Last year, Keith Knauss testified as an expert witness in a class action lawsuit claiming the Lower Merion School District overstated its budget deficits for several years to justify unnecessary tax increases. His testimony contributed to Montgomery County Common Pleas Judge Joseph A. Smyth filing an injunction in August ordering the district to withdraw a 4.4 percent tax increase implemented for the current school year.

                Earlier this month, Knauss told a group of area residents that he believes Upper Perkiomen School District officials are acting similarly by perpetrating "fictional budgeting" in order to justify tax increases, but district officials say Knauss' analysis is wrong.

                In the Lower Merion case, the judge found that during a 10-year period, district officials deliberately engaged in a course of conduct that overestimated budgets by millions of dollars; failed to predict – "although the data was patently clear from past years' experience with the budgets" – that the district would actually end the fiscal year with a multi-million dollar surplus; and raised taxes for the fiscal year above the 2.4 percent limit without a referendum, as required by state law, then transferred the surplus from "unassigned" or "general reserve" funds to other assigned accounts to avoid the statutory 8 percent cap.

                According to Smyth, the district's accounting practices skirted the purposes of the law to prevent school districts from both accumulating a surplus over a certain percentage of the annual budget and raising taxes over a certain level without going to a referendum of the voters.

                "The district's tax increases in these circumstances violated the spirit, and in some cases the letter, of these laws," he wrote.

                Knauss appeared in East Greenville Jan. 21 to discuss concerns of excessive taxation in the Upper Perkiomen Valley. His central message was that the community cannot trust the financial information coming from the district.

                Knauss identified six concerns he discovered related to the district's proposal to construct a new middle school. They include widespread confusion over the size of proposed tax increases; the district's failure to identify the actual cost of the project at $8,000 for the average homeowner over the next two decades; the discovery by a recent school district audit that found "a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented or detected";  misleading budgets presented by the district over the past seven years that repeatedly underestimate revenues, overestimate expenditures and underestimate the size of the fund balance; the size of the unassigned fund balance was above the 8 percent limit when the district raised taxes this year and will be above the limit for the next year; and that district does not have a five-year financial forecast, something that should be a normal part of the budgeting process.

                "Tax increases were justified with padded numbers," he wrote in an Upper Perkiomen School District Critique. "In addition to misleading the public, this behavior exposes the district to legal risks similar to what the Lower Merion School District is currently experiencing."

                Upper Perkiomen School's Superintendent Alexis McGloin rejected Knauss' correlation as the comparison of "apples and oranges." She stated in a Jan. 26 email response to Upper Perkiomen Community Members that Upper Perkiomen School District has the lowest per-pupil expenditure in Montgomery County, while Lower Merion School District, which is on top of that list, outspends her district by between $6,000 and $7,000 per student.

                According to Kassel, the district's goal of building a budget "is to come in as close as possible," to the projected figures. She said that about 88.6 percent of the budget is fixed due to salaries, benefits, debt, transportation, charter schools and other costs.

                "Many of the estimated expenses are based on actual, contracted and historical costs," Kassel wrote. 

                A self-described advocate of government transparency, Knauss admits that his conclusion could be inaccurate.  "I am meticulous in my research and I've included a large amount of supporting data to minimize errors, but I could be wrong," he wrote.  "I welcome correction and am willing to engage productively with anyone."

                An award winner from the Pennsylvania Freedom of Information Coalition, Knauss analyzed financial documents after being contacted by Melanie Cunningham, a resident and business owner in the district who wanted some clarification concerning her tax bills. 

                Knauss drew his conclusions after analyzing seven independent audit reports for the district dating to 2009, the last four budgets, the building FAQ page, eight tax bills from a district resident dating back to 2009, the current teachers' contract, last month's Act 34 hearing minutes and a June 9 budget presentation from McGloin.

                Knauss said he didn't understand why the district presented financial information in certain ways.

                "I don't know what the reason is," Knauss said during a phone interview last week. "I can't get in their heads. But it is easier for the board and the business manager to present a pretty financial picture when it supports what they want to do."

                Over the seven years, school district officials have projected a budget deficit yet ended up with a surplus, according to Knauss.  "That's not a random error," he said. "That does not happen unexpectedly."

                Kassel cited numerous factors in the expenditure area that allow for district savings that occur after the budget is passed, including bond refinancing, health care savings and retirements.

                "As you can see, we are constantly looking at ways to reduce expenses or increase revenues," she wrote. 

                Knauss also accused district officials of "selling" the residents on the need for a new middle school, rather than treating as equal partners. He said officials' repeated use of the term "millage" confuses citizens of the cost and "gives an incomplete picture."

                "If I wanted to sell a tax increase, I would continuously talk about the millage rate," he said. "Even if the millage rate stays the same, taxes can still go up" because Upper Perk also uses the State Tax Equalization Board (STEB) ratio used to formulate tax rates. Multi-county school districts are required to use the STEB ratio.

                District officials have estimated the cost of the new middle school, to be built on Montgomery Avenue in Upper Hanover, at $58.496 million. Knauss figures the construction will cost taxpayers approximately $75 million over 20 years, which will actually cost the average property owner more than $8,000.

                In terms of explaining potential tax increases, McGloin acknowledged that the STEB ratio is difficult to comprehend. "While it is understandable that community members who are not familiar with the budget process do not understand STEB ratio, our school board has a working understanding of the equalization process as it factors into their decision making," she wrote.

                Knauss also wrote in his critique that auditors of Upper Perk finances have commented on material weaknesses in the district's internal financial controls. "I'm surprised this was not discussed at the last board meeting and/or reported to the public," he wrote.

                An audit of the district, completed in December, found significant deficiencies in its cash fund, material weaknesses in the accounting system and the food service fund where a projected surplus of $553,517 ended up as a $21,794 deficit, and control deficiencies in the general fund, accounts payable, payroll, accrued salaries, and benefits and federal and state grants accounting.

                McGloin attributed the two material weakness charges to the district's decision to upgrade its financial software two years ago.

                "It was no surprise that the conversion to a new financial package after using the same program for 30 years was bumpy given the conversion needs on top of day-to-day responsibilities," she said. "Since these obstacles, and not a system failure, are what contributed to both material weaknesses, they will not have an impact on the district bond rating."