As We Enter 3rd Quarter of 2010 . . . Where Does the Township Stand Financially? Have 2011 Budget Discussions Started?

Back on December 13th, I wrote of the need for residents to fully understand Earned Income Tax (EIT).  We are now in the 3rd quarter of 2010, and there is evidence that the 2011 township budget is going to face even greater challenges than this year’s budget.  I went back and found the post; below is an excerpt.  Nearly seven months later, I think it is important to re-visit the discussion. 

Although some Community Matters readers may disagree, I continue to believe that an open, honest discussion with the public of all revenue sources needs to be an integral part of our local government. We can not afford to wait until November to begin the 2011 budget discussions.

At times misunderstood when campaigning, I often suggested that the township needed to explore Earned Income Tax (EIT) as a possible revenue source.  There was (and continues to be) a lot of inaccurate information circulating about Earned Income Tax.  An example of misinformation occurred at the last Board of Supervisor Meeting, when Supervisor Chair Warren Kampf indicated that those individuals who lost their jobs would pay Earned Income Tax (if Tredyffrin were to have an EIT).  I hope that Mr. Kampf did not intentionally try to confuse the public with his words;  the fact is that individuals receiving unemployment benefits would not pay Earned Income Tax; unemployment benefits are not subject to EIT.

I thought it might be useful to list examples of income which are not subject to Earned Income Tax:

  • Retirement Pensions
  • Disability Payments
  • Active Military Pay
  • Unemployment Compensation
  • Insurance Proceeds (non-business)
  • Workmen’s Compensation  
  • Bequests
  • Stock Dividends (non-business)
  • Gifts/Lottery Winnings
  • Social Security
  • Interest (non-business)
  • Military Bonuses

Earned Income Tax is based on gross wages, salaries, commissions and other earned compensation. As stated numerous times, approximately $3 million is being paid to other municipalities by Tredyffrin residents.  If an EIT were in place, this revenue would return to the township.  Dave Brill, Township Finance Director, has offered that the potential township revenue could be as high as $8 million (should Earned Income Tax be instituted). 

Assuming that we get through the township budget discussion on December 21 with the proposed draft budget more or less intact, I still contend that the 2010 budget is nothing more than a Band-Aid solution to a far greater financial problem.  I believe that the township will limp along through 2010 with the budget in place.  However, without financial foresight, this time next year the township will be faced with a far greater problem than the reinstatement of $20K to the Fire Department.  The 3 new supervisors all campaigned (and were elected) on the ‘no new taxes’ mantra and they will probably take office on January 4 with that promise intact.  However,  it doesn’t take my London School of Economics education to believe that their promise will be short-lived.  Financially the township is in a very precarious financial situation and we are going to witness firsthand the result of shortsighted financial planning.

I know that this posting of Earned Income Tax discussion will bring opposing comments, and I actually encourage the dialogue.  Tredyffrin’s 2006 Tax Study Commission and voter referendum overwhelmingly were against imposing an EIT.  Warding off that particular argument, clearly 2010 can not possibly be compared economically to 2006; it is a vastly different financial climate facing this township.  I may have been one of the voters in 2006 who opposed an EIT; believing that the township at that point did not have severe financial needs to warrant that taxation approach.  However, if in 2009 this township’s annual budget of $37 million can not fund $20K to our firefighters, something is dramatically different in this current picture.  Each and every taxpayer needs to take a careful look at the proposed 2010 township budget — I believe the future is going to require more than simply tightening our belts as has been suggested by some of our township leaders, as a response to our economic problems!

32 Comments

Add a Comment
  1. I’m glad to see there’s interest in discussing the budget. I would like to know where the township stands mid-year with its budget. Particularly interested in how the snow removal and public works overtime was handled — we know that there’s no way those excessive expenses could have been in the 2010 budget. The township manager continues each month to paint a rosie picture financially but I’d like to see some back-up to her remarks.

    Also, there needs to be discussion about the 2011 budget. How is the fire/EMS funding going to come out in the budget. Certainly the financial picture has not improved so does that mean that the supervisors will not replace their funding cut to the fire companies? i don’t see how it is going to be possible for the township to continue to operate without an increase in taxes — but this current board thinks its possible. I want to know HOW? ( and without further decrease in services)

    [Reply]

  2. When does the budget discussion start for next year? By this point last year, the BAWG group was already discussion the 2010 budget. But the BAWG was only formed for one year, correct? So without the BAWG, shouldn’t the supervisors and township manager start having the discussion?

