‘A shell game:’ Fiscal watchdog’s report on school tax hikes kicks up a fuss | Thursday Coffee

Auditor General Tim DeFoor called for changes to state law to fix it; districts defend their actions

By: - January 26, 2023 7:18 am

Pennsylvania Auditor General Tim DeFoor, a Dauphin County Republican, gives his inaugural address on Jan. 19, 2021 in Harrisburg. (Capital-Star photo by Stephen Caruso)

A report by Pennsylvania’s elected fiscal watchdog accusing a dozen Pennsylvania school districts of playing a “shell game” that saw them raise local property taxes even as they sat on millions of dollars in reserves kicked up a serious fuss in the Capitol on Wednesday.

The mechanism the districts used is entirely legal, but nonetheless allowed them to “collectively raise taxes 37 times during the four years we reviewed, which increased their respective General Fund accounts to $390 million,” Auditor General Tim DeFoor, a Republican, noted.

“These districts represent a cross-section of Pennsylvania – from wealthier to poorer tax bases and urban, suburban and rural communities,” DeFoor said in a Wednesday statement. “These districts have found a way to use the law to their advantage so they could always raise property taxes. It’s basically a ‘shell game.’”

That was a rhetorical leap too far for the professional organization that represents Pennsylvania’s school budget officers, which released a carefully worded statement saying it “has concerns” about DeFoor’s analysis, and his call to overhaul a state law giving districts a right to bypass, under certain circumstances, public referendum votes on proposed tax hikes.

“Having a fund balance is essential for prudent financial operations of any school district. Fund balances are integral to the long-term preservation of the school district’s General Fund to ensure stability and consistency in providing the resources needed for all student programs and services,” the Pennsylvania Association of School Business Officials said in its statement.

“Maintaining a fund balance also provides additional revenue from investment earnings rather than the opposite of incurring additional expense from  borrowing for cash flow needs,” the budget officers’ group argued.

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In its review, DeFoor’s office said it considered whether the districts, which spanned the state from Washington to Montgomery counties, properly used the state Department of Education’s referendum exception method to raise local taxes, and whether the districts made sure they were properly designated and used in a timely manner.

The state’s School Code and Pennsylvania’s Taxpayer Relief Act, known in education circles as Act 1, dictates how school districts can raise taxes, as well as set limits for those increases.

“Some startling trends began to appear to our auditors, like moving money around to make sure a district would always meet the threshold to raise taxes,” DeFoor said in his statement. “They also applied for a referendum exception as a regular budgeting tool, rather than an extreme measure as the law intends. Each of the 12 districts had sufficient unused funds that should have negated some of the 37 tax increases.”

In their statement, the school business officials said school districts “are not using Act 1 exceptions—regardless of what funds are used to define the threshold.

“In  2021-22—the most recent year of data publicly available—only 7 of 500 school districts used Act 1 exceptions,” they asserted.”The number for 2022-23, based on the limited data available, suggests that number is even less.”

Pa. House Majority Bryan Cutler, R-Lancaster, meets the press after Gov. Tom Wolf’s budget address to a joint session of the state House and Senate on Tuesday, 2/4/2020 (Capital-Star photo by John L. Micek)

The flap over DeFoor’s report prompted a response from House Republican Leader Bryan Cutler, R-Lancaster, whose district includes one of the school systems singled out for scrutiny.

The report, Cutler noted, “highlights the problems with the current law.”

“At a time when the proper funding of our children’s education continues to be a paramount concern across the Commonwealth, the fact that these school districts sought exemptions to raise taxes despite sitting on hundreds of millions of dollars of budget surpluses is wrong,” Cutler said. “The hard-working families of Pennsylvania, who are paying extra money to these school districts when they could have reinvested that money into their households, deserve better.”

Should the House, which is currently in park over a partisan dispute of its own over the operating rules for a special session, ever get back in gear, Cutler added that it’s his hope that “we can look at the issue,” and “ensure Pennsylvania’s families are treated fairly,” in return for the taxes they pay to educate their kids.

For its part, the school business officials said that if lawmakers are really concerned about return on investment, they can start by “looking towards broader solutions, such as mitigation of mandated cost growth and increased state support for those areas that drive” their reliance on local property taxes.

“Second-guessing the decisions of locally-elected officials who are carefully planning to be able to maintain their educational programs in the face of increasing mandated costs, decreasing revenues, global pandemics, healthcare increases, or even late or uncertain budgets due to new legislative dynamics is simply counter to sound financial practice and ignores the effective use of these funds by school districts to benefit taxpayers and mitigate need for future tax increases,” they added.

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John L. Micek
John L. Micek

A three-decade veteran of the news business, John L. Micek is the Pennsylvania Capital-Star's former Editor-in-Chief.