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Bracing for a fiscal hurricane
Perfect storm of state cuts, AES woes, Verizon pullout buffets Barker schools

Scientists are able to warn people about an approaching hurricane, while an earthquake strikes with no warning.

The coming financial crunch in the Barker Central School District falls into the hurricane category.

School district officials already are battening down the hatches.

"Our plan is to reduce the expenditure budget. We're looking at some retirements, and we're going to use some of our fund balance," Superintendent Roger J. Klatt told The Buffalo News.

The proposed 2011-12 budget presented to the Board of Education last week avoids an increase in the property tax levy through an $824,000 reduction in spending from the current year. The proposed budget cuts a few jobs and appropriates more money from the district's fund balance, or surplus, to avoid a property tax increase.

But how long can that continue?

"We have a greater challenge ahead of us, and that's 2012-13," Klatt said.

"I think it's fair to say the district has been preparing for some worst-case scenarios," said Scott Hoot, district business manager.

It's little wonder.

Barker is expecting a reduction in state aid for the school year that starts in September, but that hardly makes Barker unique. Every district in the state is expecting less from Albany as Gov. Andrew M. Cuomo tries to bring the state deficit under control.

But the financial problems that do make Barker unique at least have been scheduled and predicted, so the district can try to come up with ways to function without clobbering its taxpayers.

Thanks to the presence of Niagara County's largest property taxpayer, the AES Corp. power plant on Lake Road in Somerset, Barker has been able to maintain the lowest school tax rates in Niagara County for years.

In the glory years, AES paid for 80 percent of the school budget, and its total tax load topped $20 million, counting what it paid to the school district, the Town of Somerset, the county and the special districts.

But over the last five years, the Virginia-based electricity company has been fighting for reductions in the amount it pays in local property taxes.

Last year, AES' contribution to the Barker school budget fell below 50 percent, and it will fall farther with a revised payment-in-lieu-of-taxes, or PILOT, arrangement recently approved by the Niagara County Industrial Development Agency.

That deal, passed with the acquiescence of the taxing entities, will save AES $1.5 million in the 2011-12 tax year. The power plant's total tax liability will fall to $14.3 million from the current $15.8 million.

The company's total tax load will be cut again in the following year, to $12.8 million, and remain at that level for two more years.

AES, which says the Somerset power plant is operating in the red, applied to go as low as $9.8 million, but the IDA and the taxing entities refused.

>An erosion of reserves

At the time of the IDA's vote Feb. 9, AES project manager Jon J. Reimann said the company really would like to pay $7 million a year or less, to give it parity with the tax bill paid by its chief local competitor, NRG Energy's Huntley Station in the Town of Tonawanda.

The Barker School District receives 59.25 percent of AES' payments. That means the school garnered $9.36 million from AES in the current school year, under terms of a PILOT approved in early 2010.

But when AES came looking for a further reduction, the amount that Barker Central will receive for 2011-12 took an $888,750 hit, Hoot said. By no coincidence, that's almost the same as the amount of spending reductions in the proposed budget.

In 2012-13, the district's share of the company's PILOT payments will decrease by an additional $888,750.

And the fund balance won't be there to absorb it.

Hoot said the unappropriated surplus at the start of the current school year was about $600,000. The proposed 2011-12 budget would spend $400,000 of that, which is twice as large as the current year's appropriation from the surplus.

"We will start eroding reserves in 2012-13, with AES going down [by nearly] $900,000," Hoot said.

The $19.2 million proposed budget for 2011-12 takes into account a projected reduction in state aid of $250,000 to $275,000 from the roughly $6 million that Barker received from Albany for the current school year.

Hoot said the district had some unexpected retirements, including four teachers, last summer after the budget was passed. Two of those teachers weren't replaced, and a few more retirements are anticipated in the coming year.

"We'll try to avoid filling [the jobs]," Klatt said. The district employs 98 teachers now.

Also, a buildings and grounds position is being eliminated in the new budget, and two clerical workers are being cut from full time to part time.

>Verizon affects outlook

It appears that Barker may be able to get by with fewer teachers in the coming years, as enrollment is trending significantly downward.

Klatt said the total enrollment now is 952 students, counting everything from prekindergarten to 12th grade.

The largest cohorts are in the high school, with 80 to 90 students in each grade level. But at the elementary school, the enrollments in each grade level are in the range of 50 to 60 students.

That might have changed somewhat if Verizon Communications and its projected 200 high-tech data center jobs had come to Somerset, but the company announced March 17 that the deal is off.

Not only might Verizon families have brought more children into the district, they would have brought more money, too -- likely enough to make up for the decreasing payments by AES.

According to a PILOT payment schedule approved by the IDA, Verizon was to have paid the school district about $1.4 million a year in each of the first three years of the data center's operation.

>The AES impact

That would have jumped to nearly $2.4 million in years 4 through 6; $3.3 million annually in years 7 though 10; and $4.3 million each year for a decade after that.

"We weren't anticipating payment from Verizon this year, but looking outward, we were hoping they would make up for AES," Klatt said.

For Barker Central and its taxpayers, that gold mine won't open.

Another cloud appeared on the horizon when AES disclosed Feb. 28 that it's placing the Somerset power plant up for sale, along with three other coal-burning plants that it owns in New York.

AES Chief Executive Officer Paul T. Hanrahan said at the time that he didn't think it would make much financial sense for a publicly traded company to own the plants because of their declining earnings.

"We're in a gray area, not knowing what's going to happen, when you see a 'for sale' sign and you know they contribute $4 million [a year] to the county and keep the Barker School District alive with $9 million," said County Legislature Chairman William L. Ross, C-Wheatfield.

IDA Chairman Henry M. Sloma warned that if the Somerset plant sells for a low price, the new owners might have grounds to seek further reductions in taxes.

"They may not be looking at the same PILOT, $12.8 million," Ross said. "They may be looking at what AES was looking at, $7.8 million."

The hurricane warning flags may be flying in Barker for some time to come.

e-mail: tprohaska@buffnews.com

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