Roulette & Blackjack Needed to Resolve State Budget

When I decided to begin writing Community Matters, I assumed it would be issues relating to Tredyffrin Township.  But I now recognize that exploring how other areas are handling similar situations makes for an interesting comparison.  Governor Rendell’s notion for solving some of the budget issues at the state level with an expansion of the table-games bill caught my attention.  Somewhere in the dark recess of my brain, I think someone told me that Tredyffrin’s past included ‘betting’ places, and I recall one was located where Barnes & Noble now stands; this was also before there was the Valley Forge Music Fair but I believe the betting window was at that general location.  Am I dreaming this?  If Bill DeHaven is reading this, perhaps he could weigh in . . . I’m thinking that this was back in the day when he was working in Tredyffrin as a local cop.  Anyway, this is how I move from Tredyffrin’s community to my interest in using roulette and blackjack to help the state budget problems.

The clock is ticking on the state budget. Although Governor Rendell signed the budget in October there remains an unresolved issue of the table-games bill. This table-games bill is estimated to be worth $250 Million in license fee and tax revenues to the state; the governor believes that the passage of the bill is necessary to keep the government running. The tables-games bill would permit blackjack and roulette games at slots parlors. Apparently the House and the Senate can not agree on whether to add another resort-casino license to the 14 slots licenses already authorized. There is also debate on how to distribute the gambling proceeds in Philadelphia. Part of this problem stems from Mayor Nutter’s unwillingness to give up the city’s control on the distribution of gambling proceeds. Mayor Nutter is absolute that gambling proceeds generated in Philadelphia should remain in Philadelphia.

If the table-games bill is not passed by January 8, there is a good possibility that 1,000 state employees will lose their jobs. During 2009, 800 state government jobs were cut as a result of the budget crisis and additionally 1,800 open state jobs went unfilled.

Another sad reality to the current state budget situation is that there is once again talk of closing state parks, the State Museum and decreasing discretionary grants. Many nonprofits (particularly historic preservation) are finding themselves in a precarious situation due to our nation’s economic downturn, so the idea of losing state grant opportunities is cause for concern. The Pennsylvania Historical and Museum Commission laid off 85 employees last month which represented approximately one-third of their staff. They received the highest percent employee layoffs of any agency as part of the overall state employee downsizing. It is unclear how the Historic Commission would function if further cuts are imposed. As a member of the Tredyffrin’s Historic and Architectural Review Board (HARB), our board and all state HARBs and Historic Commissions rely heavily on the expertise and advice from the Historic Commission.

I am reaching out to our State House Rep Paul Drucker for his comments on the table-game bill — where do you stand?

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41 Responses

  1. I used to be in favor of gambling in PA. I figured, if NJ and DE have it and we are losing $’s to them, we might as well have it to. As an argument, that it’s a pretty weak one and it caused me to re-evaluate my argument.

    I am no longer in favor of gambling in PA. Unlike others, my argument is not based on morals. I have no issue whatsoever with gambling. For me, there is but one location – Las Vegas. My argument is based on economics. Vegas works because it’s economy is based on Gambling and the entire experience Vegas can offer as a destination resort. Nothing of the kind will exist here. Atlantic City tried it, and for the most part, it has been a failure.

    In our community, I doubt it seriously that many outsiders will come here. The gambling scheme we are talking about is simply another form of transfer payment. Transfer payments are simply a fancy term for tax – and it may be the most regressive one out there. The gambling scheme is nothing more than another way to funnel $’s to the state.

    At least with an EIT, we know the $’s come to our home jurisdictions……Of course, there is no prospect of doubling down at the blackjack table.

    The cure to our economic woes is investments in education and technology. Gambling provides none of that. It may seem to fill a gap. Like a lump in a rug, when you push the lump down, it will pop-up somewhere else.

    From an economic standpoint, you need to look at the entire picture. Perhaps locally, there will be a net gain in jobs. But somewhere else, there is going to be an outflow of capital. There is also a sociological cost. When you add it all up, I wonder what, if any, real net-benefit there will be. And yes, you have to wonder what additional elements will be attracted to the area.

    As each day goes by, our area is becoming more and more like Potterville…

    I would like to see Paul vote no on the measure.

