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

By John L. Micek – Capital-Star

HARRISBURG, PA – 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.

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.”