JEFFERSON TWP - The South Butler School Board introduced a 2004-05 preliminary budget Wednesday night that includes a 3-mill tax increase.

The $26.9 million budget reflects an increase in expenditures of 3.8 percent compared to the 2003-04 budget and would raise the property tax rate from 103 to 106 mills.

Without the proposed tax increase, the district would be facing a deficit of more than $300,000 by the end of the current year, said business manager Wendy Zitalone.

"To adopt a budget without some contingency would be irresponsible," Zitalone said. "If we do nothing with our tax rate, by next year ... we're right back in the danger zone."

The proposed budget shows a capital reserve fund of $965,000, down from $1.2 million in that account in the current school year.

A mill is equal to $1 for every $1,000 of a property's assessed value.

The increase would mean an additional $27 in taxes annually for a homeowner with property valued at $150,000.

Revenues, without the tax increase, come to $25.3 million, reflecting an increase of 2.9 percent over the current budget.

Revenue sources include these state increases:

A 1.5 percent, or $94,577, increase in basic education subsidy.

A 4 percent, or $50,612, increase in special education subsidy.

A 3.4 percent, or $51,780, increase in transportation funding.

The district also got $248,078 in new money through an Accountability Grant.

Property taxes account for 82 percent of the total local revenue source, Zitalone said.

The largest expenditure for the 2004-05 school year is for salaries, which make up $13.7 million of the proposed budget.

Other expenditures include:

A $241,564 increase in health and dental insurance costs.

A $47,496 increase in retirement funding.

A $47,839 increase in transportation costs.

A $54,699 increase in professional service fees.

A $71,340 increase in materials like textbooks and computer software.

A $53,686 increase in equipment costs.

The proposed budget will include a starting fund balance of $1.59 million, which the district will take from to keep the property tax increase from being even higher, Zitalone said.

By the end of the 2004-05 school year, the fund balance will be around $604,218.

Board members did not comment on the preliminary budget. A vote on it is not expected until next Wednesday. A final budget must be adopted by June 30.