More information about how 12 school districts hiked taxes while concealing close to 400 million dollars was revealed in a 200-page report from the auditor general released on Monday. This was done without breaking any laws.
The audit details the budgeting “shell game” that officials engaged in, pledging monies to capital projects and pension costs without actually spending any, and maintaining general fund balances at levels that prevented schools from having to ask the public to approve tax increases.
The general fund was a determining factor in whether school districts would be eligible for a tax referendum exception from the Pennsylvania Department of Education (PDE) when they created their budgets for the forthcoming fiscal year.
Districts might obtain an exception and raise taxes without obtaining a public vote of approval if unreserved, undesignated funds fell below 8% of expected budget expenses.
To be eligible for an exception, officials would set aside money for particular needs, like special education or pension costs, but would not use it for those purposes.
The requirement for more money for those line items would subsequently be used by the district to defend tax increases.
The audit found that none of the 12 districts it studied had broken the Public School Code (PSC) of the state. In total, officials withheld $360 million between 2018 and 2021 despite hiking taxes 37 times out of a potential 48 times.
Additionally, many more of Pennsylvania’s 500 school districts probably take use of this loophole. When school districts hang onto extra money and hike taxes, the money comes from locals.
According to the report, “the overall findings of this audit should raise concerns owing to the districts’ common yet dubious practices that are placing an undue burden on taxpayers throughout Pennsylvania.” We believe that the General Assembly and PDE will give these practices serious consideration.
The report claims that Abington School District is a good example of the approach. The district’s revenues and expenses between 2018 and 2021 were between $150 million and $172 million.
However, budgetary procedures consistently underestimated the amount of cash the district had on hand — frequently by $10 million to $20 million.
The school board then decided to devote the entire general fund balance as opposed to only some of it. As a result, the balance fell below the 8% cap imposed by state law, making the district eligible to request an exception allowing it to raise taxes without a public vote.
The funds that school boards commit are not legally obligated to be used. Districts would not be eligible for a referendum exception if monies were left unassigned, nevertheless.
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The board should think twice before leaving balances unassigned to pay for unforeseen expenses and crises, the study says, noting that doing so is against basic business practices.
Abington asked for a referendum exception in 2018, 2019, and 2021, but only in 2018 were taxes increased. Despite having already committed $7.5 million from the general budget for the same expense that year, the district approved an increase of roughly $603,000 for pension liabilities.
The audit says the district’s pension commitments were properly covered and that the increase was an “unnecessary burden on district taxpayers,” but it doesn’t say how the district used the extra funds.
Abington district officials claimed in their answer to the audit that the district needed the option to increase taxes because it was unclear “what its tax base will be” and how much support it would get from the federal and state governments.
Superintendent of the Abington School District Jeffrey Fecher wrote, “Given the paucity of trustworthy information available during the preliminary budget window, the district has traditionally seen it as prudent to maintain flexibility early in the budget process.
He also voiced concern that it could be challenging to establish future forecasts if pledged monies that haven’t been used are labeled as unassigned.
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According to Fecher, “the district does not believe that pledged money not expended in a year should necessarily be considered unassigned fund balance as such a practice may unfairly impair the district’s capacity to plan for eventualities.”
According to the auditor’s office, the district’s actions deceived taxpayers and generated $2.6 million in tax revenue while neglecting to spend more than $38 million.
Less than half of the 12 districts would have raised taxes just 11 times throughout the four years if the budget barrier had been based on unconstrained revenues, which include committed and assigned responsibilities.