Pennsylvania public schools continue to "tread water" in the face of rising mandated costs and decreasing or stagnant revenues that have forced them to raise taxes, cut programs and staff, and borrow money, according to an annual report released Wednesday by two school administrator organizations.

The report from the Pennsylvania Association of School Administrators (PASA) and the Pennsylvania Association of School Business Officials (PASBO), which surveyed 361 districts, was not entirely bleak. It noted that the financial picture for many districts improved this year after the Pennsylvania legislature signed into law a new student-weighted funding formula and passed an on-time budget with $200 million in new Basic Education Funding.

"They were thrown a life vest," the report said.

The report comes six days before Gov. Wolf is to present his budget proposal for next year, in which school funding is likely to again play a major role. The governor has not yet said how he plans to fill a potentially historic budget shortfall, except to say it won't be with new or increased broad-based taxes, such as sales or income taxes.

With an estimated deficit of $2.8 billion looming in Wolf's budget, districts are not optimistic about the future, according to the PASA-PASBO Report on School District Budgets.

The biggest expense drivers for public schools remain pensions and health-care for employees, special-education costs, and charter-school payments. Pensions – the cost of which is split with the state – went up 30 percent for school districts.

That is good news,  said Jay Himes, the executive director of PASBO, because in previous years, pension costs had gone up as much as 50 percent.

Schools paid 6 percent more for health care and special education, and 4 percent more for charter schools. Cyber charter-school payments grew by just 2 percent, since 28 percent of the districts reported opening their own cyber or hybrid learning academies to keep students in the their own schools, Himes said.

Despite the partial reprieve from Harrisburg this year,  77 percent of districts reported increasing property taxes, while 24 percent said they were able to reduce or eliminate planned tax hikes.

Jeff Ammerman, director of member assistance at PASBO, said fewer districts had to borrow in 2016-17 than in 2015-16, when a nine-month state budget stalemate left many scrambling for funds. However, most districts have been forced to draw down fund balances in the last two years,  and 18 report having no money left in reserve.

Districts also had to cut staff and programs and increase class size to balance budgets, but the reductions were less than anticipated because of increases in basic education funding, said Mark DiRocco, executive director of PASA. While 33 percent of districts reduced staff, an additional 13 percent said they were able to avoid planned cutbacks.

"So money does matter," he said.

Increases in class size occurred across all grade levels but were most common at elementary schools, where small classes are more critical for student learning, DiRocco said.

In one of the six case studies in the report, Chichester School District in Delaware County, where more than 50 percent of students are poor, offered a bleak picture of its program after years of cuts in state aid and increasing expenses. Superintendent Kathleen Sherman said the district has reduced teaching and administrative staff, eliminated the summer enrichment program, and contended with million-dollar deficits in each of the last five school budgets.

The district relied on its fund balance to close the budget gap this year, but that is not a sustainable financial strategy, Sherman said. She pointed out that compared with other districts that are well-funded with a strong economic base, Chichester pays more to educate its students because they need more interventions.

"Some kind of equity needs to take place," she said.