The injunction issued Aug. 29, 2016, by the Montgomery County Court of Common Pleas requiring the Lower Merion School District to lower its tax rate was beyond the court’s authority, and paints an incomplete and misleading picture both of how the Act 1 Taxpayer Relief Act operates to limit school district tax increases and the reasons that school district fund balances are considered to be an important means of maintaining fiscal and educational stability.
The disparity in the financial resources available to school districts around the commonwealth is well known, as is the unpredictability of support from state sources. Last year’s nine-month budget impasse provides a prime example of how important it is for school districts to maintain sufficient financial reserves. In the course of that impasse, it is estimated that school districts statewide were forced to take out loans amounting to more than $1 billion collectively in order to continue operating without state support, with significant unanticipated borrowing costs. A recent study issued by the Center on Regional Politics reports that on average, school districts have unassigned fund balances just above the minimum 5% of budgeted expenditures recommended by the Government Finance Officers Association, enough to pay less than three weeks operating expenses for most. The study further reports that in 2014-15, more than 90% of school districts had unassigned fund balances that were less than half of their state subsidy.
At the same time, employer contribution rates for school employee pensions are higher than ever before, and the continuing suspension of state reimbursement for school construction is forcing districts with deteriorating classroom facilities to fund needed improvements without that support.
The decision by the court, if upheld, will add to this fiscal uncertainty and further jeopardize educational quality. Under Act 1, it is the Department of Education that has the exclusive responsibility to review and approve requests for exceptions to Act 1’s base limit on school tax increases. The Act 1 exceptions reflect the General Assembly’s recognition that there are some kinds of school district costs that can increase much more rapidly than others, especially in the area of special education and employee pension contributions.
A court of common pleas has no power to issue orders that effectively overturn the Department’s decisions and usurp its authority. The court’s decision incorrectly assumes that the Department does not have critical information it needs to make such decisions, when in fact all relevant information is regularly submitted and available to the Department.