Court rules against Lower Merion in tax-hike lawsuit

 The Lower Merion School District was dealt another blow in court when a commonwealth judge upheld a ruling capping the district's tax increase. (Emma Lee/WHYY, file)

The Lower Merion School District was dealt another blow in court when a commonwealth judge upheld a ruling capping the district's tax increase. (Emma Lee/WHYY, file)

For the second time in less than a year, local judges have sided with a group of suburban Philadelphia residents who said their school district illegally raised taxes.

It’s the latest twist in a lawsuit that could have implications for taxpayers across Pennsylvania.

The case revolves around whether the Lower Merion School District — one of Pennsylvania’s wealthiest — misrepresented its finances in order to skirt a state law that prevents school districts from hiking taxes more than 2.4 percent without going to a referendum.

Lower Merion’s school board has passed — and collected — a 4.4 percent tax increase for the 2016-17 fiscal year,  thanks to a waiver it received from the state’s Department of Education. The plaintiffs, led by aviation attorney Arthur Wolk, claim Lower Merion leaders cried poor in order to get the waiver when, in fact, they had millions in reserve.

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In August, Montgomery County Court of Common Pleas Judge Joseph Smyth sided with the plaintiffs. On Thursday, a three-member panel of Commonwealth Court justices upheld that decision — but did so in a way that leaves much undecided.

The Commonwealth Court justices dismissed the Lower Merion School District’s appeal because they felt it wasn’t filed in the proper manner. They determined that the lower court had issued a “permanent injunction” and that the school district should have filed a series of post-trial motions during the appeals process.

Because the school district didn’t file those motions in the prescribed 10-day window, the appeal was dismissed.

The school district has a few options now before it. Lawyers could ask a larger panel of Commonwealth Court justices to review the decision, ask the Pennsylvania Supreme Court to review the decision, or both, said Alicia Hickok, an attorney representing the school district.

“The decision is contrary to the case law that was there coming into this case,” said Hickok. “It’s actually a very radical change in the way the rules of civil procedure would function.”

School district officials have not said yet whether they will ask for a review.

“The district will thoroughly review the decision and carefully consider the next steps in our challenge of this case,” district spokesman Douglas Young said in a statement. “We look forward to the opportunity to present our arguments in full.”

If Lower Merion officials give up the fight, the case would go back to Smyth in the Common Pleas Court who would determine how taxpayers should be refunded.

According to district budget presentations, the 2016-17 tax hike was expected to bring in an additional $13 million. If more than half of that tax hike is deemed illegal, it could result in refunds adding up to millions.

Larger question unanswered

Crucially, the Commonwealth Court did not comment on whether Smyth correctly interpreted the law when determining that Lower Merion had bilked taxpayers. That creates a murky prospect for other school districts who may worry about similar lawsuits coming down the pike.

Lower Merion is one of hundreds of Pennsylvania school districts that have received permission from state authorities to exceed the 2.4 percent tax increase limit because of budget woes. Over a decade, in fact, 384 of Pennsylvania’s 500 school districts have received a state exemption according to an AP analysis. That same analysis found Lower Merion had requested more in tax increases than any other district.

If the courts continue to rule against Lower Merion, it could expose other school districts that have used the exemption to lawsuits.

Wolk, who has spearheaded the Lower Merion lawsuit, believes the decision should give those districts pause. He notes that the Commonwealth Court judge who issued the opinion, Judge Julia Hearthway, restated many of the facts and conclusions established by the lower court. Wolk said that indicates that the Commonwealth Court was sympathetic to his side’s arguments.

“This opinion cites, with approval, the decision by Judge Smyth,” he said. “That’s a message being sent.”

Hickok disputed Wolk’s interpretation, saying the Commonwealth Court opinion was simply restating what had already happened in the case and not rendering judgment on those facts.

All of this stems from an injunction filed by Wolk and his co-plaintiffs to stop the 2016-17 tax hike. Other parts of the same lawsuit ask for the Lower Merion district to refund 10 years of similarly styled tax hikes.

That part of the case is still sitting before a lower court judge, and it could have even bigger financial ramifications.

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