  2. John says, “I used to be in favor of gambling in PA. I figured, if NJ and DE have it and we are losing $’s to them, we might as well have it to (sic). As an argument, that it’s a pretty weak one…” Sounds like the EIT – insert East Whiteland , Willistown, etc. for NJ and DE.

    • Mike…

      It’s only weak if gambling and EIT were functional equivalents. They are not. At one point, I did equate the two. If you are going to challenge the point, then do that. If you disagree with my point on gambling, then state those points. But please…do not quote my comment verbatim and then draw out a conclusion that does not flow from the premise for the simple reason that my arguments for an EIT were not based ONLY on the fact that surrounding jurisdictions have it. The tax enabling statute and the statute re: gambling are completely different.

      Hit the reset button Mike and try again…

    • Mike…

      Hold on… you are saying that a 1.5% EIT in west conshy translated into a 50% sq ft cost increase? I don’t buy that…. An EIT is a cost to the employees…not the business.

      • John:

        Read my analysis below, based on actual numbers.

        So, I shouldn’t care because the EIT is not borne by the business but rather by my employees?

  3. THE central argument of the EIT advocates is the “$3 million” that Tredyffrin residents are already paying, that would come back to our Township (even though it’s actually $2.7 million).

    I quote your comments verbatim because you repeatedly provide your own rope for hanging;).

    • 2.7 vs. 3 million…. It’s called rounding up – a skill that is part of 3rd grade math.

      If I use the former vs. the latter, how does that alter the argument’s efficacy?

      Name for me, a revenue source that for the first 2.7 million, is tax neutral. Better yet, explain why you are in favor of giving 2.7 million away as opposed to keeping them Tredyffrin.

      I am challenging you Mike to take on that argument. Give it your best shot.

      • Quite simple – in order to get the $2.7million, we would assess an ADDITIONAL $4.3 million in NEW taxes on Tredyffrin residents – in spite of the repeated contention by the pro EIT that “most Tredyffrin residents already pay an EIT to other townships”. Of course, these figures assume static conditions – i.e., businesses may ultimately leave Tredyffrin in response to an EIT.

        BTW, in order to get the $2.7 million, surrounding townships will lose $2.7 million – in my view, our community does not end at the Township line. Wouldn’t it be ironic if Willistown had to cut their Paoli Fire contibution in response to losing our resident’s EIT?

        • >>
          Quite simple – in order to get the $2.7million, we would assess an ADDITIONAL $4.3 million in NEW taxes on Tredyffrin residents
          <<

          Only if they work in the township. Businesses will not leave Tredyffrin b/c of the EIT. Where are they going to go? It's a buyers market for employers. That is a nuance shared by you and others that do not understand the EIT.

          Interesting to see where you believe our community begins and ends. I put you in the pro subsidy for other townships camp. You and Kampf can be bunk mates.

        • Mike – Where would a business go in order to avoid a Tredyffrin EIT? Why would a “business” do that?

          Much more likely that businesses would potentially move out of Tredyffrin in response to an implementation of the BAWG’s recommended Flat Rate Business Tax – which, if implemented, would only produce ~10% of the revenue of an EIT….

          Is that a real argument against? That “Willistown may cut contributions to Paoli Fire if Tredyffrin implemented EIT”?

          • John and Justin:

            “Where are they going to go?” “Where would a business go in order to avoid a Tredyffrin EIT? Why would a “business” do that?”

            They could move to Upper Merion, Radnor, or Lower Merion, among others – none of which has an EIT. Radnor has a business privilege tax which is .3%. You can SAY what you want – I DID the evaluation for my business in 2003, 2006 and 2009. I looked at total occupancy cost, to include not only the stated rent and passthroughs, but also the tax burden on our business and employees. We considered West Conshohocken and others with an EIT – the effective cost of the EIT on our aggregate payroll was $9-10/ sq. foot! So, rents in comparable properties were $20-25/foot – plus $9-10 in EIT, goodbye West
            Conshy. As long as there are nearby Townships without an EIT, my business will never locate in one that has it.

            Did either of you gentleman ever actually

        • >.Radnor

          Actually, Radnor has a pretty steep business tax. An EIT is a tax on employees…not employers.

