Court Closes Loophole Charter School’s PSERS’ Obligation | KingSpry

Commonwealth Court Closes Loophole on School District’s Obligation to Satisfy Charter School’s PSERS’ Obligation

Posted on February 13th, 2019
by Ellen C. Schurdak

In a January 18, 2019 decision, the Commonwealth Court applied the Pennsylvania Supreme Court’s ruling in Pocono Mountain v PDE that PDE may not withhold from a district’s basic subsidy unpaid PSERS payments owed by a closed charter school and held further that PDE must make the district whole even if the funds have been paid over to PSERS. (2019 WL 255421)

Facts in the Case

The Catasauqua Area School District (“School District”) filed an administrative agency appeal to the Department of Education after learning that its basic education funding payments were being reduced to satisfy the Medical Academy Charter School’s (“Charter School”) outstanding liabilities due and owing to the Public School Employees’ Retirement Service (“PSERS”). The deductions totaled over $140,000.00. At the time of the deductions, the Charter School was no longer operating.

The Public School Employees’ Retirement Board intervened in the School District’s appeal and argued that PDE had no authority to issue an order that would direct a refund from PSERS. The Secretary of PDE agreed with PSERS’ argument and dismissed the School District’s appeal, finding that he did not have authority to direct PSERS to return monies to the School Districts, therefore, had no jurisdiction over the controversy.

The School District appealed PDE’s decision to the Commonwealth Court. The Charter School argued that the Pennsylvania Supreme Court’s decision in Pocono Mountain School District v. PDE was controlling. The Pennsylvania Supreme Court, in the Pocono Mountain case, held that the Charter School Law prohibits PDE from withholding funds from a chartering school district’s basic education subsidy in order to satisfy a closed charter school’s outstanding PSERS’ obligations.

The Court’s Decision

The Commonwealth Court remanded the case back to PDE to reverse the withholding of funds from the School District. In so doing, the Commonwealth Court logically extended the Pennsylvania Supreme Court’s holding in the Pocono Mountain School District court case. The Commonwealth Court, in its opinion, held that PDE cannot withhold funds from a chartering school district’s basic education subsidy in order to satisfy a closed charter school’s PSERS’ obligation.

What This Means

PDE cannot deduct monies from a chartering school district’s basic education subsidy in order to satisfy an outstanding PSERS’ obligations for closed charter schools. To date, there have been no appellate decisions on whether PDE can make deductions from a school district’s basic education subsidy for operating charter schools. There are some chartering school districts in which a majority of the enrolled students live in other school districts. In these instances, it is often difficult, if not impossible, for the chartering school district to recoup all of the monies it is owed from the charter school.     

Bottom Line for Schools     

Although the Charter Law has always provided that school districts should not be responsible for any outstanding debts or liabilities of a closed charter school, the ability of PDE to withhold subsidy for a charter school’s unpaid PSERS contribution, provided the proverbial loophole through which you could drive a truck. With the Pocono Mountain case, and now the Catasaqua case, Pennsylvania courts have cured a fundamental unfairness to chartering school districts forced to make up failing charter schools pension system obligations with no way of recovering that cost.

Many times a chartering school district will have knowledge, in advance of PDE taking any deductions that a charter school has not made its required PSERS’ payments. In these instances, school districts would be wise to consult with their solicitor or an attorney knowledgeable in this area of the law, before any adverse action is taken by PDE.

If you have a question, contact your legal counsel or one of the education attorneys at KingSpry.


This School Law Bullet is a publication of the KingSpry Education Law Practice Group. John E. Freund is our editor. It is meant to be informational and does not constitute legal advice.