    [Reply]

  3. Submitted on 2010/07/06 at 7:27pm
    Wow — lots of talk about a topic that has never come close to being a reality. I’m a decade behind, but my anecdote to offer here is how the school district approached the topic before Act 1 shenanigans and false ceilings on tax increases.
    We did research and identified that oly 20-25% of property owners had kids in school, but 60-75% of people with earned income had kids in school. I don’t even know the date any longer, but it was about 10+ years ago and we filled Conestoga with people so totally opposed to our even continuing the research on any kind of tax study that it died in its tracks. I was shocked. Senior citizens that would have benefited (when Carole Rubley was looking for property tax relief ideas) came out in large numbers — “don’t put your hand in any more pockets” was the common refrain…someone wrote above about No new taxes — and that was most certainly the litany. GHWBush promises no new taxes and lost a federal election for going back on that idea (from an all-time high in popularity). The tax increase he approved made complete fiscal sense — but it was political suicide. Anyone who remembers me on the school board knows that I could care less about political noise — but even I pulled back from the tax discussion because I had never seen such passion against an idea that seemed to make so much sense — taxing the users. It wasn’t until a few years after that at another hearing about expanding the high school size that we saw a similar backlash — and the irony then was people wanted to stop the renovations because 1) they were too expensive AND 2) they wanted a second high school instead (at probably 3 times the renovation price). I stayed on the board long enough to get the high school renovations approved, and resigned — because it was clear then and clearer now that this community is economically divided — we can call it Ds and Rs, but that was not relevant to school board issues in the 90s — it was about demographics.
    I coined a phrase then that the community had two kinds of residents — Tax payers and Tax eaters. People with kids in school receive far more in services than they pay in taxes. Non-school people effectively subsidize the education system (at the time 80% without kids in school). . We did a financial model that demonstrated that you have to pay approximately 25-30 years of school taxes to fund a single child through the system (based on the millage being about 1% of property values — still essentially true).

    I offer all this year — and then will retreat back into the shadows — to try to illustrate that the debate has really never taken place. Politics actually got more important as these issues became more and more obvious. Party affiliation simply drew the lines — “I’m for that” or I”m against that.

    You can talk all you want about the BOS and their budget — but it’s still 12.5% of your school taxes (approx?). The district budget went up .5 mills this year, to 17.97 mills for the school district. The township stayed at 2.23 (with 2.34 projected for 2011, 2.46 for 2012, 2.58 for 2013 and 2.71 for 2014. Tredyffrin forecasts). So friends — the township budget forecasts will not go up as much through 2014 as the TESD did this year….48 forecast vs. .5 actual).

    So we can stop citing 2007….but 2011 is going to be about what we are willing to spend — not just about how we capture it. Thanks for reading.

    [Reply]

  4. Andrea, I appreciate your sentiments on the school budget and the greater $$ tax dollars we spend. It would seem that you favor a public debate on EIT — which would be for both school district and township . . . is that correct? As you say, party politics should have no bearing on the public discussion so why does it end up that way? Do people just think if they bury their heads in the dirt, the negative economic situation will pass, and it will all of a sudden be a brighter day? I don’t get it.

    [Reply]

    Township Reader Reply:

    You seem very focused on the issue of Kampf’s election — but isn’t the post about the amount of school taxes versus township taxes more relevant to our discussion here? Clearly you don’t want to talk numbers, just people. ? The election politics you talk about may be true, but Andrea (school board?) says this community has always pushed hard against any tax discussions. Is that about election politics or is it about voters?

    [Reply]

    Township Reader Reply:

    what do you call the voters?

    [Reply]

    Andrea Reply:

    >For Kampf, Lamina and Olson – its all about election politics. That is all you have to get.The voters are the symptom…election politics is the disease…I call them voters. 99% of them are uninformed and/or not engaged<

    So please explain to me your goal of the next BOS meeting….you warned Mike that it would be worse than 2/8. It is on behalf of the 1% who choose to either be informed or engaged? I hear your frustration, but do not believe snipes and criticism are the route to success. Election politics might be a problelm, but it's the only means to the power —
    An "open and honest debate" on an EIT etc….just who should host it? Who would come? What new information would it offer?
    I am asking rhetorically for sure — as I know that the host is immaterial because so few would come regardless (unless it were staged as a motion on the floor — and who is careless enough to make that?)…and as for offering new information — people are uninformed in your opinion, so what new information would get through?

    A democracy that functions as a republic — It's a stupid system….but the best one in the world.

    [Reply]

  5. Imagine. sarah palin is still smarter than Joe Biden.. but the liberal press gives him a free pass. You just may live under a Palin Presidency or Vice Presidency at some point, and it will be an IMPROVEMENT!

    [Reply]

  6. You are like a market maker for this blog… where would it be without you?

    I resent the term idiots.. In the interest of political correctness, who are YOU to decide who an idiot is? Are you an idiot? idiot… great word..