          Try again…

          • John:

            How’s this for trying again, John. If you read my post I say, “Radnor has a business privilege tax which is .3%”. Our business, owned by myself and my partners is in Radnor – I am very familiar with the Business Privilege Tax – we pay it every year. You characterize it as “pretty steep”- for our business, the dollars are less than 40% of the 1% EIT assessed by West Conshohocken and most Townships. None of our employees live in jurisdictions with an EIT, so they don’t pay any EIT. As for the partners, the Radnor tax is still considerably less than an EIT on partner’s earnings.

            This EIT argument seems to crop up repeatedly in various threads, almost regardless of the topic (Blackjack and Roulette, in this case) There are legitimate arguments for and against. My suggestion is maybe Pattye could create an ongoing thread for discussion of an
            EIT or PIT.

          • Mike…

            I did read your post. Can I conclude from your post that you would be in favor of a business tax in Tredyffrin as opposed to an EIT? If you happen to have employees that don’t live in jurisdictions with an EIT, then I would say you are in the extreme minority of businesses. I didn’t catch how many employees you have.

            Regardless, Tredyffrin has a revenue gap – one that is not likely to be filled soon if it continues to rely on 10+% of its funding from property transfer taxes. Easttown is in worse shape in that 18% of its budget comes from property transfer taxes.

            Responsible government demands that a reliable funding source be tapped that is not likely to fluctuate significantly from year to year. Property transfers are life events that don’t occur that often. For sure, its a hidden tax – one that has been the least objectonable. Nonetheless, it is a tax.

            About all I hear from you is no, no, no. That is the GOP..the party of no.Where are the constructuve ideas from you? Where are the suggestions that have a realistic shot at solving problems.?

  4. Leaving $2.7 million on the table sure looks like a subsidy of other municipalities. Now it all makes sense – thanks Mike! Clearly, Tredyffrin is willing to subsidize the other municipalities by not enacting an EIT so that these areas can keep that money. In return, these municipalities and their businesses pay for Tredyffrin’s fire and EMS. The mystery is revealed. Everyone can rest easy knowing that Tredyffrin is the “gold standard.” By the way, no new taxes this year! Just an increase in a sewer fee paid by over 80% of the residences. This couldn’t be a tax because Warren says its not a tax and the TTGOP is a party of integrity and would never mislead residents.

    By the way, were the fire companies able to cash that big check? I’m not sure it would fit in the ATM deposit slot.

    • You’re welcome, Roger. And while you’re getting the $2.7 miilion “on the table”, you will also be taking $4.3million in NEW taxes from Township residents. You do understand that you can’t have one without the other, right?

      In 1989, the Sewer FEE was $220 – in 2010, it will increase to $250. I’d happily accept any other cost in my life being up only 14% in the past 20 years.

  5. You start with gambling in PA and get to an EIT in Tredyffrin!

    Here’s the point as I see it. Absent a favorable set of circumstances (**below), the Township and School District will have to raise existing tax(es) or implement new one(s). What course of action will have the best utility for township residents?

    The BAWG survey said implement EIT rather than increase property taxes again. Materials distributed at the Township Budget workshop stated that a 1% rate would raise $9 million, of which $2.7 million is currently paid by residents to other Townships, and $2 million would be paid by non-residents. That seems like a good rate of return to me.

    **From above: Offsetting favorable circumstances could include some or all of the following:
    1. Development increases tax base (see your posts on Uptown Worthington, etc.)
    2. Unionized workers forgo all compensation increases and absorb increases in medical benefits costs
    3. Stock market increases enough that public sector pensions are fully funded
    4. PA legislature takes action to defer funding public sector pensions to future generations (makes me think of a comment on your deer post……)
    5. Gaming revenues are used to fund public sector compensation liabilities

    There, we’ve come full circle!

  6. I think the saying is, “Lies, damn lies, and statistics”? Ray says,”The BAWG survey said implement EIT rather than increase property taxes again.”

