Tredyffrin’s 2011 Budget Unveiled – No Tax Increase! TESD Finance Comittee News Not as Positive

Due to last night’s Board of Supervisors meeting change (due to Election Day), I was unable to attend.  However, I have received an update about the township’s proposed 2011 budget.  (Here is a link to the proposed 2011 budget).  It is my understanding that the proposed budget includes (1) no increase in taxes; (2) no reduction in township services or personnel; and (3) restoring of fire company contributions to 2009 levels.  Considering that Lower Merion’s residents are facing a 12.7% tax increase in their 2011 budget, last night’s news is particularly good for Tredyffrin residents!

Having not see the proposed budget and having not attended last night’s supervisors meeting, I do have a question for anyone who did attend — how was the township building’s HVAC capital expense factored in to the 2011 budget?  If you recall, there has been much discussion about valve and duct work replacement in the HVAC system and the associated costs.  Does anyone have information how the needed HVAC work was treated in the proposed 2011 budget?

Although last night’s supervisors meeting was over by 8:15 PM, it seems that there was more discussion at TESD’s Finance Committee meeting.  I counted on my friend, Ray Clarke to provide notes from the meeting and as usual, his detailed notes did not let me down.  Thank you Ray!

TESD Finance Committee Notes from Ray Clarke —

Monday’s TESD Finance Committee meeting was largely devoting to laying the groundwork for property tax increases.

This year’s revenues and expenses are largely in balance, with the shortfall in transfer taxes offset by Harrisburg’s deferral of PSERS costs and many smaller ups (eg salaries) and downs (eg FTEs).  The projection for next year remains for the moment at a $6.9 million deficit, but a detailed review of the assumptions in the model revealed another $1 million of overly optimistic assumptions: a 1% increase in assessed value and a 2% return on investments.  (The $1 million over-generous (in today’s times) transfer tax formula was not discussed).  The model will be re-worked with new assumptions (a 0.26% assessment decline and a 1% investment return, not done at the meeting), but it seems clear to me that the deficit is going to be north of $8 million, as discussed here last month.

Leftover 2010/11 budget strategies likely to be implemented in 2011/12 could be worth a benefit of $0.8 million, although they would have to be phased in only as attrition allows.

The Board then reviewed the timetable for the processes required to a) define and request available exceptions to the increase property taxes beyond the Act 1 limit ($1.2 million) and b) prepare a referendum question for a property tax increase beyond the probable [Act 1 + Exception] limit ($2.8 million).

What this means is that the proposed preliminary budget must be discussed at the next Finance Committee meeting on December 13th if the School Board is to vote on requesting exceptions at its January 24th meeting.

If there is any intent to raise taxes above the Act 1 limit, the 2011/12 budget must be adopted by mid-February. 

So, the pressure is on in the next couple of months.  If the Board voted against even considering whether to ask the community to implement an EIT that 40% are already paying, can they really ask for a referendum to increase property taxes by a greater amount?  The alternative is likely to be raiding the General Fund for the $5 million shortfall (bringing it down to $23 million), and thus pushing off the problem until 2012/13, .  Likely still OK for the bond rating.

In that year, of course, the PSERS problem will hit hard under the current formula – a $5 – 6 million net cost increase.  Plus of course another 4.5% TENIG increase and a new TEEA contract.  A deficit, after more property tax increases, of $10 million, say.  That would take the fiund balance into tricky territory.  There was much discussion of the need for a state fix to PSERS and the spectre of School District bankruptcies (not TESD!) was raised. 

Maybe it will actually take defaults and bond-holder restructuring to force the kind of constitutional changes needed to reform current pension plans.  Dealing with the problem by squeezing new hires may solve long run accounting, but will there be enough cash to get through the short term, and if we do, how will we be able to attract a next generation of teachers of the needed caliber?

There’s probably more to comment on, but I’ll stop with the interesting sidebar that the average wage cost of a teacher used in calculation of budget strategy savings was raised from $73,000 to $80,000 – a 9.6% increase.  This recognizes the actual individual year-on-year salary increase built in to the current contract and hidden in the 5% numbers much publicized officially.