    [Reply]

    Pattye Benson Reply:

    Going forward, I would encourage that comments not be personalized with name-calling, such as ‘idiots’.
    Thank you.

    [Reply]

    Andrea Reply:

    I responded to some of this on the Agnes Irwin civility track….as part of your debate with Mike. Instead of 3 replies to moron vs. idiot vs. incompetent, can you consider some of that information? You ask for debate, but seem to prefer rancor? I’d like your assessment of how to approach something in an intellectually honest way when the community is not open to the idea….

    [Reply]

    Pattye Benson Reply:

    Last year when Easttown Township had their EIT discussion, they brought in an outside consultant to fully explain Earned Income Tax and answer questions from the public. I like Easttown’s approach.

    [Reply]

  7. The 2006 TSC (was it really that long ago) was vetted and not restricted to friends of the board to my knowledge…
    Non-political players pay no attention to this stuff…by your definition — because having an issue with the status quo, when it is working fine (despite the moral lapses you preoccupy yourself with) means – catch 22 – you must be political.

    Isn’t that the nature of politics — that when your side wins, it’s fair…when it loses — it’s rigged.

    I understand and even share some level of your frustration, but having lived here all my life and raising kids here, I don’t see issues with how things work.

    You talk about Dariel J. I believe she was part of the TESD Strategic Plan process more than a decade ago, well before any of the current budget “transparency” buzz. (The school budgets always seemed transparent — just not interesting or important because I guess people felt they could afford their taxes in better times)

    It’s that “lead a horse to water” idea….no one is drinking:??

    [Reply]

  8. Kevin Grewell here. I have not posted for a while although I do follow these discussions from time to time. For those unfamilliar with me, I disclose that I was a member of the T/E School Board from 1999 through 2007. I both chaired and served on the Finance Committee and was the Legislative Chair for several years.

    I am concerned about some of the comments being made about the Act 1 process and TSC “being hijacked by the TTRC” and similar comments. Such charges are unfounded. The TSC was properly constituted and discharged their duties in a competent manner.

    The TSC was appointed by the School Board pursuant to the terms of Act 1 of 2006 which mandated that a TSC be appointed, to study the issues related to tax shifting under Act 1 and make a recommendation to the board regarding what kind of ballot question should be placed on the ballot – whether the voters should be presented with the opportunity to enact an EIT or a broader PIT.

    Everything was strictly done in accordance with the requirements of the law, often with input from the Board’s legal counsel to make sure we were in compliance. The TSC members were to represent the demographics of the district. Act 1 provided the criteria for their selection. The selection of the TSC was not a political process and neither political party had any involvement with the selection process, deliberations of the TSC, or with the Board’s subsequent discussions and actions which led to the decision to place the recommended EIT on the ballot. (Act 1 required that either an EIT or PIT be offered in a ballot question, we were not allowed to refuse to place the question).

    Several public hearings were held, and were very well attended. The overwhelming majority of citizens who spoke opposed ANY kind of income tax. Numerous written comments (primarily e-mails) also overwhelmingly opposed to the enactment of any income tax.

    Now it must be understood that Act 1 HAS NOTHING TO DO WITH the problem of school funding or budget shortfalls. Act 1 is revenue neutral. The EIT – had the voters approved it – would have only provided money to reduce property taxes (by funding the “homestead exemptions”). It would have added no additional dollars to the school district’s budget. Act 1 was only a mechanism for SHIFTING some of the tax burden from property tax to income tax.

    The School Board, like much of the public, took a dim view of the Act 1 tax shifting scheme. I think it is fair to say that I became one of the leading spokesmen opposing the proposed EIT, by virtue of my role as Legislative Chairman. However, my position and the Board’s position at that time had to do with the narrowly drawn question mandated by Act 1 – whether to shift some of the tax urden using the tools provided by the new law. What we could and could not do was strictly controlled by Act 1 and this was NOT about an EIT per se, only about TAX SHIFTING.

    There were many problems with the way Act 1 was drafted, and I think the community was correct in rejecting the EIT under Act 1. To go into all the details here would make this post way too long – but let me just say Act 1 is a bad law.

    Today, the debate about an EIT is different, arising under Act 511 – the Local Tax Enabling Act which predates Act 1 and gives the Township and the School District power to enact an EIT for funding purposes. Money from this EIT does not have to be restricted to reduction in property taxes, but goes to the general budget. Thus, an Act 511 EIT does help with the current buget crisis (revenue shortfalls) although it is not clear that the EIT allowed by Act 511 would be enough by itself to close the gap.

