Pennsylvania Department of Education

T/E School District News: 3.91% Tax Increase, District to Correct $1.2M Accounting Error & School Board Member Resigns

The five-hour marathon school board meeting last night lasted until 12:30 AM, albeit the audience was kept waiting with a 30-minute late start.  For those community members who stayed the course until the end of the school board meeting, thank you!

Although I was unable to attend the meeting, I received multiple updates throughout the evening followed up with several phone calls today. The significant takeaways from the evening included the (1) 2019-20 tax increase decision of 3.91%, (2) the Board vote for the District to take responsibility for the accounting error and to correct the Annual Financial Reports (AFR) with PA Department of Education (although sadly all Board members were not in favor of “doing what’s right”) and (3) the announcement of the resignation of a school board member.

Luckily, we have Ray Clarke providing comments on the school board meeting until he left at 11 PM (following the 3.91% tax increase vote). At that point, Mike Heaberg picks up the commentary until the meeting finally ended at 12:35 AM.  See their remarks below — thank you both!

From Ray Clarke:

– Dramatically larger attendance than a typical meeting, which multiplied the persistent disregard for the community’s time when the meeting started half an hour late

– A long plea from the rugby club for Varsity status, but notably none stayed for the Budget discussion which might have suggested funding limitations

– The Board based its discussion around just the 3.91% tax increase, not all the other options (2.8% or 4.33%)

– The Board agreed to amend the 3.91% budget motion with an investment in the new elementary reading program as a $300,000 one-time “below-the-line” expense, contingent on a number of conditions. This did not satisfy parents who are advocating for parent involvement in selection of any new program

– The amended motion passed 7-2, with Kate Murphy and Ed Sweeney allied for a lower number. Todd Kantorczyk and Roberta Hotinski reluctantly went along with a lower number than they would prefer, the former (correctly) noting that budget and actual deficits cannot continue, while the latter continues (inexplicably) to want to move the following year’s – potential – exception forward into the coming Budget year.

All Board members seemed to agree that the Budget process is broken.  Board President Scott Dorsey wants to separate the budget from the routine Finance process. He spoke forcefully about his outrage at this and the $700,000 expense surprise revealed at the last meeting.  He warned of “someone paying the price” for any similar issues in the future.

– The District’s Solicitor (reportedly with financial experience, not Ken Roos but from the same law firm, Wisler Pearlstine) advised the Board that Annual Financial Reports to the state CAN be corrected, provided that there are new audited statements and if certified by a new auditing firm or individual.  The Business Manager reported logistical, cost, PDE and outcome risk issues with this, although to the audience it seemed that those were grossly over-stated.

– A wide cross-section of community members spoke compellingly in favor of the District basing its decisions on the correct financials, about the pattern of behavior that has got us to this point, and about the need for process and personnel changes

– Unfortunately many had to leave at 11pm after the budget vote, but the AFR revision discussion continued.

Mike Heaberg picks up the commentary on the school board meeting at this point, including the Board’s acknowledgement of the administration’s accounting error and subsequent vote to correct the District audits, the Annual Financial Reports (AFR) and resubmit.  Thanks so much Mike!

From Mike Heaberg:

– After the Board acted on the consent agenda, other action items, and “final” public comments, Ed Sweeney made a motion to begin the process of correcting the District audits and Annual Financial Reports for 2016-17 and 2017-18.  Kate Murphy seconded it.

A long Board discussion ensued including input from the District’s Solicitor, Business Manager, Superintendent and the public. At one point, Todd Kantorczyk made a motion to table action until a future meeting – the next scheduled is August 26. On a roll call vote, his motion failed 5-4.  After more discussion, the vote was held via roll call. It won 6-3.  Voting in favor of correcting the audits and AFRs were Ed Sweeney, Kate Murphy, Scott Dorsey, Michele Burger, Heather Ward, and Tina Whitlow.   Todd Kantorczyk, Roberta Hotinski, and Kyle Boyer voted against correcting the audits and AFRs.

– At the very end, about 12:15 AM, Heather Ward announced she is moving out of the District and resigning from the Board effective 6/16/19.  The Board has not sorted out the replacement process. Heather made gracious comments and her colleagues offered thanks and praise for her service to the District.

The 2019-20 budget process was one for the books with final changes and decisions coming in at the eleventh hour (or in this case 12:30 AM!).  I am appreciative that in the end, school board member Ed Sweeney had the resolve and courage to push forward for correction of the District audits and Annual Financial Reports.  I thank him and the other five Board members (Kate Murphy, Scott Dorsey, Michele Burger, Heather Ward and Tina Whitlow) for “doing what’s right” and voting to correct the District audits and AFRs but simply do not understand why the other three Board members opposed the action.