    According to page 61 of the BAWG report, 70% of those responding strongly disagree or disagree with imposing an EIT – 19% agree or strongly agree with an EIT. 72% strongly disagree or disagree with raising real estate taxes, while 10% strongly agree or agree with raising real estate taxes. These numbers indicate to me that survey respondents STRONGLY oppose both alternatives, either an EIT or higher RE taxes. To suggest the survey said “implement EIT rather than increase property taxes” is an interesting interpretation of these numbers.

    BTW 92% of respondents agreed or strongly agreed with reducing expenses, which was done in the 2010 budget.

    • First off, the BAWG report was an intellectually weak excercise. A good example is the discussion on pensions. To say that the township should go to a defined contribution plan vs. a defined benefit plan is a blinding flash of the obvious. If it were truly that easy, it probably would have been done. The fact is, the township does not know how to effectively negotiate contracts. As for the survey…that was flawed too.

      Citing the BAWG in support of an argument is to cite junk science.

      What was the BAWG’s actual purpose? It gave a retired guy something to do….This same retired guy did the same thing for the school district 4 years ago. Look where that is now. That is not to say the ills of the school district are Colman’s fault. Rather, it just illustrates that his suggestions were either not used and/or where not useful. The guy was a as PhD chemist for a pharama company. Not sure when he became a financial genius.

      Simply put, the BAWG is full of conclusions without much, if any supporting data to back up those conclusions. As if the St. David’s affair was not enough to make this conclusion, the report simply lacks credibility – which is a reflection of its chair and the BAWG members. They all ratified it… It’s also a reflection on the BOS. They all ratified it too.

  7. John:

    I am only citing the BAWG Survey in response to Ray’s assertion that the survey data support implementation of an EIT. I understand the limitations of such a survey.

    BTW, your shots at Mr. Colman, including those re the school district work he did in 2004 are patently ridiculous – if you know anything about the TESD’s current challenges, you would know they are the result of the ballooning PSERs contribution and the most recent union contract, negotiated in 2008 – he had zero ability to impact either of those. John, your personal attacks only diminish the credibility of your substantive arguments.

    Primarily through expense reductions, the 2010 budget challenge was met. Going forward, to your question this morning about a modest business tax, I think it should be further evaluated as a revenue source. The BAWG report suggests a $600 fee on Township businesses would generate $840k.

    BTW, a shift of the burden from real estate taxes to an EIT might further reduce transfer tax revenue. Those Tredyffrin homeowners that are being “driven out” by increasing real estate taxes (i.e. seniors) would stay in their homes as their real estate taxes actually decline and the earners contribute a larger share of the taxes.

    • I understand the PSERS point. The criticisms re: Colman are not personal attacks. You can frame them that way – but that does not make them so. If you think the BAWG was a credible exercise that reflected well on all involved – all I will say to that is that you are entitled to your opinion. General observable fact leads me to conclude otherwise. You are right in that he had zero ability to affect the pensions. My basic point is that for whatever work was done in 2004 – there appears to be no net benefit. OK…enough of that…it really has no impact going forward.

      The 2010 budget challenges WERE NOT met. As long as general fund expenses are contained in the sewer fund, it’s all a bunch of fiction

      In terms of the property transfer tax, the bulk of those $’s were from commercial sales. But yes, an EIT could provide for property tax relief. If only there would be an intellectually honest discussion on the matter…

      • “whatever work was done in 2004 – there appears to be no net benefit.” – in fact, the work done in 2004 at the school district reduced expenses by hundreds of thousands of dollars per year since then. However, as roughly 70% of the District’s expenses are labor, covered by union contracts, any savings have been overwhelmed by labor/benefits costs and PSERs, like a tsunami.

        As for the 2010 budget, in my opinion it was a success – not perfect. Between township management primarily, with input from the BAWG and the BOS, there were very significant cost reductions. We can differ on this line item or that line item – the fire departments, the libraries, etc. – but my sense is that the community wanted the Township to take a very hard look at the expense side of the ledger (FWIW, more than 92% of BAWG survey respondents wanted the Township to look at reducing costs), in the same way businesses and families have done in this environment. Again, there are some that feel they cut too much from some areas and not enough from others, but it appears that they cut from every functional area, in the spirit of “shared sacrifice”. In my opinion, the current cost structure does a better job of balancing the expenses with the service levels expected by taxpayers. Going forward, there’s certainly much less room for reduction the expense side, without really hurting services. All things considered, and in comparison to neighboring townships, the 2010 Budget achieved a responsible balance between expense cuts, no real estate tax increase, a modest (and probably overdue) increase in the fee to Sewer users, and maintaining our reserves and thus our AAA bond rating. And let’s not forget that by moving quickly and decisively, 2009 turned out more than $1mm favorable to budget.