    The question of an Act 511 EIT has not yet been debated in the public arena – at least not in recent memory. Andrea Felkins (many years on the School Board) has elsewhere posted about how years ago the board proposed an Act 511 EIT and the public came out in large numbers opposing it. That was before my time on the Board, and during my time on the Board the question of an Act 511 EIT was never seriously considered. For one thing, it was politically unfeasible (we knew the history), and for another, we did not yet have the kind of budget crisis that has developed in the past couple of years.

    It may be time to seriously have that debate. It is simply a different time and a very different situation today than it was during my time on the board, or even during the Act 1 debate of 2006. I am not a big fan of the EIT, but I do see that things are very different today.

    To say that the TTRC had anything to do with the Act 1 process is not only incorrect, it misses the point. The inherent flaws and contradictions in the poorly conceived and poorly drafted Act 1 – together with the public’s overwhelming opposition to any kind of income tax – dictated the results of that process.

    This was not a debate about an EIT under Act 511. That discussion has yet to take place. Again, the TSC did exactly what they were supposed to do – consider the narrow question proposed by Act 1 and make a recommendation to the School Board. They were not charged with, or empowered to, consider the borad question of an EIT.

    [Reply]

    Kevin Grewell Reply:

    I made a typo in my prior comment (see above) – the TSC recommended a PIT, not an EIT.

    By the way, while most citizens opposed any kind of income tax, many expressed the opinion that a PIT was more fair, and if a tax must be imposed, expressed a preference for a PIT as opposed to an EIT. Not relevant today as Act 511 authorizes only an EIT and does not allow a PIT.

    [Reply]

    Kevin Grewell Reply:

    The issue of fairness with the PIT was that many people in Tredyffrin and Easttown have “unearned” inome, such as dividends and interest on investments, which an EIT does not tax, but which would be captured under the PIT.

    An EIT could result in working people (some of whom are relatively poor, such as young singles or couples just starting out) paying the income tax while rich folks sitting on hundreds of thousands or even millions in investments escaped the tax altogether. Sounds pretty unfair to me.

    With respect to EIT, I think there is (was) only one kind – the issue is that some residents who work in other townships where the EIT is already levied pay it there, and if T/E enacted an EIT they would be exempt from the “foreign” payments and so essentially, those dollars “come home” to T/E.

    However, I recall discussions at the TSC meetings about this – the problem was complicated by the fact that many T/E residents work in Philadelphia and pay the wage tax there, under the Sterling act. Act 1 provided for “Sterling Credits” to reimburse those dollars, provided gambling revenue reached a certain level (which, as I recall seemed dubious at the time).

    There was some real uncertainty as to whether the data from Philadelphia could be captured to identify the wage taxes paid by T/E residents and so recapture the Sterling Credit dollars. It was believed at the time that it might be very difficult to get that money.

    I am going from memory here, but that, I think, was the gist of the discussions.

    [Reply]

  9. Thanks Kevin! I knew you would shed light (instead of just heat) on this topic. Act 1 was after my time, but it should be clear that the early hearing we had on taxes was essentially about “shifting” as well — because the reality is that any income tax revenue would essentially replace the need for an equal amount of property tax. That is the problem in communicating it all – — the budget is what the budget is — funding the programs is a matter of projecting (properly) the level of revenue to support it. (That’s a simple example — but I stand by the idea that a new source of funding would not open up the “vault” to additional unbridled spending).

    Mr. Clarke has periodically advocated this discussion and we banter a bit about why I am still not particularly in favor of any income (earned or personal) tax relating to schools at this point in time. Here’s why: the entitlement to services (schools, police, etc)) is triggered by the purchase of a house. Presumably people make the house choice based on their ability to pay for it — so it starts there. You could buy a much nicer house in another school district for the same price based on the reputation of the other school district. The PRICE of your house is directly affected by the reputation of the schools, and the municipal services of the community. When people buy a home in TE, they look at the cost of the home and balance it against what a TE address provides. They sort of ante up with their transfer tax…and then they are in annually paying a percentage of their home’s value. If they lose their job, they must decide if they can still afford their home — not if they can afford to pay the taxes associated with their home, which is truly a “cost of the home.” For parents with kids in schools, these taxes are a very small price to pay regardless of the tax rate because they are getting an incredible bargain for their education, which is heavily subsidized by others living here who do not have kids in the schools (yet — or any longer). But the reality is that the school quality helps to maintain the value (and hence asset investment value) of their home.
    Your income, on the other, influences the quality of the community only to the extent that you maintain your home. If you make a lot, or make a little, it is not relevant to how your property is priced or valued. (though it clearly influences your decision to ENTER this market). As I said before — when we (the school board) introduced the topic of using an EIT as a supplemental /alternative source of funding, it was because data supported the notion that while 20% of homeowners had kids in schools, 60-70% of wage earners did. Seemed like a balance that would be appealing on all sides as the state invaded the arena of “tax fairness”.

