School Districts Boost Taxes

As we pointed out recently in a blog and a Policy Brief there were around eleven school districts in Allegheny County that sought permission from the state to increase property taxes above the Act 1 index for the 2013-14 school year, a year in which reassessed values went into effect in Allegheny County. A news article today presented millage rates for 42 of the 43 school districts (Pittsburgh Public Schools operates on a calendar year) and indicates the districts that increased millage from where it would have settled within the Act 1 parameters.

Under Act 1 requirements, the school districts basically go "back in time" in the year which a reassessment goes into effect by using the Act 1 index of the year prior to the one before the reassessment took place. This is unlike Act 71, which applies to Allegheny County and the County’s municipalities. Districts can still seek exceptions to the index, raise taxes up to the index and not go over, go over the index and put the increase before the voters, or not increase taxes at all. Compared to millage rates from 2012-13, all of the districts 2013-14 millage rates were lowered to comply with Act 1 requirements (the only exception was East Allegheny School District).

Let’s start with the eleven districts we discussed in the blog and the Brief: by the article’s data, nine of those actually enacted a millage increase for 2013-14. North Allegheny and West Allegheny were granted exceptions but did not enact a millage hike.

Sixteen districts increased millage, but these districts were not listed in the Department of Education’s report on exceptions, so the assumption here is that the increases were below the Act 1 index amount.

Fifteen districts did not increase millage and none of those made any petition to the state.

If we group districts by whether they increased millage or not regardless of their position vis a vis the Act 1 index and petitioning the state, 17 districts did not increase millage while 25 did.

Plum School Board Caves

After a May vote to hold the line on taxes and spending that would have led to 23 staff layoffs, the Plum School Board made a sharp U turn and approved a budget June 26th that raises taxes and uses nearly a million dollars of its reserves in order to save most of the jobs previously slated for elimination. All this with no concessions from the union. Remember the principal causes of the budget crisis are the additional million dollars or so required for teacher pensions and the cost of living increases for teachers.

The board has done what governing bodies have done for years: kick the can down the road. Assuming the pension payment is about the same next year and teacher cost of living increases are about the same, the budget shortfall will be back. Only next year the reserves will be too low to allow another million dollars to be tapped to close the shortfall. Than will mean going to the state for an exception to the allowable tax rate hike or a referendum to ask for permission to boost taxes for a second straight year. Alternatively, but highly unlikely, they might decide it is time to make the staff reductions needed to prevent more tax hikes.

One thing is for sure: as long as they are taking guidance from the union and the students who do not have to pay the bills, the board will keep making bad decisions that will come back to haunt them later. Leaving the May vote in place would have accomplished two important things. It would have dealt fairly with taxpayers and precluded next year’s budget angst. Secondly, it would have sent a strong signal to the union that the board will be very hardnosed at the next round of contract talks.

One thing we have learned in recent years is that school boards operate by and large on the dictates of the teacher unions. This episode proves once gain how powerful the union is and how little taxpayers are considered when spending and taxing decisions are made.

Plum taxpayers (and others across the state) will now begin to learn the reality of the underfunded pension mess as it appears the state is in no mood to make the serious reforms that will reduce the unfunded liabilities.

One Quarter of County School Districts Seek Exception

When the state passed Act 71 of 2005 it required Allegheny County, its 128 municipalities, and 43 school districts to follow new requirements for property tax millage rates following a reassessments. A short year later, the state passed Act 1 of 2006, which involved school property tax relief, tax shifts, gaming money, school tax referenda, and requirements for school districts to adjust their millage rates following a reassessment. As a result, the 43 districts in Allegheny County were effectively removed from the Act 71 framework and placed into a framework with the other 457 school districts in Pennsylvania.

So what does Act 1 say for districts following a reassessment? We discussed this in a Brief previously, but basically the district cannot bring in more tax revenue than it would be allowed under the previous year’s Act 1 index-the index that informs the district how high its taxes can increase. Those going above the index have to either seek out an exception from the Department of Education or place the increase on the ballot in front of the voters.

The Department of Education’s 2013-14 report on Act 1 exceptions shows 11 districts have successfully obtained permission to exceed their index for the fiscal year that starts in just a few weeks. That’s not to say they will use them-the Department points out that many times districts obtain but do not utilize exceptions-but they are in the back pocket for those districts. Act 1 was amended in the last several years to reduce the number of allowable exceptions from 10 to 4 (leaving exceptions related to construction, retirement obligations, and special education). All eleven cited pensions as the reason for their petition: three also cited special education expenses.

So what of the remaining 32 districts? If they did not seek an exception that does not mean the school millage won’t rise this year the assessments go into effect. Just that they are staying below the allowable index.

Teachers and Legislators Getting Schooled on Bad Policies


Facing a large budget deficit, the Plum School Board has voted to lay off 23 teachers.  The principal causes of the $1.48 million deficit are salary increases of over $900,000 and a requirement to boost the District’s pension contribution by $1,000,000 for the upcoming fiscal year. Limited to raising tax revenues over the current fiscal year by a state imposed index, the School Board has opted not to apply for an exemption from the Department of Education to increase tax rates.



