Lehigh Valley college districts’ ‘shell recreation’ averted potential votes on tax hikes, Pa. auditor normal says

Pennsylvania’s auditor normal on Wednesday launched a report important of budgeting practices in 12 college districts statewide, together with two within the Lehigh Valley.

Whereas authorized, the districts used finances transfers for cash that had gone unspent to justify avoiding a taxpayer vote on elevating taxes, Auditor Normal Timothy DeFoor. Routinely requesting and being granted these referendum exceptions from the Pennsylvania Division of Schooling occurred whereas the districts audited stashed a collective $390 million usually fund balances, he stated.

The Bethlehem Space and Northampton Space college districts that have been among the many 12 audited say the fund balances are important to overlaying prices and conserving borrowing to a minimal. Requesting referendum exceptions is a conservative strategy to the budgeting course of that begins months earlier than districts understand how a lot state funding they’ll obtain, since college budgets and the state finances should each be adopted on the identical time on June 30.

Nonetheless, DeFoor stated, “startling tendencies began appearing to our auditors, like shifting cash round to ensure a district would at all times meet the edge to lift taxes. Additionally they utilized for a referendum exception as a daily budgeting software, somewhat than an excessive measure because the regulation intends.”

Saying the districts audited “characterize a cross-section of Pennsylvania — from wealthier to poorer tax bases and concrete, suburban and rural communities,” DeFoor stated: “These districts have discovered a means to make use of the regulation to their benefit so they might at all times elevate property taxes.

“It’s mainly a ‘shell recreation’ that allowed these 12 college districts to collectively elevate taxes 37 instances throughout the 4 years we reviewed, which elevated their respective normal fund accounts to $390 million.”

Practically a 12 months within the works, the audit evaluated whether or not every district appropriately used the state’s referendum exception technique to lift native taxes; and whether or not every district ensured its normal fund balances have been correctly designated as dedicated, assigned and utilized in a well timed method for meant functions.

The 2006 Pennsylvania College Code and the Taxpayer Aid Act, referred to as Act 1, dictates how college districts can elevate taxes and units limits for these will increase. If a district should elevate taxes to cowl prices above the boundaries set in regulation, native officers are required to ask voters for permission via a referendum or apply to the Division of Schooling for a referendum exception. A referendum exception permits college districts to lift taxes above the inflationary index with out voter enter. The division’s referendum exception purposes are based mostly on what a district has budgeted to cowl bills, versus precise money available, in keeping with DeFoor’s workplace.

“College districts instructed us they need to develop their budgets this manner as a result of they by no means understand how a lot funding they’ll obtain from the state,” acknowledged DeFoor, a Republican elected in 2020. “However on the finish of the day, it’s the taxpayers, particularly these on a hard and fast earnings, which might be shouldering the burden. If that is commonplace working process for these city, suburban and rural districts, it’s not a stretch to say that it’s widespread observe throughout the state.”

Bethlehem Space faculties Superintendent Joseph Roy stated the audit discovered the district in compliance with legal guidelines or laws. The district’s whole normal fund stability together with cash dedicated to capital enhancements, assigned to pension obligations or balancing the finances, and unassigned grew throughout the interval audited from $33.67 million in 2018 to $46.14 million in 2021, in keeping with DeFoor’s report.

Bethlehem Space requested referendum exceptions in every of the 4 years audited however solely raised taxes throughout the first two and never above the Act 1 index both time, the audit discovered.

“So we utilized for exceptions to maintain our choices open in January, however we by no means used the exceptions,” Roy instructed lehighvalleylive.com on Wednesday.

Roy stated “this complete idea that we raised taxes once we had sufficient cash available to only not should doesn’t actually maintain water.”

“And what it comes right down to is the auditor normal has his opinion and the elected members of the varsity board — the elected members of the varsity board elected by the group — make their greatest resolution on fund the district throughout the regulation, and with 0% tax will increase the final two of the 4 years,” he continued. “So that is a lot about nothing.”

  • MORE: Home Republican Chief and state schooling teams reply to audit

Roy labeled the audit as political, and DeFoor famous it happened based mostly on complaints he’d heard from members of the state Legislature along with residents.

“We’e following the regulation,” stated Bethlehem Space College Board President Michael Faccinetto. “An audit is meant to search for compliance within the regulation, so this complete factor appears type of loopy. And the finances of a faculty district comes right down to 9 native elected officers with a fiduciary duty.”

The Northampton Space College District additionally requested referendum exceptions throughout the fiscal years audited ending June 30 of 2018, 2019, 2020 and 2021, with taxes raised throughout the first three years. However, as with Bethlehem, every tax hike was throughout the Act 1 index that may have required voter approval to exceed.

Northampton Space’s year-end normal fund balances grew from $13 million in 2018 to $14.35 million in 2021, comprising dedicated funds for facility capital upkeep, new elementary college debt funding and health-care obligations; assigned funds for a Chromebook reserve, scholar actions and to stability the finances; and unassigned for future and unexpected prices, the audit discovered.

“I believe it’s prudent {that a} college district, and I’ll converse for Northampton, have some sort of financial savings account and now have some dedicated cash for the longer term, for future bills that are arising. I believe it’s smart to try this,” Northampton Space Superintendent Joseph Kovalchik stated Wednesday, noting the district simply this week acquired its annual, native audit with zero findings of noncompliance throughout a bunch of legal guidelines and laws.

DeFoor stated his workplace’s audit sought to guard taxpayers, notably these on a hard and fast earnings because the districts “used the regulation to their benefit, that’s mainly what it was — as a result of they might.”

“And at this level, doing nothing is just not an choice,” he stated.

DeFoor’s group on the varsity district audit made the next suggestions to the Normal Meeting to assist college districts fund schooling and defend taxpayers:

  • Add a provision to Act 1 that requires districts to make use of dedicated and assigned normal fund balances and the prior fiscal 12 months’s surplus funds previous to requesting a referendum exception to lift taxes above the index.
  • Revise the Pennsylvania College Code’s terminology used within the willpower of the mandated threshold for elevating taxes from unreserved, undesignated to unrestricted to incorporate dedicated and assigned funds within the calculation to stop college districts from retaining thousands and thousands of {dollars} in Normal Fund commitments and assignments whereas growing taxes.
  • Decide if there needs to be parameters round budgeting practices and transferring working surpluses whereas growing taxes. For example, requiring that each one transfers from a district’s normal fund be thought-about unassigned funds and included as inter-fund transfers on a normal fund finances previous to being transferred to different governmental funds.

The audit group made the next suggestions to the state Schooling Division:

  • Assessment and revise the method of approving referendum exceptions if the district has dedicated and assigned normal fund balances. DeFoor stated that based mostly on the audit outcomes, college districts have ample funding for the associated expenditures, are transferring extra surpluses, and are usually not utilizing designated funds well timed or to stability the preliminary finances previous to requesting to extend taxes above the index for the exact same sort of expenditure.
  • Contemplate revising the state Property Tax Referendum Exception Tips accordingly.

Along with the Bethlehem Space College District spanning the Lehigh-Northampton County border and Northampton Space in Northampton County, the opposite 10 districts audited are in Allegheny, Bucks, Chester, Delaware, Lancaster, Montgomery and Washington counties.

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Kurt Bresswein could also be reached at kbresswein@lehighvalleylive.com.

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