Appeal from the Order of the Commonwealth Court entered on 5/24/10 at No. 2142 CD 2009 reversing the order of the Bucks County Court of Common Pleas, Civil Division, entered on 10/9/09 exited 10/15/09 at Nos. 2009-04824-31 and 2009-04825-33 No. 69 MAP 2011 Appeal from the order of the Commonwealth Court entered on 5/24/10 at No. 2142 CD 2009 reversing the order of the Bucks County Court of Common Pleas, Civil Division, entered on 10/9/09, exited 10/15/09 at Nos. 2009-04824-31 and 2009-04825-33
The opinion of the court was delivered by: Mr. Justice Saylor
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.
This appeal concerns the propriety of resolutions adopted by two school boards that reduce the compensation rates for elected tax collectors in an effort to adopt alternative collection methods, such as lockbox systems or tax collecting agencies.
In 2009, the boards of school directors of the Pennridge School District ("Pennridge") and the Central Bucks School District ("Central Bucks") (collectively, the "School Districts"), passed resolutions reducing the compensation rates for their respective elected tax collectors. The Pennridge Resolution set the compensation for the Pennridge Tax Collectors for the period of 2010 through 2013 at $0.70 per tax bill, a 69% decrease from the previous tax collection rate of $2.25 per tax bill. See Resolution Establishing Tax Collector Compensation, Procedures and Rules at 1 ("Pennridge Resolution"); N.T., July 27, 2009, at 47. The new compensation rate was established by reference to the cost of collecting taxes directly through a bank lockbox system, which entails a significant amount of automation and computerization. See Pennridge Resolution at 1. Additionally, the Pennridge Resolution permitted tax collectors to disclaim their responsibilities in favor of direct collection by the school district and thereby forfeit receipt of compensation. See id.*fn1
The Central Bucks Resolution, which was passed three days later, set compensation for Central Bucks Tax Collectors for the period of 2010-2011 at $0.72 per tax bill; for 2011-2012 at $0.81 per tax bill; for 2012-2013 at $0.91 per tax bill; and for 2013-2014 at $1.01 per tax bill. See Procedures for Collecting School Taxes and Remuneration at 2 ("Central Bucks Resolution"). This reduced tax collectors' compensation by 79%, as they were formerly paid $3.50 per bill. See N.T., Aug. 27, 2009, at 30. The Central Bucks Resolution also gave tax collectors the "option . . . to appoint a School District designated collector as the tax collector." Central Bucks Resolution at 2. The School Districts justified the reduced compensation rates based on budgetary concerns, which had also prompted them to eliminate teacher and educational aide positions, impose teacher hiring and spending freezes, and reduce transportation options for students. See N.T., Aug. 28, 2009, at 196; N.T., Sept. 18, 2009, at 107-08.
Eight Pennridge and seven Central Bucks tax collectors, each candidates for re-election to their respective positions (the "Tax Collectors"), filed separate complaints for permanent injunctive relief and concomitant petitions for preliminary injunctions, arguing that the common pleas court should set aside the resolutions adopted by the School Districts because the Tax Collectors could not provide the statutorily-mandated services at the new rates of compensation. After the School Districts filed answers in each matter, the court consolidated the cases. Warrington and New Britain Townships were allowed to intervene, as the Tax Collectors collect taxes not only for the School Districts, but also for the county and sixteen municipalities.
The case was argued before the Honorable Clyde W. Waite, and, over the course of several court sessions, twelve tax collectors testified. Two tax collectors served as lead witnesses: Diane Telly from Hilltown Township, who collects taxes for Pennridge; and Sherry Labs from Plumstead Township, who collects taxes for Central Bucks. Pennridge Tax Collectors Suzanne Clark, Jennifer Crocus, Susan Paff, Judith Patton, Kathleen Percetti, Patricia Siwart, and Sue Snyder affirmed that Telly's testimony was an accurate representation of the job of tax collector. See N.T., July 27, 2009, at 178, 184, 192, 204, 218, 225, 232. Similarly, Denise Betts, Dorothy Campana, and Nancy Jones testified that Labs and Telly's testimony reflected their experiences as tax collectors in Central Bucks. See N.T., Aug. 27, 2009, at 109, 126, 145. The parties also stipulated that three additional Central Bucks' Tax Collectors, John Mohan, Carol Scarborough, and Kari Williams Tyksinski, would agree that Labs and Telly's testimony reflected their experiences in the position. See id. at 152-53, 156.
