State Auditor General Timothy DeFoor announced last week a dozen school districts, including Bethlehem’s, had moved money to rainy-day accounts while unnecessarily raising taxes.

DeFoor said an audit analyzed data from 2017-21 and concludes those districts increased taxes while holding millions aside. “These districts represent a cross-section of Pennsylvania - from wealthier to poorer tax bases and urban, suburban, and rural communities,” DeFoor said in a press conference. “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.”

District officials are calling bull.

“The AG apparently doesn’t understand the difference between an annual budget and long range planning,” said Superintendent Dr. Joseph Roy, adding DeFoor, “misrepresented his own audit’s findings so he could score political points that he had determined before the audit started.”

The Pa. Association of School Business Officials in a statement said districts must make good financial planning decisions to maintain stability and student programs and services, and that further analysis should be taken for state officials to understand how funds are managed and spent by all of the state’s 500 school districts.

According to DeFoor’s report, Act 1 of 2006, known as the Taxpayer Relief Act, was intended to give voters a greater say when a school district needed to raise property taxes beyond limits set by the law. Yet, school districts were raising taxes through exceptions granted by the state, while continuing to have sufficient funds in the General Fund to cover any budget shortfalls. Districts are permitted to raise taxes up to the Act 1 index without applying for exceptions.

Roy said DeFoor’s comments blur the details. “The rationale for the audit of 12 districts was that districts apply for Act 1 exceptions (meaning they can then raise taxes above the Act 1 Index percentage) even though they have enough in their savings to not need to raise taxes above the Act 1 Index limit. The audit determined that of the 12 districts audited, 83 percent of the time these districts did not raise taxes above the Act 1 Index. In the four years audited, BASD never raised taxes above the Act 1 Index. And in two of those four years we had zero percent tax increases.

“So, when the AG didn’t really find a problem with districts raising taxes above the index (remember 83 percent of the time district’s did not do so), he purposely obscured that fact. He just went ahead and blamed districts for raising taxes at all.”

Roy explained long range planning includes anticipated and unanticipated financial risks/costs such as increased costs imposed/mandated on districts by the state (pension costs and charter tuition costs) and capital/building costs districts face to maintain buildings and renovate/build schools in the future. “Additionally, credit rating firms like Moody’s look at a district’s fund balance to determine its credit rating. For example, BASD is talking about renovating/building new Thomas Jefferson, Williamm Penn and Fountain Hill elementary schools over the next five-10 years. By having money in fund balance, we can put toward the cost of construction, we reduce the amount we need to borrow and by having a strong credit rating, we get lower interest rates. Lower interest rates over the course of a 30 year multi-million dollar borrowing saves millions of dollars for taxpayers.

“The AG failed when he did not consider the difference between an annual budget and long term planning.”

School Board President Mike Faccinetto concurred with Roy’s assessment. “There was a time when the BASD did not have enough fund balance to cover payroll and routine expenses from July 1 until late August, when tax payments started to roll in. We used to borrow money through a tax anticipation loan and pay around $100,000 in interest each year with a healthy fund balance that is no longer necessary, thus saving tax money each year. Our financial advisers recommend having a portion of the fund balance that is unassigned sit there to keep our bond rating high. This saves millions over the years on our long-term debt portfolio.”

Faccinetto concluded, “Either the auditor general does not understand basic accounting and long-term strategic planning or this was a political stunt - either way the citizens of Pennsylvania deserve better in such a high-ranking state official.”