        Going forward, simple inflation is going to increase Township expenses, absent further cuts. The transfer tax revenue could rebound – my crystal ball is no clearer than anyone else’s. We may be able to mange through with modest real estate tax increases or we may need to look at other revenue sources to fill the shortfall – a business tax and I have a feeling we’re going to revisit the EIT/PIT discussion – can’t wait ;).

        Happy New Year!

    • Just to say that everyone is of course entitled to their opinion about the quality of the BAWG analysis and the about any other interpretation of the data in it. However, the data is, what the data is.

      The data source is those interested enough in the Township’s finances to fill in the survey. The question was a very specific one regarding preferred methods of balancing the budget (ie relevant to today’s key issues). The answers showed a distinct difference (1.9 to 1, or – if we are allowed to round – 2 to1) between those who agree/strongly agree in implementing an EIT vs increasing property taxes.

      There are limitations to the survey, starting of course with respondent self-selection. All we know is that there is a set of people who, given their knowledge in 2009, would rather implement an EIT than increase property taxes. Just as we know that there is a set of people who, given their knowledge in 2007, would not implement a PIT in order to reduce property taxes.

      Exactly why there needs to be an open and participative process to address the question that remains: how are the school district and township going to address their projected budget shortfalls?

      • Good points, Ray. We know nothing about those that returned the survey, only that they took the time to do so.

  8. Following Mike of Berwyn’s logic, Tredyffrin had better not lower property taxes or those seniors and others unable to pay their current tax bills will be able to afford to stay in their homes, thus reducing future transfer tax revenue.

    Geez, now there’s a good reason to maintain or raise property taxes vs. an EIT – a tax that would redistribute the burden based on income instead of property values, on the use of township services vs. property ownership.

    The bottom line is that for anyone not paying an EIT now, an EIT imposed upon those working in Tredyffrin would be a new tax. And for those in the top tax bracket, it would amount to a substantial chunk of change. Mike in Berwyn is reacting to this prospect as one would expect. He doesn’t want to pay it.

    But from the Township’s perspective, the questions are: 1) is an EIT a more fair and stable source of revenue going forward? 2) And given the potential revenue, can property taxes be decreased?

    In my view, it is fair to ask more of people who work in this township and depend on all of the services it provides.

    Will some individuals and small businesses, especially s-corps, partnerships and sole proprietorships, take a hit? Yes, and it will hurt.

    Following Mike’s line of thinking though, at least these businesses would pay less given the current economic climate.

    But would they be likely to pick up and relocate? It would depend on the total cost of doing so vs the benefits of staying in Tredyffrin. The formula may change, but the bottom line will still drive the decision.
    And Tredyffrin will remain a very attractive place to do business.

    • Kate:

      “raising real estate taxes vs. an EIT – a tax that would redistribute the burden based on income instead of property values, on the use of township services vs. property ownership.” I want to be clear, are you suggesting that an EIT assesses tax based on use of township services while a property tax assesses tax based on property value?

  9. Maybe if all of Tredyffrin’s property values were reassessed, some people would feel differently about this issue.

  10. Mike,

    Of course not.

    I’m saying that an EIT taxes more broadly those who benefit from the township’s services and therefore generates more revenue.

    I assume you agree that those who work in Tredyffrin derive quantifiable benefits – police, fire and EMT protection as well as road maintenance and snow removal, etc. – worth far more than the $52 local service tax they now (are supposed to) pay.

    Currently, almost all of that burden falls on property owners. It’s a system that has worked for the last fifty years, but in my view, does not serve the best interests of our community going forward.

    Now that Tredyffrin’s 2010 budget has cut, cut, cut – over $3 million below last year’s operating expenses – and is balanced only because of the tricks of fund accounting, there is an obvious need to focus on sources of revenue that will adequately fund essential services in future years.

