How Pennsylvania schools hide funds to raise taxes without breaking the law

(The Center Square) – The auditor general published a 200-page report Monday that provided more insight into how 12 school districts raised taxes while hiding nearly $400 million funds – without violating a single law.

The audit walks through the budgetary “shell game” officials played by committing funds toward capital projects and pension costs – without actually spending any money – and keeping general fund balances low enough to ensure schools would avoid a public vote on tax increases.

As school districts developed their upcoming fiscal year budgets, qualifying for a tax referendum exception from the Pennsylvania Department of Education (PDE) depended upon the general fund. If unreserved, undesignated funds fell below 8% of estimated budget expenditures, districts could get an exception and raise taxes without receiving a public vote of approval.

To qualify for an exception, officials would earmark funds for specific expenses – such as pension costs or special education – but would not spend them. The district would then justify raising taxes based on the need to increase funding for those line items.

None of the 12 districts examined violated the state's Public School Code (PSC), according to the audit. Collectively, officials held back $360 million while raising taxes 37 out of a possible 48 times between 2018 and 2021.

It's possible, too, that many more of Pennsylvania's 500 school districts use this loophole. When school districts hold excess funds and raise taxes, the revenues come from residents.

“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,” the report noted. “We are hopeful that the General Assembly and PDE will consider taking a close look at these practices.”

Abington School District illustrates the strategy well, according to the report. Between 2018 and 2021, the district's revenues and expenditures ranged from $150 million to $172 million. Budgetary practices, though, significantly underestimated the money the district had on hand – often by $10 million to $20 million.

The school board then designated the entire balance in the general fund as committed, rather than leaving portions unassigned. This lowered the balance below the 8% threshold set by state law and qualified the district to apply for an exception to raise taxes without a public vote.