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19 Comments

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  1. At the meeting last night, the Board asked Dr. Waters to return with additional budget strategies. Mr. Clarke seems intent on banging the EIT drum, but the board has tabled that option for 2011-12 budget year.

    It will surely return next fall, but anyone with a basic understanding of union contract negotiations will understand why the board would not want to enter 2011-12 with the EIT windfall available.

    So let’s stop whining about the EIT for 2011-12 and focus on the current budget year. (You can always start advocating for the EIT again in May when the board starts studying the issue again.)

    With available property tax increases that don’t require voter approval, we’re looking at close to a $4 million deficit. Over $3 million of that is PSERS, and there is a fund put aside for PSERS rate stabilization. The other approved strategies (as mentioned by Mr. Clarke) are close to $1 million in cuts. So if the board asks for additional strategies, it’s easy to see how they’ll balance the budget for 2011-12.

    Mr. Clarke and other EIT advocates don’t want to move on because they would have preferred a tax shift for 2011-12 (e.g. a lower property tax increase for themselves since they could shift the burden onto their working neighbors who would pay the EIT.) They justify this by saying that 30-40% of working TE residents pay an EIT anyway and ignore that it would be a new and significant tax on the other 60-70% of working residents…and particularly tough on renters (approx 10-20% of our residents). And they don’t care that an EIT would harm the negotiating position for the next teachers’ contract either. It’s all about “reclaiming” money and how it would impact their pocketbooks.

    Why can’t we focus on the current year and the current budget strategies instead? Let’s debate the EIT again in the spring after we’ve made all of the possible cuts this year. I also think the EIT is more likely to pass if the public really feels there is no better option. It would have surely failed in the spring due to public perception that there are additional cuts possible.

    Here are some questions for the board:
    1) What are the additional strategies? What would be cut? What are the impact of these cuts?
    2) Are you going to use the fund balance? If not now, when?
    3) What are your thoughts on an EIT next year?

    Let’s try to be involved in a positive way in the budget. And we can all start by attending the meetings.

    [Reply]

    Ray Clarke Reply:

    So sorry that someone got out of the wrong side of the bed this morning.

    Actually reading my post would indicate that I referred just once to the EIT, when I used the recent vote to suggest that the School Board was averse to asking the voters for any tax increase. Not sure that means I was “whining”, “banging the EIT drum”, not “focus(ing) on the current year” and “shifting the burden to my working neighbors”.

    And it is helpful to get the arithmetic right: the PSERS expense for 2011/12 is budgeted to increase by $2.8 million, of which 50% is offset by the state contribution, for a net increase of $1.4 million.

    As to the questions, my own conclusions were:
    i) There is no indication that there will be any significant budget strategies in addition to the $760,000 I noted. It’s notable that $240,000 of that $760,000 is still being studied.
    ii) There is likely to be a Fund Balance use of as much as $5 million in 2011/12.
    iii) Why would the Board want to comment on an EIT now, when we are “focus(ing) on the current year”?
    The actual Board answers to the first two will come on December 13th, of course, but I was trying to give Pattye’s readers my own analysis ahead of time. Use at your own risk!

    A separate topic, also from last night … The Auditor took us through last year’s audit – a clean opinion. There was a lot to follow, but I did catch a sense from him that the deferred compensation portion of compensation for all employees is relatively generous and that the liability for them is large compared to other school districts. An area to pay attention to in the next round, maybe. Again, though, the focus must not be just on (unrepresented) new hires, or we risk doing our children’s children a great disservice.

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  2. Both the township and the school board talk about a fund balance to retain a bond rating. No one ever talks about a number. Instead of wondering when it will get tricky, can we have some financial people weigh in on what percent of expenses needs to be retained to protect the bond ratings (are we going out for a bond anytime soon in either jurisdiction?)

    TE should also disclose how much of their fund balance is in fact escrow for PSERS stabilization and retirement severance payments for several long-time administrators. I believe Dr. Waters will receive someone in the area of $700K – $1M as a severance payment, and I dont’ know what other payments are likely to be, but we see a fund balance and I’m not so sure it’s not partially “claimed.”

    [Reply]

  3. It is interesting to note that state law sets a maximum unreserved, undesignated fund balance of 8% of expenditures. How is the $28M fund balance divided between the three types of accounts and is TE required to spend down their fund balance before they raise taxes?