    Cost-cutting has its limits, and they may have been reached in next year’s budget. And we’ve already seen at whose expense – the fire companies, the libraries, community organizations, unprotected township employees who are absorbing substantial pay cuts….

    I believe implementation of an EIT will provide the best opportunity for Tredyffrin to maintain the quality of life we have enjoyed and plan for the future.

    Community matters to me, and I’m willing to contribute my fair share……

    • kate:

      If you hadn’t noticed, my approach is to quote you exactly, and then address the issue directly (John P. hates it when I do this), rather than guess what someone’s trying to say – that’s why I asked you to clarify your earlier statement. Unfortunately, you did not offer me the same courtesy “Following Mike of Berwyn’s logic…” ;).

      Actually, my point was that a implementation of an EIT may carry with it a number of unexpected consequences. Tredyffrin operates within a broader community that is truly a microeconomy. People make all types of economic decisions – where to work, where to live, etc – based on any number of factors, many of which are rational and fact-based. Those who live here in Tredyffrin have operated under a tax structure (real estate tax based) that has existed for many, many years – they knew the rules of the game and they made their decisions accordingly. I used the example of seniors moving out of the Township because they may not be well-served by such a tax structure – they may no longer see the value received for their tax dollars, especially if they have no children in the schools. So this has created an environment where, at least in the neighborhoods where I’ve lived, seniors often move out of their single family home to smaller dwellings with lower taxes and maintenance, most often out of Tredyffrin. This has allowed young families to move into our community, populating our schools. My point was, that a change in the tax structure – the shift from a tax system based on real estate value to one more based on income, may well alter this particular dynamic in ways we don’t expect, including fewer transfers of real estate.

      Among other consequences: we may find that there will be fewer students in our school system, we will reduce the appeal of our Township to high earners – this may impact the value of high end homes, renters would find Tredyffrin less attractive (don’t hold your breath on landlords passing any RE tax reduction through to their tenants). While you say “Tredyffrin will remain a very attractive place to do business.” I say it will be less attractive with an EIT (see my post on this thread from 12/29 at 5:18pm regarding my business’ analysis of where to locate our business). A Personal Income Tax, which would also tax unearned income (interest, dividends, etc.) is another possibility. The point is, a change will create new incentives and disincentives, which, at the margin, will effect behavior, often in ways we don’t anticipate.

      Now to your points, “I assume you agree that those who work in Tredyffrin derive quantifiable benefits – police, fire and EMT protection as well as road maintenance and snow removal, etc. – worth far more than the $52 local service tax they now (are supposed to) pay.” I DO AGREE. However, you do understand that these businesses also pay real estate taxes, in addition to the $52 LST their employees pay? If they own their place of business, they pay directly to Tredyffrin, if they rent, with a passthrough from the landlord. That said, a business tax might be considered – the BAWG report cites figures that a tax of $600 per business, with an estimated 1400 businesses, would generate $840k/year to the Township.

      Also, “The bottom line is that for anyone not paying an EIT now, an EIT imposed upon those working in Tredyffrin would be a new tax.” Understand, that this tax will fall on many folks who do not currently pay an EIT and DON’T work in the township – it will be a new tax for them, too. If you work in Upper Merion, Lower Merion, Radnor… you don’t pay an EIT, nor do you work in Tredyffrin, this is tax on top of your current real estate tax. In fact, according to the figures presented at the budget workshop in November, $2.7mm of EIT revenue would come from Tredyffrin residents who already pay the EIT in other jurisdictions and $4.3 million in NEW EIT tax on Tredyffrin residents. So much for the argument I often hear, “Most Tredyffrin residents already pay an EIT to another jurisdiction”.

      BTW, community matters to me, too, and I’m willing to contribute my fair share – however, there are alot of folks who think my fair share should include the Township getting a slice of my paycheck ;).

  11. Mike,
    You’ve clearly given much thought to the consequences – both intended and unintended – of implementing an EIT in Tredyffrin. From both a business owner’s and resident’s perspective, you find an EIT an unwelcome prospect. I get that.

    I’m guessing that you are opposed to income-based taxes in general. The fact that a flat tax like the BAWG’s suggested $600 business tax would impact smalll business owners far more than it would large corporations is of no concern to you, right?

