Washington cuts muddy budget waters
DELMAR—Facing revenue shortfalls and rising costs, Bethlehem Central School District officials outlined financial challenges during a Wednesday, Feb. 26 Board of Education meeting, where Chief Business and Financial Officer John McPhillips presented the preliminary 2025-26 budget.
The $117.5 million proposed spending plan represents a 3% increase from the current year, yet the district must contend with a $6.3 million budget gap. The shortfall is driven by rising salaries, benefits, and operational costs, along with the loss of a major Payment in Lieu of Taxes agreement with a local energy provider.
However, a last-minute decision by the Bethlehem Industrial Development Agency extended the PILOT agreement for an additional year, providing $3.47 million in revenue. While this infusion of funding eases immediate concerns, it also limits the district’s ability to adjust its tax levy, lowering the maximum allowable tax increase from 5.8% to 1.1%.
“The challenge for the district is—well, there are several challenges with this,” McPhillips said, explaining that the district had been planning for the PILOT to end and for that revenue to be absorbed into the tax base. “We had made some strategic decisions in past budget cycles, but knowing what I know today, I wouldn’t have made those same decisions.”
With the tax levy increase capped at 1.1%—well below the current rate of inflation—the board must now weigh options, including reducing expenditures, reallocating existing funds, or seeking a tax override requiring a 60% majority vote in May.
State and federal aid uncertainty
Complicating the district’s financial outlook are uncertainties at both the state and federal levels.
State aid accounts for 31% of district revenue, but funding remains flat for several categories. The district’s Foundation Aid—the primary form of state education funding—will increase by only 2%, or about $385,000, under Gov. Kathy Hochul’s proposed budget.
“The Rockefeller Institute was tasked with studying the state aid formula, and while some recommendations were implemented, our increase is fairly minimal,” McPhillips said.
Federal aid also remains in question. The district receives approximately $2.3 million in federal funding, primarily for special education programs, Title grants, and food services. However, potential shifts in federal budget priorities could impact the state’s ability to distribute school aid.
“If there’s a change in how federal dollars are allocated to New York State, that could have unintended consequences on our state aid calculations,” McPhillips said. “We’ve seen this before during the Gap Elimination Adjustment years, when districts suddenly lost millions in state funding.”
Rising costs and budget pressures
Employee salaries and benefits account for much of the district’s spending increase, with salaries alone increasing by $6.8 million.
A key cost driver is health insurance, which will rise by 12% next year, resulting in an additional $2 million in expenses. Pharmaceutical costs, particularly new high-cost medications, are also major factors in these increases.
Debt service, however, is set to decrease by $1.4 million, a result of strategic refinancing and previous financial planning.
“The district has worked hard to manage costs, but the reality is that inflation has outpaced our ability to adjust,” McPhillips said, noting that cumulative inflation since 2021 has increased by 21%, while school tax increases have been held well below that rate.
Transportation and electric bus challenges
The district’s transportation budget was another focal point of discussion, particularly Bethlehem’s transition to electric buses.
Transportation Director Ellen Dorado reported that while EV buses come with state and federal incentives, their reliability remains a concern, particularly in cold weather conditions.
“Buses were going out in the morning and coming back with less than 50%,” Dorado said. “They were unable to make up that charge in the break, so they couldn’t go back out for their afternoon run.”
Bethlehem currently operates 10 EV buses and was awarded grant funding to purchase more. However, federal funding uncertainties have raised concerns about whether that funding will still be available.
The Environmental Protection Agency (EPA), which administers the Clean School Bus Program, has pledged $200,000 per EV bus to aid school districts in transitioning from diesel to electric. The state also offers up to $147,000 per bus in additional incentives. However, given recent federal budget challenges, district officials have not received confirmation that these funds will be available as expected.
“We reached out to the EPA,” McPhillips said, “but we have not heard confirmation one way or the other.”
Bus proposition and fleet planning
Given the uncertainty, the board is considering a bus proposition for the May 21 budget vote that would include: Three large diesel buses and three small gasoline buses at a total cost of $814,000, and a potential contingent option for three additional EV buses, should grant funding remain available.
If the district proceeds with the EV purchases, it would be required to decommission three diesel buses under federal grant guidelines.
McPhillips and Dorado stressed that while EV buses offer long-term environmental benefits, their operational challenges and maintenance requirements must be factored into future fleet planning.
“The mechanics are trained up to a certain level, but some EV repairs require manufacturer-level servicing, which means longer downtimes,” Dorado said.
To address these concerns, the district is also investing in EV bus charging software, which will monitor fleet energy use and help optimize charging schedules.
Next steps
The Board of Education will reconvene on Thursday, March 6 to further refine the budget and determine the final tax levy proposal.
Legal counsel will also be consulted to determine how to structure the bus proposition to provide the board with flexibility while ensuring that necessary vehicle acquisitions are funded.
“This is a very challenging process,” McPhillips said. “There’s a lot of threads to weave together and to hold.”
Voters will ultimately decide the budget’s fate during the annual school budget vote on Tuesday, May 21.
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