As you may be aware, on March 2, 2016, the Commonwealth’s Office of the Budget announced that the March 2016 and June 2016 retirement subsidy payments to public school employers are scheduled to be paid in the normal course of business, on March 16, 2016, and June 16, 2016. The announcement further explained that despite the budget impasse, these payments could be made because the School Employee Retirement line item was fully funded in the enacted Pennsylvania General Fund budget signed Dec. 29, 2015.

This provides an appropriate opportunity to update members on the focus of the legal opinion PSBA shared with members last August, examining the legality of two measures that were taken or were under consideration by school districts to deal with the growing cash flow challenges caused by the Commonwealth’s long delay in adopting a budget. They are: (1) delaying payment of employer contributions to the Public School Employee Retirement System (PSERS); and (2) delaying payment of the portion of charter school tuition otherwise owed that represents the proportion of total budgeted revenue received from the Commonwealth.

The bottom line of that opinion, which has not changed, is that both can be done consistent with statutory obligations, in recognition of a school district’s overriding duty to try to meet the educational needs of school children notwithstanding the lack of a Commonwealth budget. In short, the opinion observed, when the Commonwealth stops paying its bills, it is inevitable that school districts might have to put off paying some of theirs.

The opinion can be downloaded at this link:

Members should keep in mind that notwithstanding the opinion shared by PSBA, it is essential that school districts considering these options seek and follow the advice of their respective solicitors on these matters, as not all local counsel may arrive at the same conclusions.

The two lawful measures analyzed in August, examined then as completely separate matters, may now become intertwined as the bizarre and tragic saga of the Commonwealth’s budget impasse continues beyond 252 days.

To recap what was explained in August with regard to retirement contributions, there is express statutory authority in the Public School Employees Retirement Code for school employers to delay making employer contribution payments when the Commonwealth has not paid the reimbursements due to school employers on account of the Commonwealth’s share of the employer liability. School employers have until five days after those reimbursements are paid to pay to PSERS both the local share and state share of the employer contributions owed.

However, this authority to delay payment does not apply to local employers’ obligation to continue to make timely deposits into the fund of employee payroll deductions for employees’ contributions (no later than 10 days after the close of the month in which deducted from pay). School employers do not have legal authority to delay remitting such payroll deductions.

If a school employer fails to make timely payment of what is owed to the fund, whether employee payroll deductions or employer contributions, the amount owed will be deducted from any other state subsidies otherwise owed to the school entity and are then transferred to the appropriate PSERS accounts. That is the only remedy set forth in statute for delinquent retirement payments, which of course does not contemplate a budget impasse that holds up the payment of other subsidies.

The first two quarterly reimbursement payments for the school year that the budget impasse prevented from happening presumably were paid to school entities shortly after Dec. 29, 2015, when the governor partially approved the education funding included in the appropriations bill passed by the General Assembly. School entities then had five days within which to pay any employer contributions owed to PSERS. Any other unpaid amounts presumably were deducted from other state subsidies due.

Looking ahead, if the last two reimbursements in the 2015-16 fiscal year are paid as scheduled in March and June 2016, school entities will again have five days after those payments within which to pay the amount of employer contributions due to PSERS. There would be no statutory authority to delay payment longer than that.

With regard to delayed payment of part of charter school tuition otherwise owed by a school district, there is a similar subsidy intercept mechanism that deducts from state payments otherwise due to the school district amounts charter schools claim they are owed. Presumably, this mechanism operated in early January to pay tuition amounts that had been delayed for the first half of the fiscal year, including amounts PDE had attempted last October to divert from property tax relief payments to districts. PSBA’s lawsuit in Commonwealth Court was successful in preventing that, and the suit was discontinued after the disputed amounts were intercepted from other subsidies in January.

What is unknown at this time is whether PDE will attempt to pay claimed charter school tuition payments that districts have delayed since that time by deducting them from the scheduled PSERS employer contribution reimbursements it has been announced will be paid in March and June. Should that occur, it could further jeopardize the ability of school districts to pay what they owe to PSERS.

It would also raise a new question: if a school district is not paid the full amount of employer contribution reimbursement it is owed due to deductions on account of unpaid charter school tuition, does the five-day clock begin ticking for the district’s payment in turn to PSERS, or does the statutory authority to delay payment continue? It may take yet another lawsuit to find out.

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