T/E School District’s Tax Study Group Kicks Off Earned Income Tax Process

The T/E School District held its first meeting of the newly created Tax Study Group.  Thank you to Ray Clarke for attending and providing Community Matters with his personal observations and comments.  I spoke at length with Ray in regards to the meeting.  Based on our conversation and Ray’s notes below, it looks like the Tax Study Group could use the assistance of  a tax attorney.  If there is someone living in Tredyffrin or Easttown with that expertise, perhaps they could offer their assistance in the school district’s EIT project.

Below are Ray Clarke’s comments from the Tax Study Group meeting:

The kick-off meeting for the TESD Tax Study Group (TSG) was held on Thursday. It was a long meeting, focused on bringing the TSG up to speed on basic district financial and demographic information. The TSG clearly has a long way to go, but at the end some organization emerged that leaves me hopeful for the outcome. I think it will be important that they formalize a way to get direct community input. Some observations:

  • The TSG was supported by Art McDonnell and the same consultant from the PSBA that worked on the 2006 exercise. A majority of the Board was in the audience, plus Tredyffrin Supervisor Mike Heaberg and about half a dozen community members.
  • The core of the meeting was a presentation of basic district data by the consultant. Hopefully the large binder will be a good reference, but more focus might have helped. Also, much of the data was dated and there were a disappointing number of mistakes – one important one alertly caught by Ed Stevens of the TSG. But, good info on the district’s personal income and assessed values, both trends and distribution, which will definitely be important factors in the analysis.
  • My selection of good TE rules of thumb and factoids for armchair analysts (it was stated that the materials will be available on the TESD web site):

– $2.3 billion of personal income

–  $5 billion of property assessment, distributed according to the 80/20 rule.

–  Median household income for Tredyffrin ~$100,000, for Easttown ~$130,000

–  25% of the TE population under 18;

– 16% over 65 (both percentages higher in Eastown and lower in Tredyffrin).

–  Huge bubble in earned and personal income in 2007 – up more than 30% over the previous year.

  • TSG organization: William Mullin emerged as the organizing force.
  • No meeting on September 29th; other meetings will last from 7 to 9:30pm. Possible final presentation to the community on November 3.
  • The objective of the TSG was reinforced many times: to present a set of Pros and Cons to the Board for consideration. In my opinion the TSG will provide the greatest service if it ensures that the set is driven by data and analysis, not anecdote.
  • One important area for up-to-date, authoritative data: what will be the impact of an EIT on Philadelphia workers? Can TE levy an EIT on those wages, or otherwise get any benefit (gaming revenues?). Under what conditions, and what are the (quantified) odds of those conditions applying? This will have an important impact on the possible revenues and the number of residents affected.
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  1. The personal income “bubble” in 2007 was due to the rise in the stock market. That figure is much lower now due to the “mini crash” which followed when everyone’s portfolios went down and was starting to recover then was hit this year due to all the financial troubles both here and abroad.

    I daresay the earned income is probably about the same unless you’re a Wall Street “tycoon”. Many of the mdidle class probably haven’t seen pay raises for a couple of years & it’s doubtful they will in the current economic climate.

    As far as CURRENT, UP-TO-DATE info, it would also be helpful to know what the SD unemployment figures are in addition to the earned income figures. Isn’t this data available? Maybe someone on the TSG should do some homework before giving outdated info to the committee and the public; like finding out where they can get it.

    The TSG should have this info before they have another meeting; if not, the upcoming meetings should be pushed back until they do so as not to waste time.

  2. Libby: good question about the unemployment rate. The consultant provided data for the County, not the District. In June 2011, that rate stood at 6.3%, down from a high of 7.2% in July 2010 but up from 5.9% for the most recent 2011 months. The rate was 3-4% for the decade up to July 2008.

    The consultant made an argument that the demographics for the District aren’t that different from that of the County, and so it’s OK to use County data where district info is not available. I’m not sure about that – the percentage of college graduates over school age in the district is 60% higher than in the county overall, for example.

    There is apparently some hope that district income data for 2009 will be made available by the state in the timeframe of the TSG study.

