Ray Clarke attended the T/E School District’s Earned Income Tax presentation this week and wrote the following Letter to the Editor. On Monday, October 25 the School Board will decide whether to move forward with a May referendum on the EIT. As Ray explains, the school district will not be able to move forward with an EIT unless it receives the vote of the residents. I hope that the School Board members will vote on Monday to continue the process . . . it’s important that residents have the opportunity to participate with their vote in May.
To the Editor:
Next Monday, Oct. 25, the Tredyffrin/Easttown School Board will take a vote that is critical to the financial prospects of the district and its residents: should it go forward with consideration of an Earned Income Tax (EIT) as one tool to fill the looming budget gap? Last night (Oct. 18) the board held an excellent, well-attended information session explaining the tax and its implementation, and I encourage all residents to watch the broadcast (times on the TESD Web site, www.tesd.k12.pa.us) and then make their views known to the board.
School-district expenses are continuing their inexorable rise, fueled by compensation costs: contracted salary increases, health-care costs and pension costs. The official projection for 2011-12 is for a $7-million gap with extremely favorable assumptions for investment income and transfer taxes risking another $2 million. Last year T/E cut some $6 million in expenses, drew down its Fund Balance reserves and contained its property-tax increase to the Act 1 limit of 2.9 percent. This year the options are more limited. Salaries can only be reduced through attrition, even if programs are cut. Supplies expenses are already back to 2008-9 levels. Real-estate assessments are being appealed at record rates. The state cap on property-tax increases is worth only $1.2 million.
An EIT would be one way to limit the pain for taxpayers, 40 percent of whom already pay such a tax to the municipality in which they work. This money (perhaps as much as $6 million) would come back to benefit the district. The tax is low-cost to collect, diversifies the tax base away from dependence on the property market and would not, by definition, impact those who have lost their jobs. Ninety-five percent of jurisdictions in the state have an EIT: those that do not are mostly clustered around Philadelphia. This is a legacy of the days when taxes paid in the city would not benefit the taxing locality; now there is the potential for gaming revenues to fill that gap and directly offset property taxes if there is a local EIT.
The school district cannot implement an EIT without approval from residents voting in the primary next May. The process to put the question on the ballot requires a – non-binding – notice to the townships of the intent to put the question on the ballot. This is the reason for next week’s board vote.
Many unknowns remain. In particular, would the townships jump on the coattails and claim the 50/50 split of the revenue to which they are entitled? How much can expenses be cut? What is the best-case budget gap? How large would the property-tax increase have to be absent an EIT, and would that increase have to be put to voter referendum? What would the EIT rate be and how much money would it raise? What would be the likely property-tax offset, if any?
It’s important that the school board vote to continue to explore these questions, and allow the voters to make their voice heard next May.
Raymond F. Clarke, Malvern