KingSpry PA Supreme Court Rules School Districts Not Stuck With PSERS

Pennsylvania Supreme Court Rules School Districts Will Not Be Stuck With PSERS Monies Owed by Defunct Charter School

Posted on January 17th, 2017
by Ellen C. Schurdak

Co-author
John E. Freund, III

On December 28, 2016, the Pennsylvania Supreme Court reversed the lower appellate court’s ruling and held that a school district could not be held liable for delinquent Public School Employees Retirement System (PSERS) contributions once a charter school’s charter had been revoked or otherwise dissolved.  KingSpry partner Ellen Schurdak argued the case to the Supreme Court.

The Facts in this Case

After nearly four years of litigation, in 2014, Ms. Schurdak successfully defended the Pocono Mountain School District (PMSD) decision to revoke the Pocono Mountain Charter School based on financial improprieties and religious entanglements.

On August 28, 2014,  the Pennsylvania Department of Education (PDE), without providing any prior notice to PMSD, deducted $87,700.32 from PMSD’s basic education subsidy when the charter school failed to make its payments. PMSD appealed PDE’s deduction to the Secretary of Education. The Secretary denied PMSD’s appeal.  PMSD appealed the Secretary’s decision to the Commonwealth Court. The Commonwealth Court affirmed the Secretary’s decision.

Under Section 8327 (b)(2) of the Charter Law, when a charter school fails to make required PSERS payments, PDE withholds money from the chartering school’s basic education subsidy to cover the deficiency for both employer and member contributions. In a perfect world, any deductions from a district’s basic subsidy can be recovered by the district deducting the amount withheld from payments owed to the charter school.

PDE and its amicus PSERS contended that the plain language of Section 8327 (b)(2) of the Charter Law imposed a ministerial duty (a duty in which government has no judgement or discretion) to withhold unpaid PSERS funds. Since PMSD was the “chartering district,” withholding funds from PMSD’s base subsidy was a mandatory duty that could not be compromised.

The Court, however, agreed with the district’s position that Section 8327 (b)(2) which required PDE to withhold money from the district had to be read in conjunction with Section 1729 – A(i)’s provision that under no circumstance should a district be liable for the debts or obligations of a closed charter school. This is called reading different sections of the state in para materia.

Noting that Section 1729-A(i) was added as an amendment to the Charter Law after Section 8327 (b)(2) had been in effect, the Court concluded that it was the intent of the General Assembly that the directive of Section 8327 (b)(2) to withhold the amount of unpaid Charter School PSERS obligations from the chartering district’s base subsidy. The court concluded that PDE’s obligation to withhold was only appropriate if the charter school remains operative at the time PDE withholds money from the chartering school district.

The Court also rejected PDE’s argument that PMSD was the chartering school district despite the fact that at the time of the withholding, the charter school’s charter had been revoked. Similarly, the Court brushed away PDE’s contention that amounts due to PSERS were not debts or obligations of this charter school. Finally, the Court noted that Section 8327 (b)(2) establishes the withholding system as a means to “facilitate,” not “guarantee,” payment.

Despite the straightforward reasoning of the majority opinion, two justices wrote concurring opinions and two justices dissented. The concurring opinions amplified the Court’s decision. Chief Justice Saylor’s two-page opinion stressed the obvious inapplicability of 8327 (b)(2) and Justice Wecht was more disturbed about the defects in Charter Law generally.

Perhaps Justice Wecht’s observation best transcends the Court’s efforts to unscramble the inscrutable Charter Law.

Speaking of the charter employees who likely bear the ultimate risk from the court’s decision, Justice Wecht opines, “It is true that our decision here does not turn upon the question of who will bear the burden of lost retirement benefits. Nonetheless, the Commonwealth and the PSERS Board raise a valid concern. Our holding today reveals and underscores the grievous funding risk manifest by the CSL and Retirement Code provisions at issue in this case. This risk is realized when a charter school operator ignores its duty to contribute to the fund on behalf of its employees. Today’s case uncovers a yawning gap in the pension funding scheme for Pennsylvania’s charter school employees.”

Justices Baer and Dougherty dissented on grounds of statutory interpretation.

Bottom Line for Schools

While the Supreme Court decision provides some comfort for school districts in that they will not be stuck with making up the PSERS payments of derelict charter operators, chartering districts should not be lulled into a sense of nonchalance over PSERS or other significant financial obligations of their charter schools.  Justice Baer, for instance, would have the district at fault for not conducting better oversight of the default by the charter school.

Rather than an excuse for relaxed oversight, school districts should heed the underlying message of the case that closer scrutiny of charter schools’ financial obligations serves all concerned.

 

School Law Bullets are a publication of KingSpry’s Education Law Practice Group. They are meant to be informational and do not constitute legal advice. John E. Freund, III, is our editor.