    [Reply]

    Kevin Grewell Reply:

    If memory serves, an undesignated fund balance in excess of 8% would be a limitation on the ability to raise taxes. However, as a practical matter, the board would very likely just designate enough funds to bring the undesignated percentage below 8% in order to keep their options open. This would be prudent when faced with large known and forseeable unfunded liabilities, limited taxing authority, and uncertain economic conditions.

    It is not a trick – there are ample known liabilities to legitimately designate funds towards.

    A breakdown of how funds are reserved and for what purposes should be available from the administration – it is public information and will typically be included in materials provided at budget developement hearings, or if not, a simple request should do it.

    [Reply]

    Ray Clarke Reply:

    Kevin has summed up the principles nicely. The designation of the fund balance is a frequent topic at Finance Committee meetings and at the last one, the Committee voted to recommend the following designations to the full Board:

    (Figures in $ million; may not total due to rounding)
    Contribution to 2010/11 budget: 3.1
    Capital expenditures through 2014/15: 9.2
    Vested employee services: 6.7
    PSERS stabilization: 10.5
    Total: 29.6

    Note that the contribution to the current year budget includes a “budgetary reserve” contingency of $1.6 million, so it’s expected that only $1.5 million of the $3.1 million designation will be needed.

    [Reply]

    Kevin Grewell Reply:

    Thanks for the current figures, Ray. I have not been going to meetings since I left, and I have not been following the budget process closely via website or other methods. Just can’t quite bring myslef to do that . . . . . but it is nice that you do attend and provide updates to the rest of us.

    [Reply]

  4. Ray,
    Thanks for the update. Looks like T/E residents will have to brace for a tax increase. If additional revenue from Act 1and exceptions totals only $2.8 million, what is the likelihood that the SB will vote to make up the $4 million plus difference from the fund balance when they were unwilling to part with more than $1.5 million to balance the 2010-11 budget? However, if residents vote down any referendum to increase taxes beyond the Act 1 + exceptions amount, a large drawdown and/or painful program cuts are the only alternatives.

    I believe the EIT discussion was halted before most residents had even tuned in to it.. Every T/E family should have had the opportunity to evaluate the effect of an EIT on their own finances . They should have been able to compare the cost of projected property tax increases versus an EIT and potential property tax decrease. We should have gotten an answer as to whether the District would have to share the tax revenue with the townships.

    I understand that taxpayers view an EIT, once imposed, as a permanent tax with no guarantee that property taxes will be lowered to offset the new tax.. A property tax hike, on the other hand, is a tax they are comfortable paying. It is set on an annual basis. It is fairer in the sense that it is spread among all property owners.

    Even so, the fact that almost $4 million of Tredyffrin residents’ income is being used for the benefit of other school districts and municipalities really rankles….

    I believe high- income residents are behind the abrupt end to the discussion of EIT – the same group that led the anti-Act 1 propaganda campaign in 2007. These people would much rather pay a more predictable (and for them) modest property tax increase than be hit with a 1% EIT.

    But long-term, is this in the best interest of the community as a whole? And when will we be able to have a real fact-based conversation about this?

    [Reply]

  5. Kate:

    The amount paid by Tredyffrin residents, cited by Berkheimer last year, was $2.7 million, not “almost $4 million”.

    As More Info states above, your “fact-based conversation” would very likely result in a “shellacking” (B. Obama, 11/3/10) of the EIT if on the ballot in May, 2011. Along with the timing of the teacher contract, “the EIT is more likely to pass if the public really feels there is no better option”. At this point, there are, or at least the public feels there are, other options.

    Further, while high-income residents may be opposed to the EIT, that hardly explains the 88%! anti-Act 1 vote in 2007. Again, look at the I-1098 vote in Washington state – 65% voted against a tax on only the highest earning 1.2%. Clearly, people often vote against their personal self-interest, think real estate taxes are fairer, and are very opposed to new tax schemes. I continue to believe that this community strongly favors the “devil they know”, real estate taxes, rather than the “devil they don’t know”, a new income based tax.