Telly testified that serving as a tax collector had provided her with full-time employment for the previous four years. In terms of qualifications, she explained that there are age and residency restrictions and that, while not required by statute, many collectors, such as herself, pursue qualified tax collector status by completing certain coursework and maintaining continuing education credits. See N.T., July 27, 2009, at 50-51; 72 P.S. §5511.4a. She also explained that tax collectors are required by law to take an oath of office and secure a bond covering the estimated amount of taxes charged in the appropriate district. See N.T., July 27, 2009, at 52; 72 P.S. §5511.4.
With regard to her duties, Telly explained that her tasks generally fit into three categories: tax collection; accounting and reconciliation of tax reports; and customer service. See N.T., July 27, 2009, at 31. She acknowledged that, while there are off-peaks throughout the year, she spends an average of 32-hours per week collecting real estate taxes, and at times hires an assistant to help handle the workload. In total, she estimated that the job requires approximately 1,800 hours per year. See id. at 45. When asked how she allocates her time among the various tax collecting duties, Telly testified that she devotes approximately one-third of her time to processing tax bills and depositing payments and two-thirds of her time to handling the accounting aspects of tax collection and providing customer service to taxpayers. See id. at 43. In regards to the accounting aspects of the job, Telly testified that accounting and reconciliation is done on a daily basis, and that she must submit monthly detailed reports to the township, school, and county. She also testified that at the end of the year there is reconciliation for final liens. See id. at 40. As to customer service, Telly explained that she receives approximately 2,000 calls a year regarding various inquiries, such as interim bills, installment plans, the homestead reduction, and tax certifications. See id. at 43.
As to compensation, Telly stated that tax collectors are paid separately by the three taxing entities: the county, the township, and the school district. She further testified that the eight tax collectors for Pennridge collect $72 million of the district's approximate $110 million budget, and, for this service, the School District compensates them with an aggregate amount of $44,571.75. See id. at 67, 76. As for her part, Telly testified that she had personally collected more than 5,500 tax bills in 2008, which amounted to $25 million in school taxes, and was paid $12,876.00. See id. at 32, 38, 75. Under the Pennridge Resolution, however, she estimated that her compensation would decrease to $3,860.00 for the same amount of work. See id. at 121.
Labs testified that she served as a full-time tax collector for twelve years, performing duties similar to those described by Telly. She noted, however, that she also maintains a website where her constituents can obtain information and file their taxes electronically. See N.T., Aug. 27, 2009, at 15-16. Pertaining to school district taxes, Labs stated that the seven Central Bucks tax collectors collect nearly $200 million of the School District's $279 million budget, and that their aggregate compensation under the current scheme is $149,898.00. See id. at 33. Labs also testified that she is personally responsible for 4,863 parcels, which amounts to $22 million in school taxes. She indicated that she was previously paid $17,162.00 for this work, but that, under the Central Bucks Resolution, she would only be compensated $3,500.00 for the same duties. See id. at 60.
Notably, when asked whether they would continue to serve in the event that compensation was decreased as set forth in the adopted Resolutions, most of the Tax Collectors expressed skepticism and voiced concern as to the level of service that would be provided to the taxpayers under an alternate system. See N.T., July 27, 2009 at 181, 209, 221, 228, 235-36; N.T., Aug. 27, 2009, at 62, 114, 133, 149. But see N.T., July 27, 2009, at 188, 198 (testimony of Jennifer Crocus and Susan Paff) (expressing an unwillingness to resign in light of a tax collectors' commitment to serve the community). In this regard, Telly testified that she would most likely have to resign from her position, as it would actually cost her money to collect taxes at the newly-adopted rate. See N.T., July 27, 2009 at 109, 120.
School district administrators, including the business administrators for each School District, also testified. For Pennridge, Robert W. Reinhart testified that, after consulting with several other school districts, Pennridge planned to implement a lockbox system. He explained that, under such a system, the county or school district would print real estate tax bills and the School District's business office would then mail them to constituents. Taxpayers would make checks payable to the Pennridge School District or the individual tax collector and either send them to a post office box or deliver them in person to the bank operating the box. The bank would then scan the checks and deposit the payments directly into the school district's account. Each day, a clerk in the business office would download the data provided by the bank, allowing for an automatic reconciliation against the original tax bills provided by the county. See N.T., Sept. 18, 2009, at 105-06. Based on proposals submitted by financial institutions, Reinhart explained, Pennridge estimated that it would save $50,088.00 per year by implementing a lockbox system, notwithstanding an additional 120 hours of secretarial help needed for implementation of the new system. See id. at 75, 97.
Central Bucks' business administrator, David W. Matyas, testified that the school district considered collecting taxes through a commercial tax collection agency, such as Berkheimer Tax Administrator, Inc. ("Berkheimer"). Based on Berkheimer's presentation to the Central Bucks Finance Committee and the school board, Matyas estimated that the school district would save $558,900.00 over a four-year period if it switched to using an outside taxing agency. See N.T., Aug. 28, 2009, at 221. Matyas also noted that the tax collector compensation rates set in the Central Bucks Resolution were commensurate with the quotes obtained from commercial tax collection agencies. See id. at 211-20.
