As the negotiation process inches forward between Hermitage School District and its teachers, the school board is also working on a budget for next year.

"It doesn't look good," said President Duane Piccirilli, referring to projected revenues and expenditures for 2002-03.

He wouldn't say whether the board would raise taxes above this year's 43.25 mills but described the district's financial troubles.

"State revenues are low and the revenue we expected from local real estate taxes are down," Piccirilli said at a board work session Monday.

The revenue for the current budget is down $160,000, said district business manager Eugene Fornadel, explaining that local tax income is estimated the year before.

"There's not much construction in the city and with the new reassessment numbers, some people appealed and their assessments went down," he said. "Usually the local tax revenue goes up."

Last year, Mercer County commissioners changed the county's real estate tax assessment ratio from one-third of a property's assessed value to 100 percent. Millage rates countywide were reduced by a third at the same time to keep the amount of taxes owed at the same level.

The district's millage was 129.75 mills until the new formula changed it to 43.25 mills. One mill brings in about $220,000 under the new millage according to Fornadel.

The average property in Hermitage is assessed at $32,300, according to Michael P. DeForest, director of the Mercer County Department of Revenue. At 43.25 mills, the average Hermitage property would carry a school tax bill of about $1,397.

The stalemate between the district and the 165-member Hermitage Education Association over pay increases also could affect taxes.

The district's offer of a $1,600 pay increase equals about 1.2 mills in taxes, or about $39 a year for each taxpayer. The union's request of $2,700 equals about 2 mills, or about $65 per taxpayer.

Besides teachers' salaries, the district is also concerned about a lower state education subsidy, expected to increase by 1 percent in 2002-03. That's approximately $47,000, down almost two percent from last year's $132,483 subsidy.

The increase in pensions approved last year by the state Legislature for teachers, state employees and legislators, coupled with a poor economy, will increase the amount the district must contribute to $319,675. That figure is five times higher than the $59,405 contributed this year.In the first year after a county ratio change, tax increases can be no more than 10 percent, or 4.32 mills in Hermitage's case, unless the district goes to court and asks a judge to approve a larger increase.

HEA and the district are each selecting arbitrators for the non-binding final arbitration that is the next step in the negotiation process.