Earned Income Tax

Decision Time – Will T/E School Board Directors Vote in Favor of an EIT Voter Referendum Question?

Monday night is a case where I would like to be in two places at once . . .

Tredyffrin’s township finances and the proposed 2012 budget is on the Board of Supervisors agenda at 7:30 PM while the T/E school directors will hold a Finance Committee meeting at 6:30 PM followed by a special school board meeting at 7:30 PM to discuss the EIT. (Both school district meetings will be held in Conestoga HS cafeteria). I will attend the Board of Supervisors meeting and I am counting on my friend Ray Clarke to attend the school district meetings.

In reviewing the agenda for the T/E Finance Committee meeting and the draft minutes from their October 17 meeting, I read the following:

Education Committee Recommendation:

At the prior Finance Committee meeting the Committee was informed that the State reinstated $1.3 million in funding that was not included in the District’s 2011-12 budget. In light of this information, the Committee authorized the Superintendent to restore education program cuts made in the 2011-12 budget. Dr. Richard Gusick presented the proposed reinstatements of budget cuts to the education program and explained that they were already reviewed by the Education The Finance Committee asked that the proposal to reinstate these budget cuts be presented at a future Board meeting.

I am confused. Although I was aware that the State had reinstated $1.3 million in funding to the T/E school district, I was not aware there was a decision as to whether (1) restore the district’s education programming cuts or (2) add the money to the fund balance.

According to these minutes, the Finance Committee (or Education Committee?) authorized the money go to restoring education program cuts. Restoring which programming cuts? Latin in the Middle School? Foreign language in the elementary school? Technology purchases? Specifically, which education program cuts did the committee authorize restored? In addition, are we to assume that the option of adding the $1.3 million to the district’s fund balance is off the table for consideration? These are questions for the school board directors at Monday’s meeting.

I also noted that the Finance Committee meeting minutes indicate that the school district will wait until 2012 to release a RFP for the outsourcing (if needed) of custodial services. It is not clear at this point if custodial outsourcing will be on the budget reduction strategy list.

Immediately following the Finance Committee meeting tomorrow night, the school board will hold a special meeting at 7:30 PM to consider notification to Tredyffrin and Easttown townships of the intent to levy an EIT. November 16 is the deadline for the School Board to provide the townships with notification so the board will be taking a vote at this special meeting. The school board will vote on whether to include EIT as a voter referendum question on the primary election ballot on April 24, 2012. For school districts to levy an EIT requires voter approval. The maximum that TESD could levy is 1%. If approved by voters, all residents, including renters, in Tredyffrin and Easttown Townships would be taxed at 1% on earned income. If an EIT were to be approved, the townships have the legal option to request one-half of the 1% collected by the school district.

Leading up to Election Day, we watched as EIT become the ‘buzz’ word of the local campaign season. Early on, the local Republican Party took a stand against an earned income tax and furthered the issue by labeling the Democrat candidates as EIT supporters. Feeling the pressure, all the Democratic school board candidates responded that ‘they’ were personally opposed to an earned income tax.

The politicizing of the EIT prior to the public presentation of TESD’s tax study group troubled me. The EIT became a political football between the local political parties and in my opinion, damaged the community’s ability to completely understand the EIT as presented by the tax study group. Not to mention the confusion that occurred at the polls on Election Day! Three different precinct judge of elections have reported to me that there were some confused voters — asking where the EIT question was on the ballot. Based on the campaign mailers and political signs, many in the community came to the polls on Election Day expecting to vote on the EIT issue.

Now that we are on the other side of the election, how can newly re-elected school board members Karen Cruikshank (D) and Jim Bruce (R) now vote in favor of taking the EIT issue to the voters. I do not know whether re-elected Easttown school board member Pete Motel (R) made a public statement one way or the other re the EIT. Based on the pre-election political hype of the EIT, the vote count of the school board members will be interesting. Will we see the school board members following the lead of their political parties?

If the school board members vote in favor of an EIT voter referendum question on the April primary ballot, do many of us really think that the residents would vote in favor of this new tax. During the school board budget cut strategy meetings, there were residents asking for tax increases vs. further educational programming cuts.

Faced with the possibility of further programming cuts in the next school district budget, would there be sufficient support from voters for an EIT?