Teachers were asked to voluntarily forgo the salary increases called for in the contract but rebuffed the request, necessitating the personnel reductions. As required by a state law that does not allow teacher layoffs for economic reasons but does permit layoffs for enrollment declines or program eliminations, the Plum school board is targeting several programs for elimination including ROTC, television production, and family consumer science among others.  Predictably, the teachers’ union head responded that “children should not be held hostage”-adding that the union wants to save all programs now and in the future. 


How ironic. Teachers’ unions have pushed for and received the job protection legislation that prevents school boards from making teacher layoffs across departments and working to achieve the least disruptive results of layoffs.  By forcing school boards to eliminate entire programs in order to make layoffs, the legislation does exactly what the teachers want; hold taxpayers hostage. They pit parents against taxpayers knowing students and parents of children taking classes in the programs targeted for elimination will raise a fuss and clamor to preserve the programs.  This strategy of pitting parents against the taxpayers and the school board on behalf of teachers works well when strikes or threat of strikes occurs. It is very clever to set up a scheme that deflects attention from the creators of the problem to the school board.


All this is now occurring in the reality of the massive and growing shortfalls in the Pennsylvania teachers’ and state employees’ pension plans.  These shortfalls will necessitate very large additional contributions from the state coffers as well as school districts over the next few years if major changes in the pension laws are not forthcoming. The reforms proposed by the Governor earlier this year would go a long way to dealing with the problem.  However, these reforms face enormous opposition from state employee and teacher unions with the threat of court challenges.

The plan to implement a new payout scheme for future years of service of employees who are currently employed while preserving the benefits earned to date is a major obstacle. Outcomes in the court are not assured and reforms could be nullified completely or delayed for many years.


But the lesson from Plum for teachers and the Legislature could not be clearer or starker.  With the billions of dollars that will have to be poured into pensions over the next several years if dramatic pension reform is not enacted, the state and school districts are facing an excruciatingly difficult dilemma of deep spending cuts or tax hikes. And as long as the law is in place that requires program elimination to layoff teachers, school boards will eventually be forced to cut into education muscle and bone.


Here is the reality. If teachers and state employee unions are not willing to accept the proposals outlined by the Governor, they will inevitably see their wages and non-pension benefits cut and many of their associates lose their jobs. The only alternative will be tax hikes that will cost many private sector jobs and hurt the state’s economy, a situation that over the long term helps no one-and certainly not the public sector unions.


It is now incumbent on the General Assembly to move quickly on substantial pension reform legislation to avert the coming disaster. It should also immediately amend the statute that requires entire programs be eliminated in order to have teacher layoffs.  And that should be followed by emulating the states, including the addition of Wisconsin in 2011, that do not permit teacher strikes. Teacher strikes are the ultimate argument against public sector unions.  Nowhere is the Madisonian admonition for the government not to create and/or side with powerful interest groups more in evidence. The opportunities for powerful public sector unions to use their considerable resources and influence to get friendly legislators elected and to have those legislators work for legislation favorable to the unions are demonstrably antithetical to good governance and sound fiscal policy. And they are the ultimate weapon against taxpayers.


The teachers and state employees have a decision to make. Will they fight pension reform with great zeal and vehemence and likely win a pyrrhic victory wherein they cause great damage to themselves and the state’s economy and taxpayers?  

Certainties in Life…

Death and school tax increases? About a quarter of the school districts in Allegheny County have applied for an exception to possibly exceed their Act 1 index that determines the degree to which school taxes can rise in a given year (both the Education Department’s spokesman and a business manager of a western PA school district made the point that even though a district is granted an exception it may choose not to use it) but this year is when new assessments have gone into effect, so homeowners who live in those districts where revenue neutral rollbacks by the County and the municipality may have minimized the tax bill bite may see that disappear. Know too that tax increases could be coming in districts that did not apply for an exception because Act 1 allows for increases up to the cap without a separate action.

The Department of Education has data on school tax rates going back to the 2002-03 school year (all districts in Allegheny County run on a July-June fiscal year except Pittsburgh) and, after tossing out a few districts that straddle the County line and Clairton, which has separate rates for land and buildings, the median tax rate that year was 18.45. Wilkinsburg had the highest millage rate at 32, South Allegheny had the lowest at 13.83. By the 2011-12 school year, the median rate had risen to 23.27 (a 26% increase, the Pittsburgh area CPI increased 33% from 2002 to 2012, so the growth was slower than inflation) and Wilkinsburg still topped the list (at a higher 35 mills) and Pittsburgh was the lowest at 13.92.

If we look at the years prior to when the Act 1 index took effect (2002-03 through 2006-07) the median millage rate for the County’s school districts rose 16%; since then, under the Act 1 provisions (2007-08 to 2011-12), school taxes have climbed 8%. Note that the pre Act 1 years from 02-02 to 03-04 and 03-04 to 04-05 saw some very big jumps (4.8% and 5.5% respectively) and that, outside of those years, the percentage change in the median school tax rate in the County does not look much different before or after Act 1. The median rate did fall in 2011-12 by 0.7% from where it stood in 2010-11, however.

