rate than our budgeted revenues over the next two years. So, you can see when you we look at the forecast, that that deficit starts to increase because our costs are going up by probably about 4 and 1/2%, 5%, but our revenues aren't keeping pace. They're still around 2% and in a lot of cases flattening out, in some cases decreasing. And we do have uncertainty at the uh federal and state level. So, uh with proposed budgets, there look to be cuts to domestic uh programs, so not
019sure how that would affect uh our educational funding, but it most likely, if that budget were to pass, have an effect on our on our summer programs like Title I, Head Start, uh Perkins, IDEA. So, those are some of the main programs that we have that are funded by those uh funding sources. So, if those were to go away, we would have a larger issue to solve. We do have some bright spots. So, we did see a reduction to projected charter expenditures due to charter reform and we're hoping that that continues and there's uh additional reform that will allow us to keep those expenditures down. We do have strong growth uh over 5% in our uh current earned income and we hope that continues and we hope we continue to see the trend of that
020reduction in tax refunds that we have to pay for prior year prior year tax refunds. Uh we saw that we had a almost 42% decrease from the prior year and we're hoping that trend continues. So, when we look forward to this budget process, we have to ask ourselves, what are the desired outcomes? So, are we looking for a balanced budget? And if we're looking for a balanced budget based on what we're projecting right now, we would need to have an a 15.4 million dollar improvement in our forecast 2027 budget to accommodate that. So, that's not all revenue, it's not all expenditures, it's going to be a combination of both, but right now, that budget is is unbalanced by 14 by 15 uh 4 million dollars. If the goal is deficit reduction, but not the full
021uh deficit, we would just need to determine a projected deficit reduction amount that we'd want to uh try to strategically have this year and set that as a goal for the budget. And if the goal is to be in compliance with our fund balance policy, that would require not only a balanced budget, but in many cases adding additional funding to the our uh fund balance via a budget surplus to be able to get back in the fund balance compliance. So, our next steps, we have two more budget workshops scheduled. Um June 8th, that was that was rescheduled, but two June 8th that was previously June 1st, but that will be the second budget workshop and I believe and I'll have to confirm with Director Yord, I believe that's where we'll talk about some priority goals
022and possible priority investments that we would like to have in the 2027 budget to help advance our student focus student focus outcomes governance work. And then the final budget workshop will be in September, September 8th and that workshop will be focused on trying to have a as best we can a preview of what we think will be the preliminary budget. So, that concludes the budget workshop, Director Deodati, I will turn it back over to you. All right, at this time we will take questions from the board members. You may not know the answer to this and I'm totally okay with it, but when is the last time our budget was balanced? So, I I know Dr. Walters uh had me look at this and in my office currently, I think I have budget books going
023back to 1992 and I think when I reviewed all of them, I couldn't find one where there wasn't a budgeted structural deficit, so I'd have to go upstairs to the budget department to try to find some more of that. I believe it's 1992 was um uh 1992 was the furthest that I went back in that uh review. Thank you. I see we have Director Yord on the Zoom. Thank you, Director Deodati. Um Mr. Joseph, I've had had to be on and off the call dealing with sick family today. Um I missed the part where you um gave more information about why the budget deficit for 2025 was so much larger than anticipated. Could you restate that for me? Oh, no, it it's so it's wasn't larger than our budgeted deficit, it was actually lower than
024our budgeted deficit. And it wasn't so much larger than anticipated because I believe at the end of the year we were anticipating a $18 million deficit, so we're at 26 right now and part of that had to do with the um transportation revenue being lower and the salaries being a little bit higher than we were projecting, part of that being our transition of some of our work groups our largest work groups to the bi-weekly pay, so there were some payrolls that needed to be accrued back to the prior year. So, but our our deficit was still below what we adopted. Okay, got it. Thank you for clarifying that. All right, if there are no more questions, um um oh, wait, Director Director Yord or Yes, Director Silk, I apologize. Um So, just for for clarification,
025um the what the the slide where we're projecting out, so this is slide four, um projected year ended 2027, 2028, just confirming that these projections are essential these are like these are status quo projections, not um not connected to future ready plan. Is that correct? >> That's correct. Thank you. All right, Director Grayson. Um first I want to say thank you, this was um very thorough and explained a lot for me. Um but can you just kind of explain what So, on what is this slide 15, when it says we cannot use fund balance to fund district operations in 2029? Can you kind of explain in layman terms for folks who may be watching what exactly that means? Sure, so right now when we look at let's if we were to view this as we
026were an individual, um we have certain budget expenses for the year, but our income is not providing us with enough uh resource to cover those expenditures, so we dip into our savings account which are reserves or rainy day fund, which is what fund balance is. So, we've been doing that for quite a few years and some years we've had a surplus, so we've added back to that reserve, but now based on our current trajectory, if we continue to use funds from that rainy day fund, when we get to 2029, we'll have our but our budget expenditures and then we'll have our income and we won't be able to bridge that gap and we won't have the rainy day fund necessary to bridge that gap. Thank you. All right, I'm not seeing any more questions. I'm
027going to do like a little last look here. Don't see any in the Zoom. Okay, so thank you again, Mr. Joseph, for the presentation. It was very helpful and definitely clarified some confusion for me. I also appreciated um the slide 15 had the kind of visual image of what what that looks like, so I appreciated that a lot. Um so, if there are no more questions, on behalf of the board, I'd like to thank Mr. Ron Joseph for presenting tonight. Uh we will be back here tomorrow, same time, same place for the education committee. Uh everyone get safe be safe getting home and have a good evening. Thank you.