    But the response then, and I guess in some ways the continuing resopnse is that people participate in this community by what they buy — not by what they earn. What they earn is theirs to do with as they please — and they can “tolerate” school taxes because those taxes underly the investment they have in their home. Bad schools….falling house prices. And even if you no longer have kids in the schools, your school taxes are simply repaying the cost of the subsidized (by other taxpayers) education you got for your own kids.

    Babbling for sure — this is worthy of a debate indeed — but a debate has to have a purpose. Someone has yet to make the case (except that “people already pay it”) for assessing a tax on people’s income. So a public forum without a goal setting process is likely to be herding cats — very angry cats. The TSC came to conclusions and JP already says it was hijacked (thanks to Kevin for more accurate information).

    Back to the sidelines.

    [Reply]

    Kevin Grewell Reply:

    Thanks Andrea –

    you round out the discussion with the “rest of the story” regarding the relationship between quality of schools, property value, and the public’s willingness to support the status quo.

    Most people are fairly happy with the way things are but acceptance of the status quo may change in the future if red ink continues to flow, if red ink gets ever deeper. Who knows?

    It would take a lot of convincing to change the public opinion. By the way, I agree with everthing you said in your comment, which is why I was never a very big fan of the idea of an income tax. But I can imagine changing my mind if the facts on the ground warrant.

    With regard to TTRC “control” I would again point out (as you have elsewhere I think) that it is illusory. Party people have never interfered or attempted to assert any control over the day-to-day function of the school district of Board. In my time on the Board (overlapping several years with your time also) some TTRC members might attend a few meetings around budget time every year, and sometimes would speak against a tax increase. In that respect, they were just acting like any other citizen expressing an opinion (which we often ignored – so much for party control!)

    The TTRC did take a public position opposing the income tax, but then so did the Democrats.

    For those who like conspiracy theories, I suggest the Kennedy Assassination or the Government UFO cover-up. A lot more fun!

    [Reply]

    Anon Reply:

    I think John Petersen was overheard saying he thought he saw one of Kampf’s relatives in the grassy knoll… lol

    [Reply]

    Kevin Grewell Reply:

    Are you sure it wasn’t a school board member acting on orders from the TTRC?

    Ray Clarke Reply:

    Many thanks to Kevin for the complete explanation of the income tax background.

    Andrea says: “the entitlement to services (schools, police, etc) is triggered by the purchase of a house”. Actually no: the entitlement to services is triggered by residency in the community.

    Andrea also says: “Someone has yet to make the case (except that “people already pay it”) for assessing a tax on people’s income”. To start:
    1. It diversifies the tax base beyond a reliance on property owners
    2. Collections automatically rise with earnings
    3. It correlates with cash flow rather than assets
    4. 20% of homeowners have kids in schools, 60-70% of wage earners do
    5. Collection is low cost
    and last but not least …..
    6. People already pay it

    Net, net: an EIT is a FAIR way to meet shortfalls in local government funding.

    What’s the biggest driver of school quality and house prices in a school district? My hypothesis: the background and priorities of the families that choose to live there.

    BTW: Is anyone else concerned that the Township has no money to repair traffic lights, maintain vegetation in rights of way, cut the grass in local parks? Is that the direction we want our township to go in?

    [Reply]

    Kevin Grewell Reply:

    Ray, you have some good points.

    My point on the fairness of a PIT vs. an EIT is valid so far as it goes, but one can argue (as you did) that even a plain-jane EIT is more fair than just relying on porperty tax alone, given the fact that most of the people with kids in the schools are wage earners as opposed to just homeowners.

    It’s a bit more complicated than that, because a lot of seniors had kids in the schools, and as Andrea has pointed out, to fully “pay their way” they still owe many years of taxes after their kids are gone. And even folks who never had or never will have kids have a stake in the quality of life in our community and a duty to support the common good – i.e., (among other things) quality public education.

    I’m not sure a PIT could be enacted now, it would take another Act 1 referendum (can we even do that now?), whereas the EIT is available under the Local Tax Enabling Act and could just be imposed by the Township or the School District (or both) without a referendum. Political suicide perhaps, but possible . . .

    Finally, it is clear that something will have to be done to prevent the deterioration of vital serivices you mention. Obviously, quality of life and property values (which all homowners should care about) would be diminished if the Township can’t keep up or the School District declines in quality due to lack of adequate funds.

