Pennsylvania accounting practices

T/E School District’s $1.3 Million Accounting Error/Act 1 Violation discussion continues – Taxpayers facing large tax increase with less than 30 days until School Board’s final vote!

In addition to other residents, I attended the T/E School Board Finance Committee meeting last night. The meeting lasted nearly three hours but we stayed; hopeful for resolution on the District’s $1.3 million Act 1 accounting error and its impact on the proposed 6% tax increase. Sadly, the evening ended no closer to a solution than when it began.

With less than 30 days before the Board must take a vote on the final budget, much of the meeting was spent discussing budget strategies to reduce the District’s spending and increase revenue. Possible budget strategies ranged from increasing student parking and activity fees to delaying the new reading program.  All the discussion about cost-cutting measures was a bit like getting the cart before the horse since the large “elephant in the room” was the $1.3 million accounting error and its impact on the current budget process and the proposed tax increase.

Residents who had attended the finance committee meeting in April (including myself) expected answers from the auditor. School board member Tina Whitlow had asked Art McDonnell, the District’s business manager to have the auditor attend last night’s meeting but (according to McDonnell) he was not available. Actually the absence of the auditor was no surprise; as his responses to taxpayer questions would probably not have bolstered the business manager’s position on the District’s serious accounting mistake.

The most disturbing part of the meeting was the response by Todd Kantorczyk, the finance committee chair, to residents Doug Anestad and Mike Heaberg regarding the District’s erroneous accounting of $1.3 million Special Ed invoices to the Pennsylvania State Board of Education.

Both Doug and Mike cited the “Manual of Accounting and Financial Reporting for Pennsylvania Local Educational Agencies (LEAs)”, Principle 9 – Measurement Focus and Basis of Accounting in the Basic Financial Statements (pg. 15), which states, in part that “Revenues should be recognized in the accounting period in which they become available and measurable. Expenditures should be recognized in the accounting period in which the fund liability is incurred …” (Clearly, this means that the $1.3 million Special Ed invoices need to be accurately reported in the year in which the expenses occurred.)

Kantorczyk dismissed the state’s accounting practices as referenced by Doug and Mike, as if to suggest that somehow the T/E School District was exempt from these regulations!  A remarkable moment – he remained unmoved by the follow-up comments questioning the Board’s actual taxing authority, possible Act 1 violation, the prospect of legal action and pleas to “just do the right thing”.

The evening ended with a discussion by Board members about the proposed tax increase which; to be clear, is still 6%.  Certain Board members stated that they needed counsel by the District solicitor Ken Roos, regarding the accounting error and possible legal ramifications, before finalizing their thoughts on the proposed budget. Finance committee member Kate Murphy was particularly thoughtful; sharing her concerns and need for further information. Likewise, Heather Ward, also a member of the finance committee, shared those concerns.

Resident Neal Colligan attended the meeting and offers his notes on the Board members ideas regarding the final tax increase:

  • Todd Kantorczyk indicated that he was comfortable with the District’s taxing authority at 6% but did not want to see the entire amount imposed in one year; he did not offer another number but seemed inclined to a tax increase short of 5%.

  • Michelle Burger wanted to sleep on the discussion points but was quick to point out that “she heard what the community said in their comments”.

  • Kate Murphy acknowledged that there’s “too much noise” surrounding the Special Education Exception. She can only, at this point support a 2.32% tax increase (Act 1 allowance and the Special Exception for PSERS cost increases).  In the sanest approach of the evening (my opinion); she related that if she can’t explain it to the constituents she meets at the Acme; she’s not voting for it.

  • Heather Ward echoed those thoughts and again asked for a meeting with the District’s auditor (that Tina Whitlow requested a month ago). She seemed willing to possibly accept a 3.91% tax increase…maybe (this would be the full taxing authority of the District IF they had submitted correct Special Education spending amounts to the Department of Education).

  • Tina Whitlow again raised questions of the District’s taxing authority particularly related to the Special Education Exception and again mentioned in her comments a 3.91% possible tax increase.

  • Roberta Hotinski is in favor of a 4.72% tax increase; this number would include the 3.91% mentioned above AND .81% increase derived from a calculation of what Last Year’s Special Education exception would have been if the numbers submitted to the State were correct.

  • Scott Dorsey, ever the Board Member balancing the fairness of a tax increase vs. the needs of the schools, favors an increase of 3.91%…his position has not changed in some time.

  • Ed Sweeney leans towards the 2.3-2.5% tax increase range. He did point out that the Budget process is in dire need of change as only now, with a month to go, are we “getting into the brass tacks”.  He also mentioned that a Board needs to trust the numbers it is given when considering a budget … it is clear he has doubts.

  • Kyle Boyer was the last to weigh in … his support level is around the 3.91% range but may be convinced to go a little higher. He mentioned that he keeps a District tax increase chart on his phone and that in 2008 the District raised taxes at the highest level in the last 15 years … and he’d like to stay below that 4.3% figure.

The Top Answer to tax increase percentage was 3.91%.  At this level; the potential Final Budget would have an imbalance of a $2.662 MM of deficit that will need to be filled by Fund Balance Commitment.  No Budget Strategies have been offered that could fill that imbalance.  Board Members left the “hard analysis” behind and expressed their “feel” for the correct tax increase. The normal Budget process which could have looked delved into the need for a 5.5% spending increase OR at why the District habitually under-states revenues and over-states expenses in the Budget process has been hijacked by the Accounting Timing Error fiasco.  On this point, Ed Sweeney is clearly correct.  With a month to go … it’s going to be a bumpy ride.

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