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Answers to Frequently Asked Questions About Financial Watch, Recovery, and Receivership

Financial Recovery Law

Act 141 of 2012 (2012 school code bill) – amended the Public School Code to provide for a system of support and identification of school districts in Financial Watch and Financial Recovery (including Receivership).

What is a Financial Watch school district?

  • School district identified through the Early Warning System to be experiencing financial difficulty

The Pennsylvania Department of Education (PDE)'s Involvement/Process:

  • PDE must notify any school district identified for Financial Watch

  • PDE can request, from the district, all information needed to fully review the financial situation in the district – the district has 15 days to respond

  • PDE may visit or correspond with employees at the district as part of the review process

  • PDE shall provide technical assistance to a school district identified for Financial Watch status, which may include contracting with a financial consultant, to help the district avoid falling into Financial Recovery status

What is a Financial Recovery school district?

  • Average Daily Membership greater than 7,500 AND receives an advance in basic education subsidy at any time; (moderate) OR

  • Receives an advance of its basic education subsidy at any time AND is either subject to a declaration of financial distress OR engaged in litigation against the state where the district is seeking financial assistance to continue operation.  (severe)

  • Designated under 22 Pa. Code Chapter 18 (related to Financial Recovery). Chapter 18 sets forth criteria that the secretary may consider in determining whether to issue a declaration that a school district is in financial recovery status and whether a school district in financial recovery status shall be deemed a moderate financial recovery school district or a severe financial recovery school district.

  • No more than nine school districts may be under a declaration of financial recovery status at any time.

PDE's Involvement/Process:

  • PDE must make a public declaration that a school district is in Financial Recovery status

  • The Secretary of Education may decline to issue a declaration that a school district is in Financial Recovery status, if in the last five years an emergency has caused the financial situation

  • The Secretary of Education, within five days of the declaration of Financial Recovery, must appoint a Chief Recovery Officer (CRO) – This individual works with PDE and the district to create and implement a Financial Recovery Plan

What is Receivership?

  • The Secretary of Education shall petition the Court of Common Pleas, in the county where the largest part of the district resides, to appoint an individual to serve as a Receiver for the district if:

    • The school board rejects the CRO's Financial Recovery Plan;

    • The school board does not comply with directives issued by the CRO;

    • The school board does not satisfy the objectives in the Financial Recovery Plan during a period of time after its designation of financial recovery is terminated; or

    • In certain instances, related to severe financial recovery school districts, the school board votes to move to receivership.

  • When the Receiver is approved by the courts all duties of the CRO and the school board transfer to the Receiver, with exception to the ability to levy taxes

    • The CRO could be appointed as the Receiver

    • The CRO could stay in place to advise the Receiver 

  • The Receiver must implement the Financial Recovery Plan which is attached to the petition provided to the Court of Common Pleas

  • A Receivership shall expire three years after the initial appointment of the Receiver – the Secretary may petition the courts for an extension

  • When a school district exits receivership, the school board will resume full control