Jan 27, 2023 4 min read

Pennsylvania’s auditor general said Wednesday that 12 school districts, including Canon-McMillan, have been “playing a shell game” that allows them to raise local property taxes while holding millions of dollars in their general funds.

Auditor General Timothy DeFoor released an audit report that he said uncovered a budgeting practice used by the school districts, including Canon-McMillan, where they moved unspent money out of their general funds into reserves to be eligible for exceptions to the Act 1 index, a state-imposed limit on property tax increases, while keeping millions of dollars in reserve accounts.

He said auditors found it was a common practice for school districts to move unspent money into reserve accounts. DeFoor said the budgeting practice is legal and not out of compliance with state rules, but said it lacks transparency.

The 12 districts included wealthier and poorer tax bases in urban, suburban and rural areas in Allegheny, Bucks, Chester and Delaware, Lancaster, Montgomery, Northampton and Washington counties.

“These districts have found a way to use the law to their advantage so they could always raise property taxes,” he said.

According to DeFoor, the practice enabled the school districts to collectively raise taxes 37 times during the four years reviewed by the auditor general and amass a collective $390 million in their general fund budgets.

He said it’s “not a stretch to say” that other school districts across the state are using the procedure.

Canon-McMillan School District, along with the other school districts and the Pennsylvania Association of School Board officials, pushed back against the report’s conclusions.

Canon-McMillan said the report doesn’t properly characterize the district’s budgeting practices.

“We did not break any laws, and we did nothing illegal,” said Joni Mansmann, Canon-McMillan Director of Business and Finance, who refuted that the district or board of directors acted improperly.

During the fiscal years audited, Canon-McMillan applied for an exception to the Act 1 index one time – during the 2019-2020 school year – but did not use the approved tax increases over the Act 1 index, instead raising taxes below the index.

“The district followed every law, regulation, procedure and process for establishing the budget in each year reviewed in this audit, and should in no way be faulted by the auditor general for simply applying for, but not using tax exemptions,” a statement issued by the school district said.

The budgeting process begins months before districts know how much state funding they’ll receive, so requesting referendum exemptions is considered a conservative approach to the budgeting process since school budgets and the state budget must both be adopted at the same time on June 30.

“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.

In a statement, PASBO defended the need for school districts to have fund balances.

“Having a fund balance is essential for prudent financial operations of any school district. Fund balances are integral to the long-term preservation of the school district’s General Fund to ensure stability and consistency in providing the resources needed for all student programs and services,” the organization wrote.

PASBO noted that school districts commonly use their general fund budgets to cover pension contributions, special education expenses, and charter school tuition – areas where districts are facing rising costs that are not under their control.

PASBO also pointed out that school districts are not using Act 1 exceptions, regardless of what funds are used to define the threshold. In 2021-22, only seven of 500 school districts used Act 1 exceptions.

Meanwhile, Canon-McMillan, which recently completed a $78 million middle school construction project, said it has among the lowest taxes in Washington County, ranking 14th out of 15 school districts.

Mansmann said school business and finance is complex and the auditor general’s report ignored key factors.

DeFoor recommended the education department revise the process for granting referendum exceptions to take into account districts’ cash on hand rather than basing their decisions on budgeted amounts when granting referendum exceptions.

He also called for shifting the school districts’ fiscal year to end on Sept. 30, instead of June 30, so districts would know how much money they’ll be receiving from the state.