    I think you will agree that businesses don’t succeed soley on the merits of their products or services, or the expertise of their managers. Here’s where we probably disagree: In my view, the fact that Tredyffrin provides a safe, attractive work environment, a pool of highly educated and trained workers and an affluent customer base – all of which contribute directly to companies’ bottom lines – should figure into the tax formula. Those that have benefited more should pay more.

    No need for lectures on the nature of an EIT. Many residents, myself included, understand the impact of the tax and the difficulty in asking residents to pay both property taxes and an EIT. There is no guarantee that property taxes would decline if an EIT were implemented, and if the cost of living here becomes too burdensome, some families, individuas and businesses probably would decide to move.

    The bottom line is that in the absence of a new tax formula, the school district and township will need to raise property taxes significantly. And the same group of people – homeowners and commercial property owners will be carrying the whole burden. Not fair.

    And clearly, reliance on projected transfer tax income to fund a significant portion of current operating expenses has been a mistake and cannot continue.

    So what’s your proposal? An optimistic $840k from a flat business tax is hardly the answer. Further reductions in township services will be opposed by the majority of residents and make our community a less appealing place to live..

    How do YOU propose to pay for the cost of municipal services going forward?

  12. “clearly, reliance on projected transfer tax income to fund a significant portion of current operating expenses has been a mistake and cannot continue.” By it’s nature, our transfer tax revenue is sensitive to the economic cycle and has dropped significantly the last couple of years, after a number of years when our coffers were relatively flush with transfer tax revenues. It was great then, it’s a mistake now. Sort of like reliance on stocks to fund our retirement was great when they were going up and a mistake in ’08 and early ’09. Can I assume you understand that an EIT is also tied to the economic cycle? Reliance on an EIT would introduce coincident cyclical risks as the transfer tax and in this most recent downturn, and my guess most economic cycles, these two revenue sources would move in the same direction. Considering increased unemployment (continuing unemployment claims in the 4 Zips in Tredyffrin are up from 500 to about 1250 from 7/07 to 7/09) and salary and bonus cuts, don’t you think total earned income in Tredyffrin is down since 2007? 5%? 10% 15% If so, EIT revenue would be down by that percentage.

    As would be expected, especially with government entities, spending expanded to the amount of revenues. When revenues dropped, largely from reduced transfer taxes, Township expenses were out of line. Hopefully, the fiscal discipline and expense focus that resulted from the recent budget challenge will continue. If we can limit our expense growth to 2-4% ($600k-1.2mm), then real estate tax increases will be modest ($20,30,40 per household). If transfer taxes rebound in 2010 or 2011, that would help limit tax increases further.

    Frankly, I don’t have a definitive solution, but I can’t see blowing the current tax structure up and introducing a huge new tax – $9mm per year it’s supporters claim, including $4.3mm in NEW taxes on Township residents – in order to fill a relatively small budget shortfall.

    I’ll respond to your question about my opinion of income-based taxes tomorrow – gotta go drink some champagne!

    • Happy new year Mike…

      Thank you for your willingness to engage in the conversation. We may not always agree – but I respect and appreciate your position.

    • Following up on the recent discussion, should our Tredyffrin taxes be property-based and/or income-based? Current taxes are based on the assessed value of our homes. There is nothing that Tredyffrin Township provides that has any direct relationship to residents’ income. Let’s say two families live next door to each other – their assessments and Tredyffrin Township taxes are the same. In return, the Police protect their homes (which are of equal value), Public Works plows the snow and maintains the road in front of their house, they both have access to the same Libraries, Parks, and everything else living in this community. Now one family earns $50,000/year and the other $150,000. Should the latter pay 3 times the taxes of the former?

      Furthermore, there’s the issue of a PIT, which would include all income, versus an EIT, which seems to be the popular choice. Again, two families next door to each other – one retired, with pensions, Soc.Sec., interest and dividends totaling $100,000/year compared to a dual earner family with an income of $100,000. Should the former pay $0 income-based tax and the latter $1000 in EIT?

      So, in my view, the property tax system, while not perfect, is the fairest way to assess Township taxes.

      • Well, this is interesting.