    I do think there is so much for the TSG to do to get their output structured, that any near term meetings should not be in vain, even without all the data!

  3. Got a question for anyone who can answer? If the EIT goes into affect, how does that afftect the property tax. Does it go down. The reason I ask is this, what if you work and live in Tredyffin. So this would mean you are taxed twice, once for proerty tax then wage tax. Does any one know anything about that.

    1. The maximum possible EIT would not raise as much as the current property tax, so we will always have that as well as an EIT. Depending on the EIT rate, though, and the ability of the district to control expenses, there may be the possibility of reducing the property tax rate if the Board votes to do so.

      No doubt that sticking with the property tax is administratively convenient – that rate can be varied down to the fourth or fifth decimal place (as we saw last year), whereas introducing an EIT would be a step of, say, 0.5%.

        1. Version,
          Although it is a 2nd tax, there is one significant variable to this. It is only a 2nd tax if you are earning money. This is significant for seniors on fixed retirement or people who are out of work. It also expands the tax base beyond property owners. There are many who live here who pay none, so this would be their 1st tax.

        2. one other thing, it doesn’t matter where you work, tredyffrin or elsewhere, your income would be taxed. So don’t think that just because you work in T/E, you would be the only one being taxed.

        3. Version & CJ

          Those working in a municipality which assesses an EIT already pay the EIT – and it isn’t returned to them. So they’re already paying the “2nd” tax – just not to us. Don’t think that if you live & work in either township, you’ll be paying 2 EITs, you’re paying only once. If your employer is in either township, it’s automatically taken out of your paycheck. You’re taxed on employment income only; no additional income.

    2. Legally, the school board could still increase property taxes. Even if a current board says they won’t raise taxes, they cannot force a future board to keep that agreement.

      Imposing an EIT does not mean that property taxes will decrease or even stay stable. Taxes will inevitably increase to pay for pensions, salary raises for unionized workers and other costs.

      The most valuable argument for the EIT is that it returns some money to the school district that is currently paid elsewhere, but this is not ultimately a cost-saving measure or even a tax-shift (from property tax to EIT).

      It is a tax increase pure and simple. The school district needs more money than it can raise with the property taxes, so they are hoping to get an EIT too.

      I’d imagine that people who are retired or already paying an EIT will vote for this new tax since it will not impact them. However, it might impact them in terms of property values if T/E becomes a less desirable place to live.

  4. Please remember, and this is important! This is earned income (what you are paid); it does not include personal income (iinvestments, etc.). The EIT would also be paid by renters.

    If you live & work in either Tredyffrin or Easttown, you currently pay no EIT. We are 2 of the very few townships who have not enacted an EIT. I live (65 years) & worked in Tredyffrin (45+ years until I retired 2 years ago). At no time would I have hesitated to pay an EIT. I didn’t make “big bucks, so it would have been a couple of hundred dollars each year.

    i have friends who’ve been paying EITs to their home townships for years. Those who work in either Tredyffrin or Easttown & live in a township which has an EIT must file a
    return to pay the EIT not deducted from their pay. If residents work outside either township pay an EIT to the township where they work, it’s automatically deducted from their pay. That EIT money would come back to Tredyffrin or Easttown; currently we never see it. In addition anyone who works in either township & does not pay an EIT to their home township, would pay our EIT. That EIT money would stay here.

    BTW, trying to find someone who pays the Phila wage tax & lives in an “EIT township” to see how that works & would affect our revenue figures. I believe that money stays in Phila and there is no “sharing”. Somone out there must have a friend who works downtown but lives in East Whiteland, the Goshens, etc. and can ask them.

  5. Ray,

    Questions: The $2.3 billion of personal income & the 2 median household income figures mentioned …

    what is the breakdown of the $2.3 billion (ie personal & wages)?

    do the median household income figures include both personal & earned? If so, again, what is the breakdown?.

    1. The $2.3bn is made up of $1.9bn taxable compensation plus $0.4bn net profits, both of which would be in the EIT tax base. In addition, in 2008 there was $0.2bn of interest and dividends and $0.3bn of “other”, not subject to EIT.

