North Penn School District (NPSD) is one of 12 school districts out of the 500 in the Commonwealth that has been scrutinized in an audit released Wednesday by the state Department of the Auditor General as being part of a “shell game” for using a legal loophole to continuously raise property taxes to the Act 1 index or beyond, via voter referendum or special exception, while banking millions of dollars in its General Fund coffers.
Auditor General Timothy L. DeFoor said, all in all, the 12 districts collectively raised taxes 37 times from the 2017 to 2021 fiscal years while increasing general fund accounts by as much as $390 million. All audited school districts were selected based on criterion that included a district with approved referendum exceptions and substantial government fund balances, according to DeFoor.
A fiscal year is one that runs from July to June, as opposed to an annual/calendar year from January to December. Read and download the audit here.
“These districts represent a cross-section of Pennsylvania - from wealthier to poorer tax bases and urban, suburban and rural communities," DeFoor said. "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 allowed these 12 school districts to collectively raise taxes 37 times during the four years we reviewed, which increased their respective General Fund accounts to $390 million.”
North Penn School District joined Abington School District and Lower Merion School District as the only three school districts from Montgomery County named in the audit.
The other nine school districts are: Bethlehem Area (Northampton/Lehigh), Cannon-McMillian (Washington), Hempfield (Lancaster), Neshaminy (Bucks), North Allegheny (Allegheny), Northampton Area (Northampton), Penn Manor (Lancaster), School District of Lancaster (Lancaster), and West Chester Area (Chester/Delaware).
In fiscal year 2018-19, North Penn property taxes increased 3.4% to end up at 25.5090 mills. In each subsequent fiscal year, taxes were raised by 2.3%, 2.6%, 2.85%, and finally 3.39% in 2022-23, which was within the Act 1 index.
In response to DeFoor’s claims, North Penn School District Superintendent Dr. Todd M. Bauer released a statement on the district’s website. Bauer said the audit occurred during the 2021-22 fiscal year and North Penn had no issues with non-compliance of laws or regulations.
“I am disappointed to hear the misleading rhetoric regarding this report. The North Penn School District has, and will continue to, abide by all laws and regulations as we provide a quality education for all of our students,” Bauer said.
He said the state audit report emphasizes the fact that the district applied for exceptions to Act 1 in three of the four fiscal years, but only used the exception once.
“In actuality,” said Bauer, “the exception has been utilized only once over the course of the last ten years. It is also important to note that we utilized this exception to help us support our special education programs. At the beginning of our budget process, we apply for exceptions in the event that the Board of Directors chooses to utilize the exception.”
Bauer said North Penn’s A-1 Moody’s Bond rating is an accomplishment attained by only 20 school districts in the Commonwealth, which means the district is privy to lower interest rates for capital project borrowing, like the Knapp Elementary renovation.
“As you are aware, lower interest rates result in lower costs for the district in the long run. Also of note, the tax rate in NPSD has been the fifth lowest in Montgomery County,” Bauer said in his online statement. “Finally, it is important to share that the NPSD has won the ASBO Meritorious Award for excellence in budgeting for the past seven years. We have also instituted an award-winning tax rebate program to support those on a fixed income in our community.”
Board President Tina Stoll and Vice President Christian Fusco, who ran for re-election as North Penn Neighbors for Progress, along with incumbent Directors Jonathan Kassa and Al Roesch, in the 2021 General Election, provided comment on the audit.
“I would invite all that are interested to please watch our finance meetings,” Stoll said. “They are streamed live and posted afterwards, and the public can make comment.”
Stoll said District CFO Steve Skrocki gives a “masterclass” every year on the budget process during the finance committee meetings, and department heads also present budgets to the board every year.
“The ramifications of each decision are spelled out,” Stoll said. “While we are always open to suggestions on how to be more transparent, I believe we have vastly improved the level of transparency since taking office.”
Stoll said it is the Board of Directors’ job to be fiscally responsible.
“That includes making sure our credit rating remains strong, and that we provide a first-rate quality education to our students, while still having the fifth lowest tax burden in Montgomery County,” she said.
Fusco said it is time for Harrisburg to step up and relive the burden on local taxpayers by addressing the strain that unfunded mandates put on school districts in the Commonwealth.
“Charter school payments, infrastructure needs, pension and special education costs continue to climb with little to no support from Harrisburg,” Fusco said. “Instead of editorializing North Penn’s budgeting process, the Auditor General should be working with the legislature to address the structural deficits school districts across Pennsylvania face every year.”
In order to fund education and protect taxpayers, the auditor general’s office recommended the Pennsylvania General Assembly add a provision to Act 1 that requires school districts to use committed and assigned fund balances and surplus funds prior to requesting a referendum exception.
According to the press release from the Auditor General, the audit evaluated whether each district appropriately used the Pennsylvania Department of Education referendum exception method to raise local taxes. It also examined whether each district ensured general fund balances were properly designated as committed, assigned, and used in a timely manner for intended purposes.
“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. “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.”
The audit team also recommended to the general assembly to amend language in the Pennsylvania School Code to permit committed and assigned funds in the calculation of the mandated threshold for raising taxes. It also recommended that all general fund transfers be considered unassigned funds and included in interfund transfers on a general fund budget first.
School districts in the Commonwealth are restricted as to how much they can raise taxes each year due to the Pennsylvania School Code and the Taxpayer Relief Act, or Act 1. The current rate for 2022-23 is 3.4%.
The Act 1 base index is calculated by averaging the percent increase in the statewide average weekly wage and the percent increase in the Federal employment cost index for schools.
In essence, the bill sets a cap on the amount a school district can raise property taxes – 3.4% in North Penn – without first getting voter approval, or referendum. The Act 1 bill also expanded rebates and exemptions for eligible seniors and homeowners.
According to the Pennsylvania Department of Education, school districts with a market value/personal income aid ratio (MV/PI AR) greater than 0.4000, the value of their index is adjusted upward by multiplying the base index by the sum of 0.75 and their MV/PI AR.
According to DeFoor, if a district must raise taxes above the limits set in law, they are required to ask voters for permission through referendum or apply to the state Department of Education for a referendum exception. A referendum exception allows school districts to raise taxes above the inflationary index without voter input.
“School districts told us they must develop their budgets this way because they never know how much funding they will receive from the state,” DeFoor said. “But at the end of the day, it’s the taxpayers, especially those on a fixed income, that are shouldering the burden. If this is standard operating procedure for these urban, suburban, and rural districts, it’s not a stretch to say that it’s common practice across the state.”
See also:
North Penn School District Appoints New Hatfield Elementary School Principal
North Penn School District Launches ‘Here Comes the Bus’ App
North Penn Area Scholarship Fund Applications Now Open to Interested Students
Police Investigating Claims a Special Needs Student Was Mistreated by Teacher at Knapp Elementary