    Again, I’m willing to have an open mind on this due to the changed circumstances we find ourselves in. Having said that, with respect to the School District I have pointed out elsewhere that there are many things Harrisburg could do to reduce the cost of public education – either fund or eliminate some of the many “unfunded mandates” and increase the state contribution to public schools (in the late 70’s it was 50% of the cost, today it is about 35%, and an “affluent” district like T/E gets about 10% from the state).

    Thanks for your views – these last few posts are an example of the kind of debate that needs to take place in the broader public arena. However, like Andrea, I’m not sure who initiates that or how it would be done. Maybe the Township announces the intention to study the issue and holds public hearings? But without a lot more public support, no public official is likely to vote for an EIT. The support would have to build to a considerable level first, I would think.

    [Reply]

  10. Reading my own blog (above) it is a bit confusing since I keep putting my School District hat on when this discussion is really about the Township.

    A PIT is not available to the Township. It is not available to the School District either, except possibly under another Act 1 referendum (if one is allowed). Realistically, it is not going anywhere. So we are talking about EIT.

    Both Township and School District have the power to enact an EIT. If one does, the other will likely follow suit. In that event, they split the revenue. The Local Tax Enabling Act caps the EIT at 1% (if memory serve – correct me if I am wrong). Thus, if both Township and School District enact the EIT, they each get 1/2%. they can’t both have the full 1%.

    [Reply]

  11. Thanks Kevin and Ray.
    I appreciate both comments immensely — and think it is a great example of why the topic is so very difficult of achieving a mandate much less consensus.

    Ray — you talk about stability — but is anything more stable than a tax on assessed values == absent the assessment appeals? I say absent those appeals because this year, the CLR has risen for the second year in a row, which reverses a trend (it has not risen two years in a row to my knowledge in memory). The appeals are totally predictable when the CLR dropped to 50% — and district budgetting and income forecasting should ALWAYS pay attention to the assessed level (and its probability of being appealed). Assessment appeals should NOT be a surprise when the cost of the appeal is likely to have a payoff.

    I apologize for the broad characterization of “buying” something in the district, but presumably “renting” (another residency option) has factored taxes in the cost as well — so I stand by the premise behind people choosing to locate here by allocating a portion of their income to a home. It’s not about affording the taxes, then, it’s about affording the home — HERE. I am completely sympathetic to the fact that someone whose income has been adversely affected is challenged by the costs of living here (included in them — taxes), but that comes down to whether residency here is a right or a choice or a privilege. How do you quantify or assess that decision?

    THe phrase “location, location, location” refers to the choice and value of real estate — and it means more than the lot size.

    Your points are fair:
    1. It diversifies the tax base beyond a reliance on property owners
    2. Collections automatically rise with earnings
    3. It correlates with cash flow rather than assets
    4. 20% of homeowners have kids in schools, 60-70% of wage earners do
    5. Collection is low cost
    and last but not least …..
    6. People already pay it

    But in a debate on the topic, I would suspect the responses would be

    1. It simply expands the tax base to open up more sources of revenue.
    2. Automatically rise presumes raises in income — isn’t that the concern about why property owners do not want their property taxes to increase? Income is not rising?
    3. No argument here — but assets are how people enter the system — based on residency. YOu don’t get to send your kids here because you work here.
    4. The percentage argument has not changed in decades — so it has been made in each and every study.
    5. That would be numerical and I simply don’t know that to be true — but I will concede to it.
    6. SOME people already pay it. More people do not.

    Note that when the school district in ancient days (my time on the board) had our hearing to discuss this, we were absolutely SHOCKED by the response. I personally was encouraged by the percentages and assumed that it would be clear to the population. If we had seen ANY sort of support, we would have pursued more formal studies. We simply got no support — from ANY constituency.

    And again, here’s one of my issues: property taxes here are simply NOT onerous when compared to other comparable communities. You can only live cheaper by moving to an “inferior” community (in most cases….I don’t have a demographic study of 501 districts in PA).

    The problem is the demographic of only 20-25% of homeowners with kids in schools — so not as many people feel like they are getting a bargain (and not as many people escrow their taxes because their homes are paid for). In the 1960s, about 85-90% of homeowners had kids in schools — which is why new schools were built in short order. THAT was extraordinarily expensive compared to today — and it wasn’t for such an evolved product. But the majority were behind it. Now it’s about class warfare — which is age based, income based, and standard of living based.
    I know that the contractual salaries are at the core of the expense “crisis” — but I truly believe that taxpayers need to get to the premises behind how they were negotiated. Each time we go to the table with the teachers, some new angle arrives to a board member who may have NO HISTORY WHATSOEVER about what was negotiated prior to that contract. The teachers, on the other hand, have continuity behind every contract point. Carol Aichele and I negotiated two contracts covering 10 years — and I can assure you that after I left the board, I was not asked for ANY input on subsequent contracts. Things we had accomplished (relating to steps and entry level ) were gone — our way of folding health care costs into the contract costs may or may not have continued (but no one asked how much was in previous contracts).

