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Why do RTMSD Budget Surpluses Keep Occurring?

In a nutshell:


Pennsylvania's Act 1 of 2006, the "Taxpayer Relief Act", provided ways for school districts to implement a tax increase without allowing voters to decide to tax themselves.


Act 1 allows school districts to raise their property tax when their UNASSIGNED RESERVE fund for the year is 8% or less (called the Fund Balance % Limit).


However, it permits school districts to achieve that 8% threshold by simply moving some of the money to any ASSIGNED funds.


PA's Auditor General recognizes this loophole and calls this practice widespread, lawful, but unethical.

The AG urges the General Assembly to amend Act 1 to include unspent tax revenues which districts have shifted to an ASSIGNED fund in the Act 1 Fund Balance % Limit (8%) calculation.

Next week:

Who does the RTMSD School Board represent?

PDE Property Tax Relief.png

As you see in the Pennsylvania Department of Education (PDE) page above (and in the FAQ below), the Special Session Act 1 of 2006 was passed to help taxpayers, especially senior citizens.

It does not only help taxpayers, though.
Prior to Act 1, it was difficult for school districts to raise property taxes - taxpayers would often reject referendums for a tax increase, or vote out of office Board members who approved them.

With Act 1's inflation index, voter referendums on tax increases are rare and taxes can be increased annually, easily -- only a School Board approval is needed.

And, the worst of these increases is yet to come -- the 2024-25 Act 1 inflation index rises from 4.1% to 5.3%!

PDE Act 1 Index Increasing.png

The flaw in the law is that it allows school districts to raise property taxes up to an annually adjusted inflation index, even when the district brought in much more tax dollars than it needed to pay for its operation, as long as the surplus was not more than 8% of planned spending.
Act 1 calls this the "Fund Balance % Limit".

What are Fund Balances?

See examples of RTMSD's Fund Balances -->

Unfortunately, Act 1 allows school districts to transfer the surplus dollars to "ASSIGNED" funds and only requires the district to use the surplus remaining in its "UNASSIGNED" fund balance when computing the 8%.

Again, only an approval from the School Board is required for a balance transfer.

RTMSD Fund Balances.png

The school districts' estimation of its total spending can also lower the Fund Balance %.

Here are examples of the arithmetic computations which incentivize school districts to estimate their spending higher and to shift surplus tax revenue out of its Unassigned fund to any Assigned fund, and still have the unrestricted freedom to use that money for anything, by moving it with another balance transfer approved by the Board.

Let's look at RTMSD's actual revenue and spending for 2022-23 (the most recent Audit Report which RTMSD has released)
  • Spending (a.k.a., Expenditures) was projected to be $106,451,150, but only $103,420,918 was spent, leaving $3,030,232 unspent (as in Example 3 (above).


  • The total Revenue needed for that Spending was projected to be $103,648,798, but $106,739,556 was received, leaving another $3,090,758 unspent.

    • The Fund Balance % is not adjusted when a surplus is found at the end of the school year - any tax increase was already levied, collected, and (some of it) spent.


  • The "EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES", a.k.a, "surplus" for the year was $6,120,990


  • Spending for the 2023-24 school year is projected to be $117,038,526 -- in order to have an Act 1 index qualifying 8% of planned spending, no more than $9,423,522 could remain in its UNASSIGNED fund -- $2,400,000 was transferred to an Assigned (or other) fund.

RTMSD's auditors, Barbacane, Thornton & Company describe the magnitude and disposition of the unspent tax revenues as follows, on page 8 of the RTMSD 2022 Audit Report. 
This is far above the 8% Fund Balance % Limit, before transferring monies out of the UNASSIGNED Fund sufficient to the lower the calculated Fund Balance % Limit to "within the 8 percent limit".

Seniors being Shocked with Another Tax Increase

There is no discussion in the School District's budget presentation about its impact on fixed-income homeowners, nor in the District's Audit Report.

For most taxpayers, RTMSD's property tax bill amounts to 1-2 full months of income!

(See our previous reports on how often this has occurred and the cumulative increase in taxpayers' property taxes.)


However, taxpayers have two options for relief:

  1. Auditor General DeFoor's recommendation to the General Assembly to close this loophole by which they are being slowly strangled. See his full report (pages 1-6) or press release.

  2. Elect a School Board who will only approve a tax increase when it is required - that is, when any year's tax surplus from the previous year is not enough to pay for increased spending needs.

The MAKE THE RIGHT THINGS HAPPEN candidates for School Director PLEDGE to vote AGAINST every tax increase for which there has been surplus taxes collected which could pay for needed increases in spending. 

TRANSPARENCY is essential for TRUST
If the School District needs these large surpluses for some critical purpose, the need should be declared explicitly and debated publicly.



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