Over many months, much time and energy was expended by the public in urging the Board to do “what’s right” — I’m left wondering why it took months of meetings, emails and phone calls (many by resident financial experts) plus an official letter of complaint to the PA Dept. of Education to finally achieve this goal.

In my opinion, there is an imbalance in power and control in the school district administration. All roads lead back to (or through) Art McDonnell, the Business Manager and the 2019-20 budget process debacle was a direct  result of his actions.  The Board (and the District’s taxpayers!) are ill-served by this business manager and we deserve better!  When is enough, enough?

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Proposed 6% Tax Increase in T/E School District – the Largest in Decades! Is It Possible that an Accounting “Timing” Error Could Change the Outcome for Homeowners?

Did you know that as T/E School District homeowners we are in line for the largest yearly tax increase for decades!

As it now stands, our school board has targeted us for a 6% tax increase! In December, as the preliminary budget for 2019-20 was in the early stages of preparation, the discussion indicated a possible tax increase of 6.1% but the Board assured us that they would work to bring down the increase. Three plus months later, the projected tax increase remains at 6% although at last night’s school board meeting, we were again told that the board is working to bring the number down.

The question is “why” the proposed staggering increase; the largest in decades! And to be clear, the proposed tax increase is not based on the Conestoga HS expansion plan – that capital project will be funded separately through new bond initiatives. Which brings me back to the question, WHY this looming large tax increase?

As we learned from Ray Clarke at the school board meeting last night, there appears to be an explanation (and suggested solution) for the proposed tax increase. And should the school board act on Mr. Clarke’s findings, it could reduce the proposed increase significantly. Taxpayers could see the proposed tax increase lowered by as much as 50%.

Mr. Clarke opened his remarks with the following:

  • There is ample public evidence that the allowable 6% tax increase presented in the preliminary budget is in error due to an accounting timing issue
  • The actual allowable tax increase is, most likely, much less
  • It would be in the best interests of the public, the Board and the Administration to address this issue in a prompt, transparent manner

( Click here to read complete Ray Clarke Special Ed statement)

According to information received at the District’s Finance Committee meeting of March 11, the accounting problem stems from unpaid invoice(s) of $1 million+ that were received in the 2016-17 year. The invoice(s) from the Chester County Intermediate Unit (CCIU) were paid, and more importantly accounted for, during the 2017-18 year.

The Special Ed exception for tax purposes is based on increases in annual expenditures; so getting the year correct is extremely important. By moving the Special Ed expense from 2016-17 to the following year (albeit by error/accident) causes a false reading by inaccurately inflating the expenses in 2017-18.

After Mr. Clarke read his statement, Neal Culligan continued with remarks imploring the board to seek further review before imposing a 6% tax increase.  I struggled to understand how the District can “miss” paying over a million dollars in invoice(s) and asked the Board for an explanation – how did this happen, whom was responsible and when did they find out? My questions were unanswered.

Mr. Clarke contacted Pennsylvania Department of Education and received copies of the District’s 2019-20 “Special Ed Expenditures” and signed “Summary of Referendum Expenditures filings. And although the District has known about the accounting “timing” issue since sometime before the March 11th Finance Committee meeting, the State has not been notified or the filings correctly updated.

As I stated at the meeting, we all make mistakes – but it’s all about owning your mistake when it’s identified, correcting it and moving on. Shouldn’t that apply to the School Board and the Administration – they knew there was an accounting “timing” issue; an error that could impact the proposed tax increase. Who is responsible and where is the accountability? Why don’t they do something?

Sadly, the takeaway from some School Board members re the accounting “timing” issue was simply to push back, become defensive and claim that they have been completely transparent.  What’s that line from Hamlet, “The lady doth protest too much, methinks”?

So what does the man with the District’s oversight of the financials, Business Manager Art McDonnell, have to say on this accounting matter? Remarkably, he disregards the analysis by Mr. Clarke, indicating that the “timing” of the Special Ed expenses and subsequent payment was inconsequential and; therefore, making no difference in the end result.

When called upon to comment, McDonnell further stated that if anything, the taxpayers would simply have paid a larger tax increase last year if the Special Ed expense and payment had not been delayed to CCIU.

This is crazy talk – and certainly doesn’t sound like sound accounting practice! It seems to me that if the District erroneously missed Special Ed expenses and a million dollar plus payment to CCIU one year, plays catch up the next year, that this practice skews the resulting financials of those effected years and for future years.

As a very wise former school board director stated, “The legislature passed Act 1 of 2006 specifically to limit a school board’s power to tax the electorate unchecked.”  Our school board knew about this accounting error at the March 11th Finance Committee meeting and residents questioned them about the issue at last night’s School Board meeting – are they not required to do the right thing? At a minimum, this should require immediate financial review from an independent source and then take necessary action as required, including notifying the Pennsylvania Department of Education..

We elected our school board directors to provide oversight; with independent thought and transparency.

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