How Pennsylvania schools are hiding funds to collect taxes without breaking the law

(The Center Square) — The Auditor General released a 200-page report Monday that gave more insight into 12 school districts’ tax hikes while hiding nearly $400 million in funds — without breaking a single law.

The scrutiny goes through the fiscal “shell games” played by officials, allocating funds to capital projects and pension costs — without actually spending any money — and keeping general fund balances low enough to ensure schools avoid a public vote on tax increases would.

As school districts developed their budgets for the upcoming fiscal year, qualifying for an exemption from the Pennsylvania Department of Education’s (PDE) tax referendum depended on the general fund. If unreserved, unrestricted funds fell below 8% of estimated budget expenditure, districts could receive an exemption and levy taxes without receiving a public vote of approval.

To qualify for an exemption, officials would set aside funds for specific expenses — like pension costs or special education — but not spend them. The district would then justify a tax increase with the need to increase funding for those line items.

According to the audit, none of the 12 districts examined have violated the state’s Public School Code (PSC). Overall, officials withheld $360 million between 2018 and 2021 while raising taxes on 37 out of 48 possible occasions.

It’s also possible that many more of Pennsylvania’s 500 school districts will use this gap. When school districts hold excess funds and collect taxes, the revenue comes from the residents.

“The overall results of this audit should be cause for concern because of common but questionable district practices that place an undue burden on taxpayers across Pennsylvania,” the report said. “We hope that the General Assembly and the PDE will consider closely examining these practices.”

According to the report, the Abington School District illustrates the strategy well. Between 2018 and 2021, the district’s revenue and expenditure ranged from $150 million to $172 million. However, budgetary practices vastly underestimated the money the district had at its disposal—often by $10 to $20 million.

The school board then designated the entire balance in the general fund as committed rather than leaving portions unallocated. This brought the balance below the 8% statutory threshold and authorized the district to request a tax increase waiver without a public vote.

When school boards commit funds, they don’t have to spend them. However, if funds are not allocated, the districts do not qualify for an exemption from the referendum.

The report notes that this is against best business practice and the board should again consider leaving credit unallocated to cover unexpected expenses and emergencies.

While Abington requested a referendum exemption in 2018, 2019 and 2021, taxes were not increased until 2018. That year, the district approved an increase in pension obligations by nearly $603,000, despite having already pledged $7.5 million from the general fund to do so.

The report doesn’t specify how the county spent the extra money, although it does note that its pension obligations were adequately funded and the increase was an “unnecessary burden on the county’s taxpayers.”

In their response to the audit, Abington District officials argued that the ability to collect taxes was necessary because it was not clear how much the district would receive in state and federal funds, rather than “what its own tax base would be.” will”.

“Given the lack of reliable information available during the preliminary budget window, the district has generally considered it prudent to remain flexible early in the budget process,” wrote Abington School District Superintendent Jeffrey Fecher.

He also expressed concern that classifying unspent committed funds as unallocated could complicate future estimates.

“The district does not agree that committed funds that have not been spent in a year should necessarily be considered unallocated funds balances, since such practice could arbitrarily undermine the district’s ability to plan for contingencies,” Fecher wrote.

The auditor’s office said the district’s actions misled taxpayers and raked in $2.6 million in tax revenue while more than $38 million was unaffected.

If the budget limit were tied to unrestricted funds—which includes committed and committed commitments—fewer than half of the 12 districts would have levied taxes only 11 times during the four-year period.