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Is EIT the answer for T/E School District — Tax Study Group Presents their Pros & Cons

Election Day is Tuesday and based on campaign mailers, signs and general rhetoric that we were voting on the Earned Income Tax.  The EIT is not an issue for us on Election Day, at least not this election.

Much of this campaign discussion on the EIT stems from T/E School Board decision to form a Tax Study Group as part of their budget development process.  The goal of the committee of eight volunteers, including Michael Abele, Michael Benning, Rita Borzillo, Marie Falcone, William Mullin, Terri Smith, Andrew Snyder and Edward Stevens, was to study the effect that an EIT would have on the residents and the school district and provide the pros and cons.

The Tax Study Group held 5 public workshop meetings and presented their findings yesterday at two public meetings.  Based on the Tax Study Group’s findings, the school board will make a decision whether to include the EIT question on the April 2012 ballot. If the EIT question is placed on the primary election ballot in April, community members will hopefully be able to make an informed decision.

Although I was not able to attend the EIT meeting due to a prior commitment, it is my understanding that both were well attended.  I am on record as saying that I believe the process for a fair and open discussion of the Earned Income Tax has been tainted by the last few weeks of campaign politics from school board candidates.  Serious economic issues are going to continue to affect our school district and cause many challenges to the school board facing the 2012-13 budget and teacher negotiations.

If you were unable to attend either of yesterday’s public meetings by the Tax Study Group, the EIT presentation will be aired on TETV, Comcast Channel 14 and Verizon Channel 20 at 9 PM daily from November 4 through November 14.

Ray Clarke attended yesterday’s Tax Study Group and offers his candid remarks from the presentation:

The Tax Study Group matinee played to a packed house – probably a hundred or more residents in attendance. I whole-heartedly encourage anyone interested in the fiscal and educational future of T/E to attend the evening performance. Of the 30 slides, two thirds are devoted to background – really important to place the discussion in its proper context. The pros and cons of the EIT were fairly presented, although not weighted nor compared directly to alternatives (it was not the TSG mandate to do that). The audience seemed engaged throughout, and the questions at the end added much to the discussion.

The elephant in the room: what will be the attitude of the Townships? Will they take 50% of any money the voters may want to apply to their children’s education? Easttown and Tredyffrin may be very different, and I think we all need to have a very long memory about campaign promises made by Tredyffrin Supervisors. (The $30 million TESD fund balance did not go unremarked as a short-term support).

A lot of hard work and thought went into the research and analysis, and in developing a communication that is accessible to everyone. Shows how important the process was and what a travesty it is to try to short-change it. Hopefully many voters will be able to see the evening performance or the video and draw their own conclusions.

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Tredyffrin Township Budget Workshop & T/E School Board meeting updates

Monday was township’s budget workshop as well as the T/E School Board meeting.  I attended the school board meeting and fortunately for us, Ray Clarke attended the budget workshop.  Thank you Ray for attending and for providing your notes to Community Matters readers. 

The long-range budget and economic situation continues as a major discussion of the school board directors.  During the school board meeting, we were reminded of the Citizen Tax Study Group. The group was set-up to study the “possible effects of an earned income tax and presenting research to the school board and community”.  The Tax Study Group meetings are open to the public.  Here are the meeting dates and times from the T/E school district website:

Thursday, September 8, 2011 – 7:00 p.m.

Thursday, September 29, 2011 – TBD
Thursday, September 15, 2011 – TBD
Thursday, October 6, 2011 – TBD
Thursday, September 22, 2011 – TBD
Thursday, October 13, 2011 – TBD

Based on Ray’s notes from the township budget workshop, we can certainly see that our township is not exempt from the worsening economic climate.  Township staff and services have seen major cuts so I’m not sure how the supervisors are going to manage to hold the line on no tax increases.  On the revenue side, we do not see any significant commercial real estate transfers in the near future, so …what’s the answer?

 According to Ray, there will be another township budget workshop (date not confirmed) that will focus on capital projects.  This budget workshop had no mention of the township building’s HVAC system —  I remember discussion between the supervisors and Steve Norcini that there were major problems with the current system so it will be curious to see if the HVAC system is on the capital project list at the next budget workshop.