    [Reply]

    Kate Reply:

    I don’t disagree with you on the likely outcome of a May 2011 vote on EIT.

    The Berkhimer estimate is not current, though given the unemployment numbers, the amount of EIT paid by Tredyffrin and Easttown residents could actually be lower .Taxpayers deserve to know the hard numbers.

    My only point was that the EIT discussion was presented, then immediately nipped in the bud before the communtiy had a chance to examine the issue and consider how it would affect them personally.

    Clearly, the matter of timing was considered by Mr. Mahoney before he scheduled a public EIT informational meeting in October. I am assuming he did so with support from the majority of school board members.

    Yet the process abruptly ended after one powerpoint presentation and input from 50-100 T/E residents.

    My guess? The initial email/phone call feedback from the community after the meeting was overwhelmingly negative, judging from the tenor of a sample of questions and comments made by residents who did attend the October 18 EIT meeting.

    Your perspective is: why investigate a tax scheme we should never implement?

    Mine is: Given the District’s projected deficits and the fact that 95% of school districts have already enacted an EIT, it’s time the entire community gets the facts and understands who would pay and how much; get the SB’s input as to whether they plan to lower property taxes if an EIT were implemented; get a clearer picture of how the revenue would be used – e.g. to cover necessary budgeted expenditures and not to expand programs or undertake capital projects without community input.

    In my view, the 88% anti-Act 1 vote in 2007 reflects the reality that a one-sided set of facts was presented and an all-out campaign was waged by a local political party and certain prominent individuals in the community to make sure of the desired outcome. The average resident didn’t know anything more than “No new taxes”.

    I still remember senior citizens standing up at Act 1 meetings to request relief from the burden of property taxes they’d paid for decades. They were drowned out by the ever-present Tom Colman, whose anti-tax advocacy routinely overshadowed the presiding Act 1 committee at each and every public meeting.

    Yes, the community voted down Act 1 by a huge margin. But times were different, they voted on the basis of an incredibly one-sided campaign waged by those ideologically opposed to taxes and for whom any income-based tax would be substantial.

    But a time will come in the not-so-distant future when additional revenue sources will need to be considered – again.. It’s a matter of simple math. Capital projects will need to be funded. Infrastructure will need replacing. Fund balances can only be depleted so much. There will always be a number of homeowners who’d prefer to pay more in property taxes than consider any income-based tax. But there are many in the community for whom an income-based tax is fairer and more affordable.

    [Reply]

    Mike in Berwyn Reply:

    Kate:

    We agree on a bunch of stuff here: the Berkheimer estimates (which WERE $2.7mm, not “almost $4mm”) are estimates, the EIT would not pass in May, the initial feedback from the meeting and phone/email was overwhelmingly negative, the School District is going to need more revenue.

    A couple of other points – while the SB might discuss a tradeoff, whereby an EIT would be offset by reduced property taxes, such a tradeoff is by no means binding on future Boards. I absolutely trust this group, but who knows what the future holds. Many citizens see this as a short term fix and in a couple of years property taxes are back at current levels or more PLUS we have an EIT. This is a major hurdle for taxpayers, contrary to your assertion that we need “additional Revenue sources”.

    Your characterization of the 06/07 Act 1 discussion is incomplete, to put it mildly. Despite your assertion that the discussion was somehow rigged, you or anyone had every opportunity to present the case for an EIT or PIT at two large open meetings at VF Middle School. It was an “open mike night”. Reporting on the 11/16/06 hearing, TTDems.com (I assume you agree that they are an fair source) said “About 200 people attended the session tonight, and every citizen who spoke before the Tax Study Commission, asked them to keep the current property tax system and not to recommend switching to a Personal Income Tax or an Earned Income Tax.”- further, “Citizens speaking before the Tax Study Commission tonight repeatedly asked them to not make any recommendation to switch systems.” This idea that anybody was “drowned-out by the ever-present Tom Colman” is complete fiction, advanced by folks who sat silently or had nothing rational to say to advance the cause of their beloved EIT.

    [Reply]

    Kevin Grewell Reply:

    Kate,

    I must respectfully take exception to the assertion that the Act 1 process was a one-sided propaganda campaign. I believe both political parties took official positions against an Act 1 income tax – including TTDEMS. There were very few people who spoke or wrote in favor of an EIT or PIT at that time.