      The household income data was from a completely different source, so does not cross-check. However, if you take 12,000 Tredyffrin households times $100,000 plus 3,600 Easttown households times $130,000 you get just $1.7bn, so maybe it’s just taxable compensation, and those numbers should be grossed up by the same 20% to get EIT taxable income and 50% to get total income from all sources.

      The materials are available at http://www.tesd.net/cms/lib/PA01001259/Centricity/Domain/6/TSG11sept8age.pdf
      so readers can take a look for themselves. Just be wary of the summary of personal income data on page 2 of the last section – the taxable net profit for 2005 and 2007 are wrong – the figures are for the “other” income. That makes the total taxable earned income numbers in that summary table wrong, too.

      To the other discussion: an EIT is indeed a SECOND tax, but, for the same tax revenue to the district and townships, it is – for taxpayers in aggregate and individually depending on circumstances – LESS tax.

      The school district can ask for an EIT from TE residents only. As Libby says, many residents work in a municipality that levies an EIT on employees in the municipality, and so pay that tax today. That money would come back to TE if it levied an EIT.

  6. I have been absent for a while, but have a couple of comments to add: (this is mostly for the benefit of any new readers, the regulars here no doubt are aware of these points)

    1) The EIT is authorized under Act 511, the Local Tax Enabling Act, and is limited to 1%. The School District, used to have authority to enact an EIT on a simple vote, but after Act 1 of 2006 must place an EIT on the ballot referendum for approval of the voters.

    2) If the School District enacted an EIT, the Township could then jump in and take 1/2 of the EIT revenue.

    3) The wage tax paid by people who work in Philadelphia (under the “Sterling Act”) does not “come home” to T/E but under Act 1 of 2006 there is supposed to be a mechanism to refund that lost money to the School District using gambling revenue. The question has always been how hard/easy would it be to identify that money and what mechanism will be in place to recover it? Not sure if that question has been adequately addressed, but in theory at least, there should be no loss of revenue to the School District even though Philadelphia continues to collect and keep its Sterling Act money.

    4) Act 1 created the impression that any income tax, such as an EIT should or would be used to offset or reduce property tax, because that was the scheme at issue under Act 1 (which was defeated at the polls in the mandatory Act 1 ballot referendum). However, the current EIT under discussion would simply be another revenue source for the School District, and it is extremely unlikely that it would result in a lowering of property taxes, in light of projected costs and budget deficits. It may, in time, result in lower property tax increases, but no one should expect property tax reductions resulting from an EIT.

    1. Kevin,

      Thanks for info on Sterling Act (Philly wage tax). What we don’t know is how many residents work downtown & if those offices maintain satellite offices here..

  7. Unless and until the implementation of an EIT requires a dollar-for-dollar reduction in property taxes, this is just another pot for the teachers’ union and politicians to pull from.

    If you work, you won’t see savings, you will simply pay MORE.

    Even more, what ripple effects could this have?

    For example, Shire is looking at leaving our township. Doesn’t anyone think that maybe imposing an EIT is another reason for them to go, when they can settle somewhere else their employees don’t get taxed?

    The law of unintended consequences almost always applies when governing bodies undertake something like this.

    I, for one, would rather the devil I know than the one I don’t.

    1. Makes me think of a good question for Shire and other companies: would they prefer continued increase in property taxes, of which they are the largest payers, or would they prefer a portion of the funding for the school district be borne directly by the residents of the township in which they are located?

    2. I thought I read on these pages that Tredyffrin is one of the few townships that don’t impose an eIT. So why would shire move on that account?

  8. FTW,

    Residents in most Pennsylvania municipalities pay one percent of earned income tax, which is split between municipalities and school districts. We happen, at present, to be one of the few who does not.

    An EIT would not influence Shire’s decision to remain here. I would hazard a guess that 75% of their employees live in a municipality which imposes an EIT.

    I, for one, don’t like to see EIT dollars paid by our residents who work in an outside municipality stay there (say Great Valley Corporate Center in East Whiteland). If we had an EIT, those dollars would come back to us. Do we have any idea how much EIT is paid by our residents to outside municipalities?