Here are Ray Clarke’s notes from the township budget meeting:

The Township held a Budget workshop on Monday night to present a base case context for development of the 2012 budget. A good event – short, focused, and with significant implications – it was disappointing that very few residents attended. My takeaways follow; I recommend that anyone interested pick up a copy of the materials, hopefully Monday’s extras are still available.

1. The slumping economy is taking its toll on the Operating Statement. For 2011, instead of the budgeted small surplus, there is now a projected deficit of $422,000. Revenues are unfavorable to budget by $373,000, due essentially to a $191,000 shortfall in licenses and permits (especially a mis-budgeted road opening rate and volume??), an $87,000 shortfall in transfer taxes and a $77,000 shortfall in other revenues like camp fees. Expenses are unfavorable by $96,000, with $205,000 overspending in supplies (road salt), offset by $115,000 favorable in personnel costs.

2. Things are likely to get worse next year, based just on what’s knowable at the present time. Revenues will be down a further $124,000, largely due to reductions in state transfers. That’s before any impact of a reduction in real estate assessments. (And of course, before any changes in tax rate). Expenses will continue upward, driven by an increased pension contribution (due to a minor reduction in assumed return to a level that’s still ridiculously high……), offset by a hoped-for better snow clearing experience and reduced repairs and maintenance. Now, the key here is that all employee contracts are currently being negotiated: the base case assumes no salary increase and the current benefits plan. (A similar approach to that of the School District). I leave it to others to judge the realism of this. The base case does include a 3% increase in contributions to the fire companies. Bottom line: 2012 General Fund Operating Deficit of $667,000.

3. On the capital side, the Township is on track to spend about 60% of the capital budget across all the funds (General, Sewer, Trunk Sewer, Vehicle and Equipment). There are reasons for this; one seems to be that the township always budgets generously to assure that it is correctly positioned for grants. Another might be that we simply don’t have the resources to get done everything that needs to be done. The capital plan information that was presented was acknowledged to be very rudimentary, and it was agreed that another workshop be held (I think a Saturday in early October?) to discuss the projects and priorities in detail.

So, what’s the answer for the Operating Statement? Are there more cuts to be had? Seemingly it would be tough to make the staff any leaner on top of the layoffs of recent years. The crumbling state of the front steps to the township building does not indicate that recent repair and maintenance spending has been effective. Unlike the School District, it’s not clear that there’s much room in benefits. On the revenue side, the property tax rate has been unchanged since 2009 and has increased at an annual rate of less than 1.7% for the last decade.

Paul Olson contrasted recent property tax rate increases in Easttown (my data for 2010, 2011: +12%, +4%) and Radnor (+11%, +9%). Of course, rather than just layer on more property taxes, the net cost to Tredyffrin residents would be lower if the township took a percentage of any EIT that a large number of residents are already paying and that the School District may possibly put to referendum ……

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T/E School Board Meeting Tonight . . . Proposed Final 2011-12 Budget Vote

Reminder:
There is a T/E School Board meeting tonight —  May 9, 2011 at 7:30 pm at Conestoga High School. At this meeting, the School Board will vote on the proposed 2011-2012 final budget.  Click here  to review the proposed budget. Will the decision of the school board be to fund the deficit with the use of the fund balance?

I assume that we will also learn the outcome of out-sourcing of TESD custodial services.  My understanding is that the outsourcing quotes should have been received by the district and the board will have determined the cost-savings (if any) of out-sourcing. 

According to the agenda for tonight’s meeting, the board will present information on the school district’s plan to form an Earned Income Tax Study Group.

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TESD Finance Committee Meeting . . . Raise School Taxes vs Eliminating School Buses or Support for Athletics? Notes from Ray Clarke

In the midst of packing to leave for a family holiday, Ray Clarke was still able to attend last night’s School Board’s Finance Committee meeting.  We are all grateful that Ray attends the meetings and then kindly supplies his notes.  Thank you my friend and happy travel! Below are Ray’s notes and I think you find them interesting!  With the looming deficit, we are not surprised at the direction of our school taxes . . . but tax increase vs.  elimination of school buses or support for athletics?  Don’t think those options are likely to be approved.

