BUFFALO TWP — The Freeport School District is setting up a safety net to ensure there is enough funding for the 2011-12 budget.

Anticipating lower revenue and higher expenses, the district plans to ask the state for permission to raise taxes beyond the 1.9 percent cap set for Freeport.

The state’s property tax reform led to Act 1 being enacted in 2006 to limit school districts’ tax hikes.

William Reilly, district business manager, said the exemption may be needed to ensure there will be sufficient money to pay for half of a projected $400,000 increase in retirement costs.

The state, which sets the retirement increases for teachers, pays the other half.

Although a district can raise taxes beyond the state cap through a voters’ referendum, there are exemptions for circumventing that process.

Under state guidelines, exemptions to the referendum requirement are budget woes tied to grandfathered debt, scheduled and projected construction projects, special education expenditures, significant reductions in revenue sources, health care costs and retirement contributions.

However, before the Department of Education will review the request, the district must pass a preliminary budget.

Reilly said the proposed budget of $25.16 million is a rough approximation of a number that will change.

“I don’t have any firm numbers,” he said. “It’s way too soon.”

In the proposed budget, expenses exceed revenues by more than $1.5 million. Using the district’s $2.2 million fund balance, the deficit would still be $598,000.

Reilly stressed the district may not need to exceed the 1.9 percent cap, but it can’t wait for the actual budget to be finalized.

“Do it now or lose it forever,” he said. “You only get one shot.”

Steve Weitzman, communications director for the Department of Education, confirmed the district must meet a strict timetable to apply for an exemption.

“It doesn’t commit them,” Weitzman said. “It gives them options.”

Reilly said the district never has even considered taking this route.

He pointed out that districts across the state are in the same boat.

“We’re not the only district doing this,” Reilly said.

But Freeport may be the first district in Butler County to apply for an exemption.

County officials are unaware of any district pursuing it this far.

The amount of the cap varies according to each district.

Reilly said one expense the district doesn’t have to worry about is employee health care, which is only rising 1 percent in 2011-12.

He said such a minimal increase is “pretty phenomenal.”

A final budget will be set for possible adoption in June.

Reilly said seeking an exemption now is part of a long-term approach to budgeting as retirement costs will continue to escalate each year.

Simultaneously, state funding is plummeting. Reilly said the district will receive $700,000 less in the 2011-12 year.

He said district revenue is uncertain until the state budget is determined, so only part of the Freeport budget is set.

“It’s a good preliminary estimate as far as expenditures go,” said.

Even though the preliminary budget up for adoption Wednesday isn’t an accurate projection, Reilly is sure of one thing: Buffalo Township taxes will increase.

Because the district straddles two counties, the municipalities in each county have different tax rates.

Using a convoluted state formula, one rate is set for Buffalo in Butler County and another rate for Freeport and South Buffalo in Armstrong County.

Various factors, including the last year property was assessed in each county and commercial development, affect the two rates.

Armstrong County uses 1996 property assessments while Butler County uses 1969 values.

“Now it’s shifting back to Butler County,” Reilly said of school tax increases.