    SO — it’s a flawed process, but it’s the only one we’ve got. I have to believe that the contracts reached were fair for both sides — and absent the tolerance for a strike (which damages districts and communities for a long, long time), our contracts are what they are.

    Now — one thing I could add — the issue with teacher compensation is the competition that takes place between the very districts we look at for comparable styles of living. Radnor, Lower Merion, Great Valley and TE boards rarely (if ever?) meet on these topics. So the teachers meet annually in Hershey /Harrisburg to develop a model contract, and each district approaches it in its own way. Then the locals cherry pick what other districts offer — and pick up pieces by pointing elsewhere.

    Too much info. Good luck. If the answers were easy, the debates wouldn’t be necessary. Keep pushing Ray. You have passion for the solution — I have too many scars to enter the arena.

    [Reply]

    Kevin Grewell Reply:

    Again, excellent discussion! Thanks Andrea.

    It is true that relatively speaking, our school property tax burden is no so bad. PA Department of Education keeps statistics which I have not checked recently, but out of 501 school districts in PA, T/E ranks around 470 or 480 out of 501 in terms of having the LOWEST propety tax burden. Also true (as you have pointed out elsewhere) as a percentage of home value, T/E school taxes are about the same as they were in the 1970’s, or around 1%.

    For those not familliar with this line of reasoning, here is a little more analysis:

    How is that possible when the taxes have been raised so much over the years? It is a percentage of the value of the home. Taxes have gone up, but property values have also gone up as fast or a little faster, so the tax as a percentage of value has remained stable.

    This does not help a senior on a fixed income (and without substantial retirement savings – we do have some of these in our district) who does not escrow and pays the tax in cash every year. The home value is a real financial benefit, but it is not a liquid asset unless the senior takes out a “reverse mortgage”. On the other hand, many seniors could afford to stay in their homes if they were willing to tap some of the equity. Also, when it comes time to leave the house, that equity can provide the needed money to take care of the senior in an apartment, nursing home, medical expenses, etc.

    It could be worse. Imagine paying taxes all those years (and higher taxes too – many of the inferior districts have higher taxes than T/E) and in the end your house is not worth much because of the poor quality of the local shcools. Then you don’t have any equity to tap.

    So everyone does benefit from the quality of the shcools.

    Oh, one other point that Andera touched on – an EIT used as a way to reduce property taxes and shift more of the burden to wage earners who have kids in school is one thing. But there is no gurantee it would be used that way. (particularly in the long run – different school boards composed of different palyers with different agendas). What if the EIT is just another tax ON TOP OF the property tax – just more taxes, not a reduction in property taxes?

    [Reply]

    Ray Clarke Reply:

    “Taxes have gone up, but property values have also gone up as fast or a little faster, so the tax as a percentage of value has remained stable.”

    Here’s some data:
    1. Average value of a house in Tredyffrin
    August 1 2005: $483,000
    May 1 2010: $473,000
    Change: -2%
    Source: Zillow.com

    2. TESD Tax Rate:
    2005/6: 15.13 mills
    2010/11: 17.97 mills
    Change: +19%
    Sources: Tredyffrin Township, TESD

    3. % agree/strongly agree with the options listed: In order to balance the Township’s budget, Tredyffrin township should:
    Increase property taxes: 10%
    Impose an EIT: 19%
    Difference: +90%
    Source: BAWG Report, Survey of 341 Tredyffrin Residents

    [Reply]

    Kevin Grewell Reply:

    Regarding property values vs. taxes, I was talking about longer term, from the 70’s to present. 2005 to 2010 may be a differnt story, but this may not be typical because that period also encompasses the financial crisis and nation-wide decline in home sales and prices. I think that the 2005 -10 period is not typical for us, and also note that home values in T/E declined very little during the crisis whereas other parts of the state and country took a big hit.

    Anybody’s guess as to what happens in the future, but my guess is that when the economy recovers a bit more, home values in T/E will once again par with tax increases.

  12. Thanks Ray, Andrea and Kevin. I need to digest what you all have said — but it’s nice to follow a post where we all don’t get too clever!

    [Reply]

  13. Random thoughts:

    Andrea: Not sure I talked about stability in recent postings. An EIT is likely to fluctuate more than a property tax based on values assessed every ten or more years (unless there is a sale or other reason for reassessment). However, I don’t think that in the aggregate income has been wildly cyclical, even in the last few years.