There was a well-attended meeting of the TESD Finance Committee on Monday night.  There was much material to cover, though, and not much time for input from the 30 or so community members present.  Since the size of the problem and contentiousness-level (sorry!) of some of the ideas is off the charts, all the Finance Committee could really do was kick the can down the road.

No surprise, the Committee voted to recommend that the full board vote on January 3rd to apply to the state for Exceptions to be able to increase property taxes by 2.8% on top of the Act 1 increase of 1.4% – total 4.2% increase.  This would also involve publishing a preliminary budget at that time that shows a budget deficit (after the tax increases) of somewhere in the $4-5 million range (depending on whether any expense reductions are included).

Important to note: this recommendation keeps options open.  On the revenue front, the Board could 1) still ask for a higher tax increase through a voter referendum (but could not now ask for an EIT), 2) ask voters to approve any tax increase beyond 1.4% (and not apply for Exceptions), 3) hold the increase to zero or 1.4%.  On expenses, there seem to be $1-2 million of “Level 1” and other strategies that could reasonably be implemented for 2011/12.  The gap between revenues and expenses that results from the final choices on the above dimensions would be met from the fund balance.  Kevin Mahoney and Debbie Bookstaber seemed to be favoring revenue option (2).

A few numbers that caught my eye:

1.  This year’s operating statement is being strongly fortified by delinquent tax collections and by reduced PSERS contributions that are each projected to be ~$750,000 favorable to budget, resulting (with other puts and takes) in a reduction of the expected contribution from the fund balance from $1.5 to $2 million.

2.  The district is finally publishing and using figures that reflect TEEA increases closer to the effect of the actual salary matrix.  The aggregate salary increase for 2011/12 is projected to be 7.33%, and may go higher with more movement across the matrix.

3.  The projections use historical rates of increase for medical and prescription costs (10-15% per year); it seems possible that current experience will turn out to be more favorable.

4. The “base case” used for starting points includes the Act 1 tax increase of 1.4%.  This is different from other years when the base case is the current tax rate.  With no tax increase and no additional expense reductions, next year’s gap would be $8.8 million.  This includes $470,000 add back of “one-time” strategies used last year.

5.  Options to close the close the gap with no tax increase include things like: elimination of school buses ($2 million) and of support for athletics ($1.5 million), outsourcing custodial services ($0.95 million), further reducing aides ($0.8 million).  There was no indication that the Board would seriously consider these, although there was commentary about transportation inefficiencies observed by some Board members.  Interesting that the option to hold administration salaries flat (impact $150,000) was included with these “Level 2” strategies.  There is also a set of strategies to eliminate teaching positions that if approved by the Education Committee/Board and if staff attrition occurs would eventually save $3 million/year ($525,000 of this will be up for approval at the 1/32011 Board meeting).

6.  Going forward, the problem compounds – even with a model that includes no TEEA compensation increases (none!).  The issues are flat assessed values, healthcare costs, and PSERS (no, Harrisburg didn’t fix it!).  One audience member cited research that predicts that property values and employment don’t reset and resume growth until 2016.  That ~$5 million in earned income taxes paid to other jurisdictions seems pretty important, as do healthcare benefit cost-sharing programs and index-linked compensation in future union contracts.  Maybe we will continue to look to the state for PSERS help, but there is clearly a lot that can be done at the local level.

There was much talk of the educational value delivered by the T/E program.  Dan Waters compared Lower Merion expenditures and Kevin Buraks asked for comparisons of tax rates of neighboring districts (but this blog knows we need to look at rate times assessed value too).

Finally, there was an interesting aside that the Great Valley School district has asked for support for a County-wide property reassessment.  Not sure what that means, except at the least a correction of imbalances that have built up over the years.

Hopefully, there were other CM readers at the meeting who can amplify and raise things I’ve missed here.

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Ray Clarke Pens Letter to the Editor in Favor of a TESD Earned Income Tax Consideration

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.

