One man’s “shell game” is another’s “fair game.”
That is how to look at State Auditor General Timothy DeFoor’s report on a dozen Pennsylvania school districts – including five in the Philadelphia suburbs – whom he says shifted around money in their budgets to avoid referendums in which voters would decide whether to approve property tax increases to help cover rising school costs.
The 190-page report reads like a rebuke. Yes, school district practices were legal but they were hardly transparent, DeFoor said. Some districts called out for their tactics have pushed back forcefully, one slamming the Republican’s report as “rhetoric.”
DeFoor said the districts’ motives were clear: They were trying to avoid having to ask for voters’ approval, so instead, they shifted money out of general funds into reserves to qualify for Act 1 index exceptions.
The Pennsylvania Department of Education decides which districts qualify for the index exceptions that enable them to raise property taxes above a state limit. In order to qualify for Act 1, the districts must show they can’t afford to absorb costs of rising special education and mandated contributions to the state pension system.
But DeFoor said the 12 school districts were playing a “shell game,” because they had “an average of $360 million” on hand in their general funds – a slice of $5 billion that 500 districts across the state reported in was in their fund balances by the end of June 2020, the report stated.
Yet, districts – which included Abington, Lower Merion, North Penn, Northampton, and West Chester – still sought exceptions that enabled them to raise taxes “37 of a possible 48 times” during the audit period running from fiscal years ending 2018 through 2021.
“The overall results of this audit should raise concerns due to the districts’ common yet questionable practices that are placing an excess burden on taxpayers across Pennsylvania,” DeFoor wrote.
The audit reviewed a cross-section of urban, rural, and suburban districts across the state, DeFoor said, adding that the consistently widespread practices suggested they’re happening across the commonwealth.
The Pennsylvania Association of School Business Officials immediately pounced on the report saying it was “essential for prudent financial operations” for school districts to carry fund balances, according to The Inquirer. The group added that while it was common for districts to apply for Act 1 exceptions, only seven used them in 2021-22.
The Abington School District admitted employing budgeting practices that helped it get three Act 1 exceptions that “reserve[d] the option” for the district to raise taxes. But the district said it only took advantage of the exception once, in fiscal year 2018, according to the report.
In a statement on its website, West Chester pointed out it received Moody’s highest credit rating — a common refrain among the reviewed districts — while adding an independent auditor found the district’s financial practices in line with other institutions. It added the district was committed to providing an “exceptional level of education while maintaining the lowest tax rate in both Chester and Delaware counties.”
Beth Ann Rosica, whose children attend classes in West Chester, called out the arrogance of district leaders for failing to see how their actions were “taking authority away from the taxpayers” to decide on tax hikes via referendums.
She said she hoped lawmakers re-examine rules around Act 1 when they sit down to reconfigure the state’s flawed school funding system following a recent Commonwealth Court ruling that found it unconstitutional.
“Most people don’t have time or energy to really look at the budget,” Rosica said. “Even if you looked at it, you wouldn’t necessarily see what they’re doing with moving the funding around. [The districts] were all pretty consistently sandbagging.”
Among DeFoor’s recommendations: Shifting school district fiscal years to help it avoid guess-work in preparing a budget without knowing exact state funding levels; encouraging lawmakers to re-examine Act 1 requirements so districts must spend down general and surplus funds before applying for exceptions; and pushing districts to rein in loosey-goosey budgeting practices.
Though without a mandate from the state, DeFoor was leery that districts would heed his advice.
“School boards will continue the practice of committing, assigning, and transferring millions of surplus dollars while routinely increasing taxes,” he wrote. “The districts indicated this to us in their responses. They referred to the law and noted these were prudent, legal business practices.”