Should Charities & Nonprofits in Tredyffrin and Easttown Help Pay the Bills of the School District?

I attended this week’s Finance Committee meeting for the school district.  As we are all acutely aware, TESD is facing major budget challenges like every other school district in the state.  The challenge for School Board directors is what strategies to impose to meet the demands of the budget crisis.  Over the next few years, Tredyffrin Easttown School District will be faced with a $16 million budget shortfall.

We can accept that the pension crisis is a major contributor to the unprecedented shortfall but it is coupled with other factors.  Because school districts are so reliant on property taxes to fund their respective budgets, the last few years and the next several years will show an ever-decreasing revenue stream as property values and real estate transactions have tumbled. The unfunded and underfunded mandates serves only to exacerbate the already difficult fiscal situation faced in the school district.

With rising healthcare costs plus the required PSERS contributions, it is impossible to balance that increase when the Act 1 index plus exceptions is below 4%.  Add in decreasing real estate revenues and state and federal support … equals the unprecedented new fiscal reality of our school district.  So where does this leave the local school board … looking for new ways to decrease spending and/or increase revenue.

At the Finance Committee meeting, budget strategies, some old and some new, were discussed.   The committee recommended the implementation of a $50 sports and activity participation fee for the 2012-13 school year to be considered at the next full School Board meeting.  If approved, the fee would be collected from each high school and middle school student involved in sports or activities.  However, it should be noted that the $50 fee would only be charged once per student regardless of how many sports or activities the student participates.

An interesting suggested budget strategy that could affect nonprofits with real estate in the school district was discussed.  There are over 300 not for profit organizations in the school district with exempt status for property taxes.  The value in exempt property assessment in the school district of these nonprofits exceeds $366 million.  As a budget strategy, the Finance Committee discussed the possibility of challenging these tax-exempt property owners by requesting payment to the school district in lieu of taxes.  There was discussion that perhaps these nonprofits might voluntarily contribute to help the school district, if asked.

There’s no argument that nonprofits may provide useful services but they also impose a cost on municipalities because they consume public services, such as police protection and roads, but do not pay taxes on the property they own.  In the non-profit community in Philadelphia, a number of tax-exempt organizations make voluntary payments to the coffers of the local municipality, including University of Pennsylvania.

Charitable nonprofit organizations, which include private universities, hospitals, museums, soup kitchens, churches, etc., are exempt from property taxation in all 50 states. Many nonprofits reduce local government spending by offering services that would otherwise be provided by those governments, but at the same time, these nonprofits impose a cost on municipalities by consuming public services, such as police protection and roads.

It is clear that many nonprofits reduce local government spending by offering services that some governments might be required to provide otherwise. However, as I have said, these nonprofits impose a cost on municipalities by consuming public services, such as police protection and roads.

Neither the school district nor the local governments could force the tax-exempt organizations to pay tax on the properties they own, but why not set up some kind of voluntary contribution system?   What would be the harm in asking our local nonprofits who own real estate, if they would like to help the school district budget crisis with a financial contribution?  I would take it a step further and suggest that Tredyffrin and Easttown Township Board of Supervisors should similarly ‘ask’ for a voluntary contribution.  With the ongoing challenge of local governments to balance their budgets, maybe this revenue source could save some services (and jobs) in the townships.

However, there is another side to this discussion that needs to be stated.  That is, that the struggling economic times have challenged nonprofits financially as demands for their services have skyrocketed while they have seen their revenues nosedive.  Sitting on the boards of two nonprofit organizations myself, I can confirm the decline of foundation grants and the downturn in corporate contributions.  In addition, according to the IRS, individual giving to nonprofits has sagged by 20 percent.

Bottom line: These are tough economic times, which require some unprecedented, thinking ‘outside the box’ solutions, such as voluntary contributions in lieu of taxes by not-for-profit organizations that own real estate.

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There were other proposed budget strategies including increased class size and cuts to the district’s music program.  I will address those issues in a separate future post and ask that you hold comments directed at those proposed budget strategies for that specific Community Matters post.  Thank you.

3 Comments

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  1. Pattye said, “With rising healthcare costs plus the required PSERS contributions, it is impossible to balance that increase when the Act 1 index plus exceptions is below 4%.”
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    This is a common misunderstanding. The increase in PSERS coupled with typical increases for health care (8% per year) would increase expenditures below 2%.
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    Pattye said, “Because school districts are so reliant on property taxes to fund their respective budgets, the last few years and the next several years will show an ever-decreasing revenue stream as property values and real estate transactions have tumbled.”
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    Let’s remember the recession ended in 2009 – over 2 years ago. Real GDP (adjusted for inflation) is at record levels. I’m not trying to minimize the effect of the real estate crisis or the unemployment rate and I’m not advocating unrestrained spending. I’m only trying to add perspective. Employment is increasing; salaries are increasing; interest rates are at an all-time low and there are many houses on the market. My crystal ball says that assessments appeals will decrease and transfer taxes will increase. The RE revenue stream, rather than decreasing, will stabilize and may show a slight increase.
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    Asking for voluntary contributions from non-profits seems like an exercise in futility. As always, the solution to TE’s (and every district’s) problem is an affordable, sustainable labor contract.

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  2. Real GDP is at record levels? I guess it depends on how we view it. The fact is that GDP growth is extremely sluggish, well below any other “recovery” period over the last 50 years. Employment has picked up but not nearly enough to offset new entries into the labor market. Further, many have left the labor market altogether. 164K last month alone per the DOL. Now, things could improve from this point. I certainly hope so but we BETTER be prepared if that doesn’t happen. The “recovery” is precarious to say the least. We have not built up sustainable momentum for the economy to thrive without significant (and unprecedented) intervention by the Fed reserve which will eventually create a whole new set of problems.

    The pension funding crisis is not going away no matter how much we wish it would. Taxing more isn’t going to be the answer. The “voluntary” thing for non-profits is laughable. It will NOT happen. You are asking charities to pay charity. OK…….

    Real reform must happen. That means some retirees are going to take a hit and new entrants are going to be in a new DC type of plan. 2 + 2 has to = 4 eventually. We have reached that stage.

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  3. Current retirees in the PSERS system will not take a hit. That’s just a given.
    But all this wailing about declining values in our community will result in a hit. Anyone researching a corporate move to PA would be loathe to walk into any community whose google results on schools is more about “budget shortfalls” and labor issues and broken retirement systems.

    But MD I agree with you more than KK — I do not see any kind of bounce back. I see a recovery because prices have fallen to reality in real estate, but that means there are still a major number of properties who have successful assessment appeals in their future.

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