Judge Waite ultimately determined that the standards used by the School Districts to calculate compensation rates for the Tax Collectors were arbitrary, rendering the resolutions void. Consequently, he granted the Tax Collectors' request for a permanent injunction and ordered the School Districts to reinstate the prior tax collector compensation rates. In his opinion, Judge Waite observed that, under the Local Tax Collection Law, see 72 P.S. §§5511.1-5511.42 (the "LTCL"),*fn2 elected tax collectors are required to collect all taxes levied by taxing authorities, with the exception of those imposed pursuant to the Local Tax Enabling Act,*fn3 including real estate taxes assessed by counties, local municipalities, and school districts. See 72 P.S. §5511.2. Judge Waite noted that the LTCL does not set rates of compensation for tax collectors in counties, boroughs, or second class townships, but rather allows the local taxing authority to determine such rates, subject to a maximum amount. See 72 P.S. §5511.35(a)(1). Significantly, as to school district taxes, the court explained, the LTCL provides the board of school directors with the authority to set tax collector compensation rates, see 72 P.S. §5511.35(a)(3), and permits the taxing entities to adjust the pay of elected tax collectors by ordinance or resolution, prior to municipal elections, see 72 P.S. §5511.36a.*fn4
In further support of its ruling, the court cited to Abington School District v. Yost, 397 A.2d 453 (Pa. Cmwlth. 1979), in which the Commonwealth Court affirmed an injunction preventing a school district from enforcing a resolution that drastically reduced the salaries of elected tax collectors and assigned the responsibility for collecting school taxes to a bank in combination with school district employees. Judge Waite explained that the Yost court examined the LTCL and noted that:
It was, of course, the Legislature's intention that the amounts of compensation of tax collectors fixed by the local taxing districts pursuant to Section 36.1 [of the LTCL] should be reasonable. There is not the slightest indication that the Legislature intended that local taxing authorities should have the power to reduce compensation as a means of reforming to their satisfaction the system of local tax collections, already comprehensively provided for in the statutes.
Yost, 397 A.2d at 456-57. Continuing, Judge Waite noted that, in Yost, the court explained that school districts are "creatures or agencies of the Legislature" with "no inherent powers of government," but rather possess only the "powers, functions, and duties" expressed or necessarily implied by statute. Id. at 457. The court also cited the Yost court's observation that, while some school boards have the authority to appoint collectors for school taxes where the office is vacant, the school districts are not empowered to create such a vacancy by reducing the rate of compensation to a level so low that the tax collectors could not perform their statutory duties. See id. at 456. Accordingly, the trial court explained, the Yost court held that the school district misapplied the law. See id. at 456-57.
Further, Judge Waite observed that, while the LTCL provides school boards with the power to set the compensation rates for tax collectors, it does not specify the rate at which elected tax collectors should be compensated, thereby creating a latent ambiguity. The court observed that the LTCL pits the fundamental interests of two sets of elected officials against one another: the Tax Collectors have the duty to effectively and efficiently collect taxes as well as perform all of the duties implicit in that task, whereas the School District has the responsibility to ensure that its funds are appropriated in an efficient manner, including the implementation of cost-effective technologies. Consequently, the court reasoned, such considerations must be balanced when determining how compensation rates should be calculated.
In this regard, the court questioned the standard applied by the Pennridge and Central Bucks School Districts:
Under the circumstances, the Tax Collectors remained statutorily bound to perform the services explicitly commanded by the statute along with those services implicit therein at the rates set by an outside entity who had no obligation to follow through and provide even the redacted services outlined in their proposals. Thus, if the standard for setting the fees and compensation to be paid to the Tax Collectors is that set by outside entities, the School Districts are then empowered to command the performance of statutory duties by the Tax Collectors at unrealistic and impracticable rates of compensation.
See Telly v. Pennridge Sch. Dist. Bd. of Sch. Dirs., No. 2009-04824-31, slip op. at 6-7 (C.P. Bucks, Dec. 4, 2009). This interpretation of the LTCL, the court found, would lead to an absurd result, contrary to the Legislature's intent. See id. at 7; see also 1 Pa.C.S. §1922. Instead, the court determined that the "market" rate of compensation for tax collectors is that which "a reasonably effective and efficient elected tax collector requires to perform the traditional and accepted services performed in the tax collection by elected tax collectors." Telly, No. 2009-04824-31, slip op. at 8.*fn5 Thus, ...