property taxes

Proposed 6% Tax Increase in T/E School District – the Largest in Decades! Is It Possible that an Accounting “Timing” Error Could Change the Outcome for Homeowners?

Did you know that as T/E School District homeowners we are in line for the largest yearly tax increase for decades!

As it now stands, our school board has targeted us for a 6% tax increase! In December, as the preliminary budget for 2019-20 was in the early stages of preparation, the discussion indicated a possible tax increase of 6.1% but the Board assured us that they would work to bring down the increase. Three plus months later, the projected tax increase remains at 6% although at last night’s school board meeting, we were again told that the board is working to bring the number down.

The question is “why” the proposed staggering increase; the largest in decades! And to be clear, the proposed tax increase is not based on the Conestoga HS expansion plan – that capital project will be funded separately through new bond initiatives. Which brings me back to the question, WHY this looming large tax increase?

As we learned from Ray Clarke at the school board meeting last night, there appears to be an explanation (and suggested solution) for the proposed tax increase. And should the school board act on Mr. Clarke’s findings, it could reduce the proposed increase significantly. Taxpayers could see the proposed tax increase lowered by as much as 50%.

Mr. Clarke opened his remarks with the following:

  • There is ample public evidence that the allowable 6% tax increase presented in the preliminary budget is in error due to an accounting timing issue
  • The actual allowable tax increase is, most likely, much less
  • It would be in the best interests of the public, the Board and the Administration to address this issue in a prompt, transparent manner

( Click here to read complete Ray Clarke Special Ed statement)

According to information received at the District’s Finance Committee meeting of March 11, the accounting problem stems from unpaid invoice(s) of $1 million+ that were received in the 2016-17 year. The invoice(s) from the Chester County Intermediate Unit (CCIU) were paid, and more importantly accounted for, during the 2017-18 year.

The Special Ed exception for tax purposes is based on increases in annual expenditures; so getting the year correct is extremely important. By moving the Special Ed expense from 2016-17 to the following year (albeit by error/accident) causes a false reading by inaccurately inflating the expenses in 2017-18.

After Mr. Clarke read his statement, Neal Culligan continued with remarks imploring the board to seek further review before imposing a 6% tax increase.  I struggled to understand how the District can “miss” paying over a million dollars in invoice(s) and asked the Board for an explanation – how did this happen, whom was responsible and when did they find out? My questions were unanswered.

Mr. Clarke contacted Pennsylvania Department of Education and received copies of the District’s 2019-20 “Special Ed Expenditures” and signed “Summary of Referendum Expenditures filings. And although the District has known about the accounting “timing” issue since sometime before the March 11th Finance Committee meeting, the State has not been notified or the filings correctly updated.

As I stated at the meeting, we all make mistakes – but it’s all about owning your mistake when it’s identified, correcting it and moving on. Shouldn’t that apply to the School Board and the Administration – they knew there was an accounting “timing” issue; an error that could impact the proposed tax increase. Who is responsible and where is the accountability? Why don’t they do something?

Sadly, the takeaway from some School Board members re the accounting “timing” issue was simply to push back, become defensive and claim that they have been completely transparent.  What’s that line from Hamlet, “The lady doth protest too much, methinks”?

So what does the man with the District’s oversight of the financials, Business Manager Art McDonnell, have to say on this accounting matter? Remarkably, he disregards the analysis by Mr. Clarke, indicating that the “timing” of the Special Ed expenses and subsequent payment was inconsequential and; therefore, making no difference in the end result.

When called upon to comment, McDonnell further stated that if anything, the taxpayers would simply have paid a larger tax increase last year if the Special Ed expense and payment had not been delayed to CCIU.

This is crazy talk – and certainly doesn’t sound like sound accounting practice! It seems to me that if the District erroneously missed Special Ed expenses and a million dollar plus payment to CCIU one year, plays catch up the next year, that this practice skews the resulting financials of those effected years and for future years.

As a very wise former school board director stated, “The legislature passed Act 1 of 2006 specifically to limit a school board’s power to tax the electorate unchecked.”  Our school board knew about this accounting error at the March 11th Finance Committee meeting and residents questioned them about the issue at last night’s School Board meeting – are they not required to do the right thing? At a minimum, this should require immediate financial review from an independent source and then take necessary action as required, including notifying the Pennsylvania Department of Education..

We elected our school board directors to provide oversight; with independent thought and transparency.

