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PASBO RESPONDS TO AUDITOR GENERAL’S REPORT ON SCHOOL DISTRICT FUND BALANCES
The PA Association of School Business Officials (PASBO) has concerns about the recommendations in the report released this afternoon by the Auditor General's office, which highlighted school district fund balances in twelve of Pennsylvania's 500 school districts.
PASBO recommends additional analysis and a better understanding of how fund balances are managed and utilized by all of Pennsylvania's 500 school districts and an appreciation of what is driving property tax increases prior to pursuit of any of the policy adjustments suggested based on a review of only 12 school districts.
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. Maintaining a fund balance also provides additional revenue from investment earnings rather than the opposite of incurring additional expense from borrowing for cash flow needs. PASBO recommends additional analysis and a better understanding of how fund balances are managed and utilized by all of Pennsylvania's 500 school districts and an appreciation of what is driving property tax increases prior to pursuit of any of the policy adjustments suggested based on a review of only 12 school districts.
The PA Public School Code prohibits a school district from increasing property taxes if the size of its unassigned fund balance exceeds a certain percentage of its total budgeted expenditures (this limit is 8% for most of Pennsylvania's 500 school districts). The Auditor General's report suggests that this prohibition on property tax increases should be reinterpreted to capture unassigned fund balance as well as committed and assigned fund balance.
School districts are not using Act 1 exceptions—regardless of what funds are used to define the threshold. In 2021-22—the most recent year of data publicly available—only 7 of 500 school districts used Act 1 exceptions. The number for 2022-23, based on the limited data available, suggests that number is even less.
The other fund balance types—non-spendable, restricted, committed, and assigned fund balances—are essential for General Fund stabilization, and they reflect the careful decisions and multi-fiscal year planning by locally elected school boards across Pennsylvania.
Some of the most common directed uses for existing committed and assigned fund balance are state-mandated costs such as pension contributions, special education, and charter school tuition costs that are not under the school district's control. Special education expenditures grew to nearly $6 billion in 2020-21 and only about $1 billion was funded by the state. Charter school tuition costs grew to nearly $2.7 billion in 2020-21 with no state reimbursement.