Pro-TESD EIT

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

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Tredyffrin’s Financial Workshop . . . How to Close 2011 Budget Gaps

This Saturday, September 18, 8:30 AM at the township building, there will be a public Board of Supervisors financial workshop.  The agenda includes:

  • 2010 Review
  • 2010 year-to-date revenue/expense review and end-of-year projection – Tim Klarich, Finance Director
  •  Budget Advisory Working Group implementation update – Mimi Gleason, Township Manager
  • Five-Year Capital Plan (2011 – 2015) – Mimi Gleason, Township Manager
  • Public input about priorities for 2011 budget

We know from the TESD finance committee that the school board is planning a public meeting to discuss an EIT in October.  How does the township intend to address what could be a looming 2011 financial deficit in the township budget?  Hold the line on a tax increase because it’s election year?  Or, as the supervisors did last year, will the decision be to continue to cut jobs and services.

Is it possible that the same supervisors who cut the fire funding in the 2010 budget will restore the fire funding in the 2011 budget?  Can the township function with further cuts?  Is it possible that the band-aid solutions of 2010 will continue to work in 2011?  Perhaps the new finance director will offer some creative approaches to cost reduction. At least one of the newly elected supervisors ran on the platform not to raise taxes . . . the 2011 budget will be her first to review.  I look forward to her budget analysis and recommendations.

Devon resident Bill Bellew offered the following letter to the supervisors that appears in this week’s Main Line Suburban newspaper:

Message for Tredyffrin board

To the Editor:

The following letter was delivered to the Tredyffrin Township Board of Supervisors.

Ladies and Gentlemen:

On Sept. 18 you are conducting an open meeting for financial planning as you put together the 2011 budget for Tredyffrin Township. I do not envy you the task at hand as more potential cuts appear to be coming.

The stepping-off point for 2011 is the removal from the Sewer Budget of anything to do with streetlights and signage. Before I go another word: this has a tax-increase impact, and some politicians do not like to say they raise taxes. Well, for a number of years this has worked and we who pay into the sewer fund have borne the brunt of “no tax increases.” Once you get the streetlights/signage line item out for all to see, then you can do real budget preparation.

I have paid into the sewer fund each year since it was first established. The fee hardly ever changed since the ’80s until recently because it was well planned up front. That changed “x” number of years ago, about the time the board decided to put streetlights and signage in the sewer-fund budget. It has gone up and down a few times this decade.

The change in the sewer budget is needed for two reasons: first, lights and street signs have absolutely nothing to do with sewers; and second, only those hooked up to the sewers are paying for lights and signs for every household in the township. For sure, everyone north of the turnpike is not hooked up and that is not of the residents’ doing but rather the BOS.

Our sewer fund stipulates that any dollars collected for the fund can’t be transferred to another budget item. The fund is meant to provide the reserves necessary to keep the sewer infrastructure strong year after year. This year’s Board of Supervisors needs to make a resolution to return the fund to its original state of sewer-related items only.

Start with this, and then deal with the consequences of a tax increase. Try this on: return the sewer fees to the original amount and offset it with a tax increase if necessary. You did the opposite last year, so why not make it right this year?

Sincerely

William F. Bellew, Devon

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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!

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Bad News for Easttown Township – Our Neighbors Receive a 12% Tax Increase

Our neighbors in Easttown Township are faced with a 2010 budget that includes a 12% real estate tax increase which includes a new $52 Local Service Tax (LST) for all those who work in the township.  The budget deficit facing the township for 2010 was approximately $500K and the LST will provide approximately $135K revenue.  Easttown Supervisor Ed Strogen was the sole dissenter on the 2010 budget and has doubts that the full estimated LST will actually be collected.  Supervisor Strogen was also a strong supporter of instituting an Earned Income Tax (EIT) in the township; raising the point of how much revenue residents are currently paying to other municipalities (who do have an Earned Income Tax).  A tax collection company suggested that imposing a 1% EIT in Easttown Township would have provided $1 Million revenue in 2010, and $3 Million the following years.  Unfortunately, the support was not there for the institution this year of an EIT.  However, passing their 2010 budget with a 12% tax increase to the taxpayers is going to be difficult for many of their residents.  This increase will certainly be challenging to those retired individuals on fixed incomes.

In the aftermath of the 2010 budget passage, Supervisor Strogen contends that an EIT will need to be implemented in the next few years. Let’s remember that Tredyffrin residents are currently paying $3 Million to other municipalities (which have an EIT) and it was determined that the implementation of an EIT in Tredyffrin would result in revenues of approximately $8 Million.  The difference between Easttown and Tredyffrin Townships on the subject of EIT, was that Easttown provided an open town hall forum for thorough discussion of the subject, whereas Tredyffrin did not.