    As I’ve written before, we need to know, if possible, where our residents work (ie here or outside the twp borders). It might be possible to deduce this based on commute times noted in the supporting info from the website listed in Ray’s reply.

    1. An EIT would not influence Shire’s decision to remain here. I would hazard a guess that 75% of their employees live in a municipality which imposes an EIT.

      *******

      Spoken like a true advocate for another new tax.

      first, the declarative statement that this would NOT influence Shire’s decision. I assume you have talked with them or are part of the team making that decision?

      second, the hazarding of a guess to make an argument instead of finding out real facts.

      My point with my post was simple: people are not looking at everything re: this tax, they just want the money.

      As to your supposition that ‘most” municipalities impose and EIT and that you don’t want to see money go to “East Whiteland”, let’s just assume you are correct on the first part (which, again, no hard facts) and note that Shire could move to EW and pay a lower EIT (and comparable property taxes) than everyone here is talking about imposing. So, yes, that would be a deal breaker for many.

      1. I’d like to see a list of townships that don’t have an EIT in our area. I know that Radnor, Lower Merion and Upper Merion don’t have an EIT. Radnor and Lower Merion are certainly comparable in quality to TE. If TE imposed an income tax, I’d have to think it would make those other townships more desirable as a place to live or do business.

        1. Maybe the TSG can come up with a list of SDs that do & do not have an EIT. Their conusltant should have it the SD doesn’t.

  9. I live in T/E, but work in Philadelphia. My employer withholds 3.5% of my salary (the non-resident wage tax) and pays it to the City. Because I do not work 100% of my hours in the City (I work from home in the evenings and travel occasionally), and because Philadelphia is not permitted to tax my wages for amounts I earned while working outside of the City, each year I submit an application for a refund of a portion of the wage taxes withheld. So, for instance, if I worked 15% of my hours outside of Philadelphia in a given year, the City refunds 15% of the wage taxes it collected from me for that year.

    I understand that, under the Sterling Act, the 85% of the wage tax that the City keeps would stay with the City and would not be transferred to T/E. But what about the 15% refund? Assuming that T/E would want to collect that refund, what mechanism would it implement to learn that I received the refund, and how much would that mechanism cost to administer?

    Also, since the amount of my refund usually exceeds 1% of my salary, I assume that T/E, if it imposed a 1% EIT, would claim right to the entire refund. But if that is the case, there is an incentive problem. Completing the paperwork to obtain the refund is a hassle because you have to go through your accounting records to figure out the percentage of hours you worked outside Philadelphia in a given year. People are willing to spend the time doing the paperwork because it puts money in their pockets. But if T/E is going to take 100% of the refund as EIT, what incentive would residents have to go through the hassle of applying for the refund? I, personally, would apply for the refund anyway because I have a child in T/E and would rather my tax dollars go to support the T/E schools. But those who do not have children in T/E would have no incentive to spend the time required to request the refund from the City. Would T/E attempt to compel people to seek the refund? If so, how, and how much would that mechanism cost to administer?

    1. Steve, you present an interesting scenerio. I didn’t know that the City refunds 15% off the Sterling tax back to the employee. You raise an important point — what incentive would someone have to fill out the paperwork to get the 15% if it was going to TESD. I can see if the employee (like yourself) had children in the T/E schools, but if you didn’t, why would bother with the hassle? Further, how in the world would the District track it — that seems like it would be an overwhelming challenge! Good point Steve — I wonder if the the tax study group will consider this?

      1. Just to further clarify (or confuse?) – when last I was involved with Act 1, it was 2006 – 7 time period. My recollection is that at that time, considerable uncertainty existed as to how to identify and collect Sterling Act credits (to be funded by Act 1 gambling revenue). That was a long time ago, and it is possible that the issue has been worked out – the current board or TSC may actually have a good answer for this question now, and somone should ask.

      2. Thanks Steve. I saw an explanation of the Sterling Act in relation to Philadelphia non resident employees on the internet, but have been unable to go back & find it. Some of these websites send you all over.

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