Lower Merion School District Tax Increase Litigation Puts Act 1 in the Spotlight

Recent litigation involving the School District of Lower Merion has brought Pennsylvania’s Act 1 of 2006, the statute that establishes the rate and process by which school districts in the Commonwealth of Pennsylvania may increase taxes, into the spotlight. In February of this year, Lower Merion Township resident Arthur Wolk filed a complaint in the Montgomery County Court of Common Pleas alleging that Lower Merion School District had misappropriated funds and misrepresented its deficit in order to justify a tax increase of 4.4 percent for the 2016-17 school year.

“Lower Merion School District Tax Increase Litigation Puts Act 1 in the Spotlight” blog post photo.

A Court of Common Pleas judge recently issued an injunction, ordering the school district to revoke its latest tax increase and finding that the district misled taxpayers by projecting a large deficit to justify raising taxes by 4.4 percent. Common Pleas Judge Joseph A. Smyth ruled that the district could increase taxes by only 2.4 percent for the 2016-17 school year. He found that the district “deliberately engaged in a course of conduct” that allowed it to raise taxes without going to a voter referendum.

As background, Pennsylvania’s Act 1 establishes the procedures by which school districts in the Commonwealth may increase taxes. The “Act 1 index” is used to determine the maximum percentage tax increase that may be levied by a school district. The Act 1 index is calculated by averaging the percent increase in the Pennsylvania statewide average weekly wage and the federal employment cost index for elementary/secondary schools. For the year 2016-2017, the base Act 1 index was calculated to be 2.4 percent, meaning that the school district could increase taxes by only 2.4 percent, unless, that is, it qualified for an upward adjustment, received an exception from the Pennsylvania Department of Education, or had voter approval to do so.

If approved by the Pennsylvania Department of Education or a court of common pleas, a school district may, without seeking voter approval, increase the tax rate by more than the base Act 1 index if the revenue raised by the allowable base index is insufficient to balance the proposed budget due to one or more of ten (10) specified expenditures. Those expenditures include: (1) a response to an emergency or disaster declared by the governor, (2) implementation of a court order or administrative order from a federal or state agency, (3) a response to conditions that pose an immediate threat of serious harm or injury, (4) school construction, (5) special education expenditures, (6) a school improvement plan required by No Child Left Behind, (7) maintenance of local tax revenue or actual instruction expense per average daily membership , (8) maintenance of selected revenue sources, (9) health care related benefits, and (10) retirement contributions.

In the case of Lower Merion School District, the judge found that the district routinely misrepresented deficits and applied for exceptions from the Department of Education, and was thus improperly permitted to raise taxes above the base index. Since 2006, the district reportedly has raised taxes by 53.3 percent. According to the Associated Press, no district in the Commonwealth has requested as much tax money through Act 1 exemptions.

The district responded to the judge’s ruling with a letter to Lower Merion School District parents, strongly disputing the judge’s conclusions and stating that it will be filing an appeal. Meanwhile, Lower Merion School District is well-regarded as one of the top districts in the Commonwealth. According to U.S. News and World Report, Lower Merion High School is ranked the fifth best high school in the Commonwealth. The district reportedly spends more per pupil than almost any other district in the Commonwealth.

As expected, the judge’s ruling has left parents and residents of Lower Merion Township wondering how public education in the township might be affected. This litigation has further called into question the Act 1 process by which school districts apply for and receive approval to increase taxes in the Commonwealth.

People