Easttown’s primary budget problem stems from their loss of real estate transfer tax which accounts for approximately 18% of all its budgeted revenue.  Like Tredyffrin, Easttown’s budget has suffered with the downturn in real estate transfers, increased cost of services and the severity of our economic times.  Easttown and Tredyffrin Townships need to become more proactive in their long-range budget forecasting.  In both of these municipalities, what has played out in this budget cycle has been a short-term Band-Aid approach.  These townships should not wait until 2nd or 3rd quarter to begin to  look at 2011, but rather they need to start in January with focused, out-of-the-box exploration of all possible revenue sources.  Easttown and Tredyffrin Townships barely got by with the 2010 budget round and I think it’s going to be far more difficult to pull off an 11th hour ‘quick fix’ save for the 2011 budget!

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Progressive Budget Decision re Earned Income Tax

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!

I came across an interesting article from December 11 concerning the borough of Yeadon, Delaware County — a community located close to the Philadelphia Airport.  I pulled up the demographics to compare Yeadon with Tredyffrin; as you can see they are vastly different.  The median income of Yeadon is approximately one-half the level of Tredyffrin, with 3 times the number of people living under the poverty level.  The point of the comparison is that Yeadon is making a progressive budget decision for 2010 and instituting an Earned Income Tax!  The borough manager believes the move will diversify the tax base and help the seniors stay in their home (the EIT will reduce their property taxes).  I have no idea what the average education level is in Yeadon, but I’m going to make a broad guess and bet that it is far lower than the average Tredyffrin resident.  Why do you suppose than that Yeadon’s leadership was able to conclude that the severity of the economic situation required an Earned Income Tax?  I am  guessing that paying an additional 1% tax to residents of Yeadon is going to be a lot more difficult than a similar tax would be to Tredyffrin residents.  It’s probably a safe assumption that our average Tredyffrin taxpayer is in a far better financial situation than a Yeadon resident. I salute Yeadon Borough for analyzing their economic climate and making this progressive budget decision.

Below is a demographic comparison of Yeadon vs. Tredyffrin with the article concerning Yeadon’s progressive 2010 budget decision. 

Demographics of Yeadon, Delaware County:  As of the census of 2000, there were 11,762 people, 4,696 households, and 2,967 families residing in the borough. The median income for a household in the borough was $45,550, and the median income for a family was $55,169. The per capita income for the borough was $22,546. About 14.6% of the population were below the poverty line.

Demographics of Tredyffrin Township, Chester County: As of the census of 2000, there were 29,062 people, 12,223 households, and 7,834 families residing in the township. The median income for a household in the township was $90,915 and the median income for a family was $121,809. The per capita income of the township was $47,584.  About 3.7% of the population was below the poverty line.

Yeadon Adopts EIT, Decreases Property Taxes

Published: Friday, December 11, 2009

YEADON — Officials will end the year with two bold financial moves.

Council voted 4-0 Monday to impose a 1 percent earned income tax, expected to channel about $900,000 into borough coffers annually.

While municipalities often adopt EITs to close looming budget shortfalls, Interim Borough Manager Paul Janssen said he recommended it as a means of diversifying the tax base.

“Seniors have to pay property taxes like crazy to be able to stay in their house. If council can shift this to an EIT and add a property tax cut it has huge benefit to seniors.” And “They get a tax source that grows.”

Officials plan to use the new tax to decrease property taxes by 1 mill, lowering the rate from 9.89 to 8.89 mills, about 10 percent. The reduced rate had been advertised and is scheduled for adoption Dec. 17. The EIT will also eliminate need to dip into the borough’s fund balance. Janssen said Yeadon had a balanced budget, but it included $197,000 from reserves.

Said Vice President Jack Byrne, “The EIT will generate more revenue for the borough and we’re going to reduce taxes. We have a lot of seniors here and it’s going to be helpful for them.”

Byrne noted that many residents who work outside the borough already pay the EIT, but to the municipality where they work. Adopting an EIT will allow Yeadon to capture those monies.

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