The average York County school district has padded its surplus by about $1.5 million since the 2005-06 school year, when property tax reform began putting a cap on annual tax increases.
What's more, many districts made decisions on property tax rates for the 2009-10 school year using surplus estimates that in some cases were millions of dollars off the actual number, budget documents indicate.
That's according to a York Dispatch analysis of annual financial reports from the 2008-09 school year and final budgets submitted to the state from the 2009-10 school year.
School officials point to the surplus funds as a sign of a district's fiscal health.
Critics point to them as an indication that property owners are being overtaxed.
School districts "squirrel it away in everything they can think of," Dallastown school board member Carroll Tignall said of surplus funds.
"It's not supposed to be used as a savings account," said Joel Sears, president of the York County Taxpayers Council.
In budget lingo, a school district's surplus money is known as a fund balance, a savings account of sorts set aside for unforeseen circumstances and one-time expenses, from construction projects to plugging a gap in revenue.
"The reason school districts have fund balance is for the same reason we, as individuals, have savings accounts," said Terry Robinson, business manager for the Red Lion Area School District.
Although several districts in recent years have dipped into their fund balances to limit the size of tax increases, it is not considered a wise accounting practice to use a substantial amount of the money for that purpose, business managers around the county say.
Donna Devlin, business manager for the Dallastown Area School District, offers the following explanation.
Suppose a district uses $2 million from its fund balance to limit the size of a tax increase. It will do the job for that year, and the budget will be balanced.
But the next year, that $2 million is gone. Assuming expenses haven't gone down, that's $2 million the district has to make up.
So instead, most districts believe it's better to designate some excess tax revenue for specific purposes and leave the rest alone to be ready for any unexpected expense, using only a small portion to directly lower tax rates.
"Fund balance can become very addictive," said Jay Himes, chairman of the Pennsylvania Association of School Business Officials.
Also, some business managers say they increasingly feel the need to keep extra money on hand since Act 1 tax reform went into effect. Act 1 limits how much districts can raise taxes and forces them to apply to the state Department of Education for exceptions to cover uncontrollable costs.
That puts a premium on having a cash reserve since districts can't simply raise taxes by however much they'd like.
A surplus is a necessary part of running a school district, said West York Superintendent Emilie Lonardi.
"Unless you understand the constraints we're under, it looks like districts are taxing more than we need to," she said.
All that rationale sounds like a bunch of excuses to Sears, from the taxpayers council.
"They've been called slush funds for a reasons. ... Fund balance (exists) because you overtaxed," Sears said.
Since tax reform went in place four years ago only three of the 16 York County districts had at least one year with zero tax increase.
Eleven of the 16 districts managed to increase their fund balance between their 2006-07 and 2008-09 year-ending audits.
And several districts managed to increase their surplus over the years despite dipping into the fund to balance the budget and limit tax increases.
Sears said he understands school districts have unexpected expenses and should have some money set aside for that.
But too many districts, he said, treat fund balance not as a surplus, but as a giant savings account, using it to set aside for expected expenses, such as a building project or a grand piano the South Eastern School District had saved up for before taxpayers balked.
That allows districts to make big financial decisions without taxpayers' consent as they already have the money in hand.
"I want them to spend what they need to run the institution. Give us the ability as taxpayers to say 'no.'"
And while Act 1 set limits on the size of tax increases, it did nothing to limit the amount of money a school district can set aside.
A 2003 state law limits a school district to a fund balance of no more than 8 percent of its total budget at the time that budget is adopted. Exceed that amount, and a school district isn't allowed to raise taxes.
But a school district can get around the 8 percent limit by shifting money into designated accounts -- or accounts with a specific use in mind.
Do that, and there's no limit to the amount of money a school district can have on hand.
"It's a peculiar situation," said Fred Botterbusch Jr., president of Dallastown's school board and former president of the Pennsylvania School Boards Association. "All you have to do is designate it. But most school districts do try to be purposeful in designating."
And, once the budget is adopted and the tax rate set, the 8 percent restriction no longer applies -- a district can increase its designated surplus as much as it wants until the start of the next budget year.
That's revealed in examining York County school districts' final financial figures for the 2008-09 school year, the most recent available.
In that year, Dallastown raised taxes 5.2 percent, equal to the state limit. But the district was able to raise its general surplus to $9.2 million by the end of the year, which equaled 12 percent of its expenditures.
Central York, Hanover, Northern York, South Western, Spring Grove, West York and West Shore also finished that year with fund balances in excess of 8 percent. All but Northern had tax increases.
School district officials point out that they face several challenges when drawing up a budget.
Tax reform has pushed up the timetable, so many cost factors are less certain. And school districts have to set a budget without knowing for sure how much state funding they will get.
They also don't get the final, audited figures from the budget year they are in until months after the next year's budget has been adopted.
So districts must rely on estimates, and those estimates are what school board members use when making tax rate decisions.
Except, when it comes to estimating surplus funds, many school districts are far off, according to financial documents.
For example, Central York estimated it had $10.2 million in fund balance entering the 2009-10 school year and raised taxes 3.9 percent.
Central's 2008-09 audit showed it really ended the year with a fund balance of $11.8 million, $1.6 million more than the estimate.
Central business manager Brent Kessler said his district's disparity is likely an "anomaly. We haven't had huge differences, traditionally."
Dallastown, Spring Grove, Northern and West Shore also had disparities of more than $1 million between what the budget indicated the fund balance was and what the actual year-ending figure turned out to be.
All that fluctuation means board members make budget decisions on less than accurate data, even if it is the best guess from their district's business manager.
"We're sending out tax bills before we know the ended fund balance, and then immediately starting the budgeting process for the coming year," Botterbusch said.
Fellow Dallastown board member Don Jasmann pointed to the fund balance even as he voted against the district's 2010-11 budget.
He noted that Dallastown had a $14.6 million fund balance at the end of the 2008-09 school year, up from $6.3 million at the end of the 2005-06 school year.
Despite no votes by Jasmann and two others, Dallastown is raising taxes by 3.4 percent next year, the maximum the state will allow. The district decided to use $1 million of the surplus to balance the budget and another $1.8 million for one-time expenses, leaving Dallastown with an undesignated fund balance of $7 million.
Jasmann suggested that the board might want to consider the fund balance isn't static during the year and historically has grown, and that could mean more of the surplus could be used to lower taxes. But some other board members said they prefer knowing the surplus is already within their comfort level, rather than relying on later fluctuations.
Several business managers said estimates are usually the culprit when the surplus grows beyond budget expectations.
Districts also try to budget conservatively, and estimate their fund balances on the low end rather than discover they have less money than anticipated when the final numbers come in.
"The budget is your worst-case scenario," said Troy Wentz, business manager for the Hanover Public School District.
And it's not fair to view districts in the same light as a business, Hanover Public School District Superintendent Al Moyer said. Districts don't operate the same way.
"There's no such thing as a slush fund," in school districts, Moyer said.
Moyer and several other officials also pointed out that a growing surplus will be needed in two years when the state expects a major spike in the employee pension contribution rate.
Many districts are already designating money now for that spike, worried that a tax increase won't be nearly enough to cover the spike in a couple of years.
That could make the appearance now that districts are unnecessarily storing money, but people also need to think about long-term and unexpected expenses, said Spring Grove business manager George Ioannidis.
-- Reach Andrew Shaw at 505-5431, ashaw@york dispatch.com or twitter.com/ydblogwork.