Pa. Senate surveys school fund balances

HARRISBURG — Lawmakers in the state Senate appear to be preparing to move legislation that would push back the fiscal year for local school districts in order to give district officials clearer information about what funding they will receive from the state.

Currently, local school districts must pass their budgets by the same June 30 deadline used by the state — a situation which forces them to make decisions without knowing exactly how much funding they will get from the state, and, some years, when it will arrive.

The issue was raised in a report released by Auditor General Tim DeFoor — a probe examining the way local schools exploit the state’s rules regarding tax increase exceptions to raise taxes without getting voter approval even when the local districts have been able to stash away sometimes substantial cash reserves.

Mr. DeFoor’s report noted that when auditors asked local school officials to justify building fund balances, they were told that local officials need the reserves to manage the uncertainty over state funding.

Mr. DeFoor, who criticized local school leaders for skirting requirements to seek voter approval (while noting that it’s clear that local school officials are not breaking state law) suggested that the state delay the start of local school districts’ fiscal years until Sept. 30.

At a Senate Education Committee hearing on the issues raised by Mr. DeFoor’s report, the committee’s Majority Chairman Sen. David Argall, R-Schuylkill, made it clear that his committee will be looking to move legislation that would shift the start of local schools’ fiscal years.

Sen. Michele Brooks, R-Mercer, on Tuesday, introduced Senate Bill 518, which would shift the deadline for local school districts to pass their budgets to July 31.

Hannah Barrick, executive director of the Pennsylvania Association of School Business Officials, said local officials aren’t sold on the idea of shifting the budget deadline.

Mr. Argall said that if local officials have concerns that could be addressed by amending Ms. Brooks’ bill, they should pass them along because the Education Committee staff is “actively looking” at moving the legislation.

Another point of contention during the hearing was the question of how large should school districts be allowed to keep in fund balances while still raising taxes.

Nathan Benefield, senior vice president at the Commonwealth Foundation, said that while there are wide disparities in the size of fund balances held by local school districts, on average school districts had about 23% of their budgets set aside in reserves in 2021. That’s double the amount the state now has in its Rainy Day Fund, he said.

Mr. Benefield added that former Auditor General Eugene DePasquale had previously expressed that he considered it questionable for school districts to have fund balances exceeding 20% of their expenditures. More than half of the school districts in the state had more than 20% of their total spending set as reserves, and 53 school districts had fund balances exceeding of 40% of their spending that year.

Democrats and representatives of groups lobbying for local school officials said that in some cases, it’s responsible for school districts to build fund balances to cope with construction costs or cope with other financial challenges.

Ms. Barrick said that many school districts passed budgets last year that had deficits that the districts were able to overcome by tapping their reserves. As a result, they were able to limit how much they had to raise taxes. She added that concerns raised in Mr. DeFoor’s report about districts using state exceptions to exceed the Act 1 limits on tax increases without voter approval are over-stated.

In practice, even when local school leaders notify the state that they may seek an exception to raise taxes above the state threshold, most schools don’t actually follow through — instead passing budgets with smaller tax increases than their preliminary plans had suggested were in the works.

In the most recent year in which data is available, just seven of the state’s 500 school districts used exceptions to raise taxes above the Act 1 threshold without getting voter approval.

“This is a non-issue,” she said.