    The virtue of a tax that is automatically inflation adjusting is that you don’t have to increase the rate to pay for compensation increases that rise at inflation. Compensation increasing way beyond inflation, as it has in the current contract, is another matter. As I said in another post, I really like the idea of legislated caps on tax increases as a way to tip the balance of power and deal with the contract negotiation problems you so rightly highlight.

    It wasn’t the CLR at 50% that triggered appeals, it was the fact that house prices dropped 25%, but the CLR didn’t rise to 67% to compensate.

    The interesting thing about taxes and the services they fund is that there is little correlation between the users of the services and the amount they pay. Today’s taxes at all levels are largely based on ability to pay. I think that half the population pays no federal income taxes at all.

    I like the idea that all residents, including renters, would get some explicit skin in the game. If the tax for local services is not all lost in a rent payment but instead is itemized on a pay stub, maybe people will get more involved in how the money is spent.

    And to agree with Kevin – yes, those state mandates should be closely examined. Can we afford them all in today’s economy? I suspect it would be very hard to roll anything back, though.

    The School Board has more or less committed to a Fall analysis of an EIT as a possible mechanism to close their deficit. If they want to implement one, it will require engagement with the townships, so I guess the discussion will get more anchored.

    [Reply]

    Kevin Grewell Reply:

    Ray

    Again you make some excellent points. I agree with much of what you argue, even though I would like to see other approaches to close the gap – I wish Harrisburg would get serious about helping school districts control rising costs. I wish they would increase funding and look seriously at mandates. Many would be hard to roll back, but I think some would be possible.

    Part of the answer will be the tax caps. To be fair, I opposed them (fearing the very budget woes we now suffer), but now that we have them, it will make the next round of contract negotiations more favorable to the taxpayers. I have always been very supportive of our teachers – we have and need good ones – and they have to be well paid to get that – but they do have some benefits that the rest of us only dream of. Part of the solution is that they will have to be a bit more realistic on things like sharing the heath care costs. That won’t close the gap by itself. The pension system is state mandated and only the Legislature can solve that one.

    It may be that an EIT is a thing whose time has come, but with the HUGE opposition we have seen in the past, it may not be politically feasible. I just don’t know. Ray, you are a gread advocate and salesman – if you can get more folks like yourself together, you migh just have an impact.

    If it comes to a head, I may speak my thoughs at a meeting or two, but beyond that, I don’t plan on being very politically active in the future. Like Andrea, I’ve had enough. There comes a time on the school board when you feel like a piece of red meat in a Pirrana tank . . . . . . don’t get me wrong, it is rewarding too, but there is a point of burn-out, and I’m definetly there.

    Keep up the good discussion – all of you – on all sides of this. Eventually the community will address this and make the right decision.

    Best wishes.

    [Reply]

  14. Excellent discussion by Andrea, Ray, and Kevin. I do think, that based on their experience on the School Board, Andrea and Kevin particularly understand the mindset of the Tredyffrin taxpayer and have articulated that very well. Agreeing with them, in my opinion, the taxpayers’ #1 priority in this township is the education system – how it benefits them as they raise kids, how it drives the quality of life and community values, and how it drives the value of their home. You notice I did not say their #1 is the schools – in fact, they’re a pretty frugal bunch and not willing to pay for all of the “bells and whistles” – those folks are in Radnor and Lower Merion, with their fancy new schools with swimming pools, laptops, etc. and those Townships’ taxes reflect that. The education system is first-rate, the school buildings are very adequate (without being “over the top”) to support the fine program and the taxes are very reasonable. Cadillac “product” at a Chevrolet price.

    As for an EIT, Kevin’s question is the one on every opponent’s mind, “What if the EIT is just another tax ON TOP OF the property tax – just more taxes, not a reduction in property taxes?”

    [Reply]

    Kevin Grewell Reply:

    Mike,

    The main reason most speakers gave for opposing any kind of income tax during the Act 1 hearings was exactly the “What if it’s just another tax on top . . .” argument.

    To paraphrase, the typical comment went something like this:

    “Hey, we like you guys and think you’re doing a great job, but we just don’t trust giving any government entity another way to tax us. I mean, you all won’t be here five years from now, and even if you guys are OK who knows what a future board will do with that power?”

    That’s a huge hurdle – on the other hand, if red-ink continues to flow (and becomes a real “gusher”) something will have to give.

    In the school district, we already had our version of the Township BAWG (our “Opperations and Opportuinities” Committee – of “OOPS”). We already cut most of the things that could be cut without reducing program. So with Act 1, we now are going to have to make deep cuts in program that does affect the kids. Over time, this may change some minds on the EIT. We’ll see.

    Best wishes – along with Ray and Andrea and a few others, you, Mike, are one of the voices of reason and reasonable debate.

    [Reply]

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Community Matters © 2015 Frontier Theme