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No Prepayment of 2018 Property Taxes Permitted in Tredyffrin

The new tax reform bill signed into law by President Trump reduces the amount of state and local taxes a person can claim as deductions on his or her 2018 federal tax return and fewer people may itemize deductions on their 2018 return because there’s a larger standard deduction. The federal tax legislation that takes effect January 1 will cap the state and local deductions on federal tax returns at $10,000. Since the passing of the tax bill, there’s been much discussion about whether or not residents could prepay their 2018 property taxes before the end of the year.

t’s official in Tredyffrin Township and the answer is no to prepayment of property taxes. The bottom line is, unless there’s an assessment and a bill issued, you’re not able to take the deduction The notice below was posted on the Tredyffrin Township’s website yesterday:

2018 Property Taxes Pre-Payment Information

To all Township Residents:

This notice is being posted to address inquiries we have received from several resident homeowners about prepaying 2018 real estate taxes.  Please be advised that Tredyffrin Township cannot accept prepayments of 2018 real estate taxes.

The Township is prohibited by the Pennsylvania Local Tax Collection Law (specifically, 72 P.S. §5511.15) from collecting taxes that have not been assessed yet.  The Township does not issue the new tax assessment until January of 2018 and therefore cannot accept payments before that point in time.

Also, be aware that the IRS issued an advisory notice on December 27, 2017 that it will not allow any deduction in 2017 for 2018 property taxes unless those taxes were assessed and paid in 2017.  As stated above, the Township’s assessment will not be made in 2017, because the millage rates will not be set until January 2, 2018 at the Organizational Meeting of the Board of Supervisors.  The IRS’s advisory notice can be found at: https://www.irs.gov/newsroom/irs-advisory-prepaid-real-property-taxes-may-be-deductible-in-2017-if-assessed-and-paid-in-2017.

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Property Values are Falling & Real Estate Taxes are Soaring Across the US . . . What’s the answer?

Here’s an interesting read in Bloomberg Business Week – thanks to a reader for supplying the link.

The article, “Property Taxes Reach the Breaking Point . . . Local governments are raising property taxes to plug budget gaps as home values fall – and voters are getting sick of it” discusses rising property taxes and decreasing real estate values throughout the country.  According to the article, because about one in four of residents mortgages are ‘under water’ across the country,  many local governments and school districts are forced into increasing property taxes to meet budget deficits.  However, the problem as we are acutely aware is that much of the country’s home values have fallen dramatically.

Historically, local governments have depended on property taxes as a stable revenue source.  Nationally, approximately 50% of property tax revenue goes to fund school districts.  How does a school district provide adequate school funding without raising property taxes beyond the scope of an individual’s ability to pay? The article looked at specific states and their property taxes – and how local governments are balancing the needs of school budgets (and deficits) with the increase in property taxes issues.

In 2010, New Jersey residents received the distinction of paying the highest average property tax in the US – an average of $7.576 (an increase of 78.7% since 1999!).  Surveying all 3,100 counties in the US, residents in Hunterdon County, New Jersey paid the highest median real estate taxes per year — $8,216.  As a direct result of increasing property taxes, in 2010, New Jersey capped the property tax increase by local governments at 2 percent.

Can you guess which county in Pennsylvania has the highest median real taxes paid by its residents . . .  Chester County!  Below is the real estate property tax information provided from Business Week for Pennsylvania:

  • Most property tax paid in Pennsylvania: Chester County                           
  • Median Property Taxes Paid on Homes: $4,011
  • Median Home Value: $328,900
  • Taxes as Percent of Income: 4.12%

The property tax problem is interrelated with the local school districts and includes an inequity and inadequacy inherent in real estate property taxing; and therefore filters into the problems funding public education.  And today funding public education is the central problem.  For years, property tax has provided the major funding source for public education but is that the solution for the 21st century? 

Is a property tax capable of adequately or fairly funding the school districts, especially given the current declining real estate values? To offset Corbett’s proposed budget, which includes major funding to public education, what is going to be the answer?  The bottom lines for budget deficits require school districts to either lower expenses (or rely on fund balance) or continue to raise property taxes. And as we read in the BusinessWeek article, Chester County currently has the distinction of the highest property taxes of all counties in Pennsylvania.

Discussions on the T/E School District budget will continue on Monday, March 28, 7:30 PM at Conestoga HS.  The Budget Workshop will update on the current status of the 2011-12 school district budget.  The meeting will focus on the budget process and discuss remaining potential budget strategies to close the budget deficit.  Click here for the agenda.

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