That’s little consolation to taxpayers whose district may have increased taxes year after year or intends to use an exception this year, but overall the degree of increase overall has slowed over the past few years.

Yes, We Have No Enforcement

A column over the weekend pointed out that while state law spells out what has to happen to tax rates after an assessment in Allegheny County and its municipalities, along with school districts in Allegheny County and across the state, it is ultimately going to fall on the citizens-possibly with the help of elected officials that watch the public purse such as county and city controllers, the Auditor General’s office, etc.-to pay attention to what has happened to their millage rates thus far and what will happen soon as school budgets are adopted for the coming fiscal year.

The primary sponsor of the law that pertains to Allegheny County and its municipalities, Act 71 of 2005, noted "There’s nothing in law that says [local officials who don’t follow procedures] get thrown in jail…The whole purpose was not to let them hide behind these windfalls".

To reiterate, any non-school taxing body in Allegheny County would have to set their millage rate at a revenue neutral level, and then, in a separate action-which contrasts with the previous law-could take a vote to raise millage so that the taxing body could get up to 5% more in revenue. If they wanted more, they could petition the courts, which happened in Monroeville.

To the point of the column, we wrote about the question of "what happens if someone violates the law" in the February 2012 Brief mentioned above. We did note that "A serious shortcoming of the laws is that they don’t spell out who is in charge of ensuring that taxing bodies follow the requirement, nor specify what, if any, punishment should be imposed for refusal to follow statutory requirements…Clearly, refusal by elected officials to comply with state laws ought to be grounds for severe punishment, including possible removal from office".

Triple Whammy in Monroeville

Taxpayers living in Monroeville have to be upset. Consider that at the end of 2011 Allegheny County raised property taxes 20%. As reassessed values were being finalized the municipality decided to end a two-decade streak of no tax increases by taking one that allowed them 5% of the previous year’s revenue and then got permission from the courts to levy a higher rate. Now comes word that the Gateway School District, which encompasses Monroeville and Pitcarin, might raise its tax rate. Based on the millage rates tabulated on the County Treasurer’s website, school tax increases in the District occurred in 2003, 2004, 2005, 2010, and 2012.

The District will have to adjust millage rates under Act 1, the same law that governs the degree of annual school tax increases, provides exceptions for going above the index, and even provides for voter referenda because of the countywide reassessment. But homes that saw a big jump in value well ahead of average changes in countywide, municipal, and/or school district aggregate changes could be in for a significant cumulative hike.

The District is grappling with declining enrollment and last year decided to furlough 17 teachers, but 16 of them returned to the District at the start of the school year under a recall agreement and came with the tax hike of 0.83 mills. So what has come up for discussion going into the next fiscal year? Personnel cuts, of course.

Excessively Easy Exemption Criteria for Tax Hikes

The Department of Education just granted 199 Pennsylvania school districts an exemption enabling them to raise taxes by more than the "index" calculated by the Department would otherwise allow.

Under current law, exemptions are granted for three reasons; to pay down construction debt, fund special education costs or cover pension funding. Well, isn’t that nice. Since money is fungible, revenue insufficient to cover total planned spending under current allowable tax rates can be said to represent a threat to one of the three exempted budget items. Thus, an exemption is almost automatically approved by the state. As a result, the only real constraint on school districts raising taxes beyond "index" allowed limits is the painfully skimpy sympathy school boards have for taxpayers.

School boards serve too many masters and unfortunately taxpayers are at the bottom of the list after teacher unions and parents of students who always demand top tier amenities for their students and who show excessive deference to and sympathy for teachers at contract time-don’t want any strikes you know.

So, given the state law that does not allow teacher layoffs for economic reasons and union intransigence in making concessions to help financially strapped districts, the natural inclination of school boards to avoid looking for spending cuts so as not to anger any of their preferred constituencies, it is an easy way out for them to ask for an exemption to their tax rate limitation and claim the additional funds are needed for one of the three exempted items. Mere child’s play. No real spending cuts ever need to be contemplated and taxpayers get the bill.

District Confusion Could Cause “Wind-Fails”

This week’s Brief pointed out the rather complex process under which the County, municipalities, and school districts will have to adjust their millage rates when the 2013 reassessment is made official. The Brief points out that the old days of taking 5% above the revenue collected the year before the reassessment are no more.

So when the business manager of a south hills school district noted that "revenues in the budget were based on the county holding a countywide reassessment this year in which school districts and municipalities would have been permitted to keep a 5 percent windfall" there is going to have to be a major undertaking of school officials, solicitors, and others to ensure that the new legal obligations are being followed. The officials of the District might be wary of budgeting anything given the resistance of County leaders to move forward with a reassessment.

As a result of changes to the law in recent years, there is no ability to take a 5% windfall: the County and municipalities can vote to get 5% after they establish a revenue neutral rate and school districts are limited to the confines of their Act 1 index.