Comptrollers: 12 Pennsylvania school districts hid $400 million to pass tax hikes

By Anthony Hennen | The middle square January 25, 2023

(The Center Square) – A dozen Pennsylvania school districts used a loophole in the law to levy millions of dollars in new taxes on the public without putting them to a referendum.

In doing so, they have hidden hundreds of millions of dollars in reserves that could cover school costs without raising taxes.

The state auditor has warned that there are potentially more school districts that have done the same.

The announcement, made during a press conference by Auditor General Timothy DeFoor, was based on an audit of a dozen schools across the state.

“For years, concerns have been raised by the General Assembly and local residents about school districts raising taxes when they appear to have enough money in reserve to fill any type of budget gap,” DeFoor said. “For nearly a year, our audit team studied this practice to determine whether school districts appropriately used referendum exemptions to raise property taxes without voter input.”

The audit found school districts did this repeatedly — collectively, they collected taxes 37 times from 2018 to 2021.

As a result, even though districts have increased taxes, they have $390 million in their general fund accounts “that aren’t being spent,” DeFoor said.

The law was intended to be used as an extreme measure of financial hardship. Instead, school districts have used it as a “normal budgeting tool,” DeFoor said.

“These districts found a way to use the law to their advantage so they can always collect taxes,” DeFoor said. “It’s basically a shell game.”

The following schools were audited, all of which increased taxes without a referendum:

  • Abington School District, Montgomery County;
  • Bethlehem Area School District, Northampton and Lehigh Counties;
  • Cannon-McMillian School District, Washington County;
  • Hempfield School District, Lancaster County;
  • Lower Merion School District, Montgomery County;
  • Neshaminy School District, Bucks County;
  • North Allegheny School District, Allegheny County;
  • Northampton Area School District, Northampton County;
  • North Penn School District, Montgomery County;
  • Penn Manor School District, Lancaster County; and
  • Lancaster School District, Lancaster County;
  • West Chester Area School District, Chester and Delaware counties.

It’s not yet clear how many other school boards have done the same.

“That’s just 12 districts; there are 500 in Pennsylvania,” said DeFoor. “It’s no exaggeration to say it’s happening across the Commonwealth.”

The Comptroller recommended that the General Assembly amend the existing law to require districts to use their general funds and surplus funds before requesting the Department of Education to grant an exemption from a tax referendum.

School authorities defended the practice to the examiner as pragmatic. They would have to submit a budget by June 30, but did not yet know how much they would receive from the state government by then.

DeFoor suggested moving the school districts’ fiscal year from June 30 to September 30 to avoid such an issue.

“We simply cannot allow school boards to use legal maneuvers that deprive our taxpaying citizens of their voices,” DeFoor said.

Critics noted that the schools had built up significant reserves over the years while at the same time increasing taxes.

“School districts are cash-rich even as they perpetuate a narrative of underfunding,” said Nathan Benefield, senior vice president of the Commonwealth Foundation, in a press release. “Many districts have accumulated taxpayers’ money for years – and increased their reserves well beyond what is needed for bad times.”

Since 2012, the reserve funds of the 500 school districts across Pennsylvania have increased nearly 33% to $5.3 billion, Benefield noted, along with $3.6 billion in federal pandemic assistance.

“The audit confirms that many school districts are not just adequately funded, but overfunded,” Benefield said. “The state should strive to protect Pennsylvania taxpayers from unnecessary tax hikes and direct funding of students — including those seeking alternatives to their neighborhood school. Families, not school buildings, need more resources.”

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