Lower Merion School District agrees to return $27 million to settle lawsuit over property tax increases

The Lower Merion School District has agreed to pay $27 million back to taxpayers over several years to settle a long-running lawsuit challenging property tax increases in the affluent Montgomery County district.

In an agreement one school district solicitor described as unprecedented in Pennsylvania, the district’s settlement with aviation lawyer Arthur Wolk and other Lower Merion taxpayers who had accused the district of hiding surpluses to justify tax increases was accepted by the school board Monday night.

If approved by a Montgomery County Court of Common Pleas judge, the agreement would give back $15 million among everyone who owned property in the district on Aug. 29, 2016 — the date the court issued a preliminary order against the district — and who paid school taxes that year.

It would also require the district to pay $4 million a year in rebates to taxpayers in 2023, 2024, and 2025. And it places restrictions on district budgets going forward — reducing the millage rate for the coming school year, and setting parameters lasting for at least several years that would force the district to return 50% of future unexpected budget surpluses to taxpayers.

“The District continues to deny the allegations of wrongdoing alleged in the suit; however, the Board and Administration believe the best interests of the District’s students and taxpayers are served by bringing the ongoing litigation to a conclusion,” the district said in a statement. It said the settlement “will allow the District to focus on its primary mission of providing excellent educational opportunities to the children of Lower Merion and Narberth, without the uncertainties caused by the long-running litigation.”

The outcome may represent the first time a lawsuit against a Pennsylvania school district has triggered a tax rebate — or an agreement by a district to limit its future taxing power, said Jeffrey Sultanik, a solicitor for numerous Philadelphia-area districts.

“If a school district is thinking of taking exceptions, particularly in Montgomery County, of asking for in excess of their base or adjusted Act 1 index, they’re going to be under potential greater scrutiny from the taxpayers,” Sultanik said, referring to the state-imposed limits on property tax increases that districts can seek to surpass under certain circumstances.

In Lower Merion’s case, the district cited projected deficits as the basis for raising taxes above the index. But Wolk and two other taxpayers who sued argued that the district had been concealing surpluses by transferring money from its general fund to a reserve fund, allowing it to set higher tax rates without first gaining approval from voters.

The settlement “helps to address some of the excesses that the school district was engaged in before the lawsuit was filed,” Wolk, who lives in Gladwyne, said Tuesday. He said he anticipated the court would approve the agreement.

He also said his case had been mischaracterized as an attack on the district’s educational offerings.

“This was a litigation over surplus, not over taxes necessary to accomplish any desired program or task by the Lower Merion School District,” Wolk said. “I would never have filed a lawsuit to impact the educational opportunities for children in Lower Merion and Narberth. I filed a lawsuit because the taxes were excessive in my judgment, and illegally rendered.”

Based on the millage rate agreed to in the settlement, the district’s final budget for the 2022-23 school year includes a tax increase of 1.39%. That’s a decrease from the 3.4% increase in its proposed budget, said spokesperson Amy Buckman. She referred other questions to a lawyer for the district, Chanda Miller.

Miller said the district did not anticipate the settlement would impact program offerings in the coming year or going forward.

The district had been setting aside money since Montgomery County Judge Joseph Smyth sided with Wolk and taxpayers Philip Browndies and Catherine Marchand in August 2016, ordering the district to cut a tax rate increase from 4.4% to 2.4%. The district kept the increase in place while it appealed the ruling, in 2018 winning a second chance from the Pennsylvania Supreme Court to make its case.

But it lost a challenge before the state Commonwealth Court, and in fall 2020, the Supreme Court rejected the district’s request to review Smyth’s 2016 order.

Wolk said Tuesday that he had filed a motion to hold the district in criminal contempt that was scheduled to be heard in August. With that hearing approaching, he said, both sides went into mediation.

The $27 million slated to be paid out to taxpayers under the settlement will come from the money set aside by the district in response to the litigation. Asked how much money had been reserved to date for that purpose, Miller said: “Approximately $27 million.”

At a school board meeting this spring, Lower Merion Superintendent Khalid Mumin said the district was setting aside $4 million each year that the case continued — presenting the litigation as one of a number of “competing interests” the district was facing, along with initiatives like implementing full-day kindergarten and shifting school schedules to allow for “healthy start times.”

“I think this is a recognition of the risks inherent in litigation,” Miller told the school board Monday. She noted that the case has been ongoing for six years, and “it would have been a few more years before we were able to reach final resolution in the courts.”

It was unclear how much individual taxpayers would receive as a result of the settlement — and when. Checks have not yet been computed, Miller said, and a hearing to consider the agreement will depend on the court’s schedule. But once a court order is issued approving the agreement, checks will be issued in 45 days, Miller said.

The checks going to 2016 taxpayers — and rebates applied to tax bills in 2023, 2024, and 2025 — will be calculated in proportion to each taxpayer’s share of school taxes collected by the district.

As an example, the settlement agreement said, if total school taxes collected by the district in 2016-17 were $240 million, and a taxpayer paid $12,000 in school taxes, that person would receive a check for $750 — or 0.005% of the $15 million the district has agreed to refund.

The district’s millage rate next year will be recalculated to account for what it would have been in 2016-17 under Smyth’s order, with subsequent tax increases applied to that base rate.

And starting next school year, if there is a 2% difference between the district’s budgeted and actual expenditures and revenue, 50% of the surplus realized by the district will be returned to taxpayers. That provision will remain in effect for at least three years, but the board can end it once there are three out of four years in which such surpluses haven’t been realized.

The settlement also includes a provision to reimburse plaintiffs for $100,000 in litigation costs.

Wolk said Tuesday that money would be compensation for filing fees, deposition costs, and legal research, but not his labor.

“I spent six years litigating this case,” he said. “I am taking no fee. I’ve done this for free, for good government.”