    The overwhelming, obvious flaws in the law doomed it from the start. Act 1 was so poorly conceived and poorly drafted that it presented too many unintended problems and even failed to deliver on its promise of real property tax relief.

    Even if the school board, administration, and both political parties were in favor of this, we could not have sold this stinker to the voting public.

    Tom Colman did express his views at a number of meetings, but he was only one of many, many others who opposed the tax. Plus, as Mike points out, nobody was turned away from the microphone.

    [Reply]

  6. Today’s paper says the Berkheimer estimate is $3.8M….or thereabouts.
    Kate — I hear your logic and your concern, but in this land of little change, Mike’s assessment is the one the SB reached in the early 90s as well. No one likes taxes, so having another one is just not likely to get a majority approval. And it’s not about what people know. It’s about what they believe. Just like politics. We can educate people on the balance — since any additional tax would be revenue neutral (the board will only raise the money it needs), but an additional source will soften the blow for raising taxes….sort of.

    Anyway, I think the EIT is over for now because there is still a big view that a PIT is a fairer levy. There was no push for revenue in the 90s and we explained and presented information that 70% of wage earners had students in school, but only 20% of homeowners did. Didn’t matter. “No new taxes” leftover from Bush1….and the reality is, that the things you say need to happen will happen whatever the revenue source. The reference to “many in the community for whom an income-based tax is fairer and more affordable” is too hypothetical. Right now, I’m betting the only folks inclined to support (and learn about it) would be people already paying one.

    I think the drums should continue to beat, but know that the sitting board will spend the money that needs to be spent, regardless of the income source. They borrowed $10M last year and you will note that Ray says that $9.2M of the fund balance is designated for capital projects…is it the same $10M or additional?

    [Reply]

  7. Andrea:

    The paper says the Berkheimer estimate is$3.58mm, not $3.8mm, and that is for Tredyffrin AND Easttown – Tredyffrin is about $2.7mm.

    I agree with your point that “the only folks inclined to support (and learn about it) would be people already paying one. ” Though, frankly, with an 88% against vote in 2007, if we agree with the claim that 40% already pay an EIT elsewhere, even some who already pay did not vote in favor of imposing an income-based tax here.

    [Reply]

  8. **** BREAKING NEWS! ****

    I received this press release from the TESD Communications Department.

    Budget Breakthrough
    Hours before the deadline for notification to the Townships, the School Board voted to continue discussion of an Earned Income Fee.

    Reaction was immediate and showed bipartisan support. State Representative-elect Kampf said, “This is exactly the innovative thinking that I have championed and is being adopted in Harrisburg for the gas extraction fee. However, I would vote against it.” Departing Representative Drucker said, “This is a great idea. Why didn’t I think of a Route 422 Fee?”

    Tea Party member Anon 1- 999 commented, “Now we can get to the important issue of finding the govnment department responsible for those red squiggles in my mssges.”

    Also, Education Committee Chair Cruickshank said, “We are now considering how this breakthrough thinking can be made a core part of the economics and social studies curriculum, provided the union approves it.”

    [Reply]

    Ray Clarke Reply:

    Comments on T/E’s stunning announcement continue to pour in from the Main Line and beyond, far beyond ……….

    TEEA: “At last, here’s the rainbow, and we see the pot of gold at it’s end. Of course we’ll adjust the curriculum; all teachers should move one column over in the matrix and retiree health care should be extended from 10 to 20 years”

    BAWG/Tom Colman: “We’ll be delighted to re-run our EIT/property tax survey to get better data”

    Union of Chester County Municipalities: “Hey, that’s our money”

    Corbett Transition Team Joint Chair Christine Toretti: “Sounds interesting, but I haven’t left my old job yet. I’ll check with some guys at the well-head and get back to you”

    Ben Bernanke: “I feel some quantitative easing coming on. Give me some of those yummy TESD bonds”

    UK Conservative Party: “If we knew this, maybe we could have stopped students kicking down our doors”

    Jon Stewart/Stephen Colbert: “We couldn’t have made this up. Please stop before we need to change our pants”

    [Reply]

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