        Here you are advocating a system in which the funding of government services is on a per person basis, unrelated to ability to pay. Completely at odds with the progressive tax system that our society has come to adopt over the centuries. Also of course, many government services (eg: Medicaid) have not a direct, but an inverse, relationship to income: that’s the whole point of government services!

        And let’s just make a parallel argument: two families, both earning $100,000 a year, one lives in a home worth $500,000, the other in a home worth $250,000. Should the former pay twice the local taxes of the latter?

        As to EIT vs PIT, the great advantage of an EIT is that there is a county-wide low cost collection system for a tax that is used by the majority of our neighboring municipalities. It may be worth comparing costs and benefits in an objective analysis.

        All in all, the previous comment just makes another good argument for diversifying the tax base!

        • Ray:

          “Here you are advocating a system in which the funding of government services is on a per person basis” There is nothing in what I said that relates to a PER PERSON taxation. I referred to two families without any reference to per person

          “Completely at odds with the progressive tax system that our society has come to adopt over the centuries.” In fact, a progressive tax system income has been adopted at the federal level, but Pa has a flat income tax (NOT progressive) income tax and the EIT, that has been adopted by many townships, and which you advocate, is NOT progressive!

          “two families, both earning $100,000 a year, one lives in a home worth $500,000, the other in a home worth $250,000. Should the former pay twice the local taxes of the latter?” Yes, in my view. The primary services of the Township: Police are protecting my property, which is more valuable and Public Works providing snow removal, dtreet maintenance, stormwater management, etc. to a more valuable property – i.e., more valuable dwelling, larger land area and/or greater street frontage.

          “It may be worth comparing costs and benefits in an objective analysis.” You’re right there, Ray.

          • OK, per person or per family – I was just assuming the same number of people per family. Also, did I say that the income taxes in PA and townships are progressive?

            Let’s just look at the purported correlation between storm water cost and house value. In fact, hardly so: a house with storm water problems for which the Township is responsible is likely to have a lower value than one which does not.

            Just shows how important assumptions are.

            In aggregate, it’s likely that property values are correlated with income, so the type of tax may not make a difference.

            At the margin, though, there’s a big difference. Take senior citizens hoping to stay in their houses. Their income levels will be down, and likely dependent to some extent on income from savings, but the home assessment is unchanged and property tax rates keep going up. Is it Township policy to actively force out these people with the opportunity to contribute their volunteer time to the community?

            That’s why I believe that a diverse tax base is the best way to assure a fair allocation of responsibility for township services. Not to mention perhaps the most important fact: that we a caught in a “prisoners’ dilemma” – if we are the only township not to implement the tax, we will LOSE. Revenues that could stay here will go out, and revenues that would come it, will not.

  13. Ray:

    “In aggregate, it’s likely that property values are correlated with income, so the type of tax may not make a difference.” Not necessarily at all. I can tell you on my street, where the homes are very similar, and I assume the Township taxes are also very similar (I paid $896 in ’09), there are retirees with no earned income and families with incomes of $400-500,000+. With a 1/2 % EIT, the former would pay $0 and the latter $2000-2500/year, which would at least TRIPLE their Township taxes.

    “that we a caught in a “prisoners’ dilemma” – if we are the only township not to implement the tax, we will LOSE.” This idea that every other municipality has an EIT is pure fiction. According to the Township’s most recent figures, presented at the 11/15 Budget Workshop, there is $2.7mm in EIT paid by Tredyffrin residents to other Townships. There is $4.3mm of potential new revenue from taxing Tredyffrin residents. Ray, 62% of aggregate earnings of Tredyffrin residents is NOT subject to EIT currently – we are NOT the only Township not to implement the tax – not even close.

    • Tredyffrin is not the only one without EIT for sure, but it is small group, and is continuing to shrink. According to the BAWG data 95% of PA municipalities collect EIT…

      Regardless of whether EIT is the best solution, or even a good solution, I expect that it will be implemented in Tredyffrin, or T/E, within a couple years. This will happen mainly because it is widely adopted statewide and we know that TESD, as well as Tredyffrin and Easttown need the revenue it would create.

      As additional municipalities continue to implement the EIT, we would assume that the % of aggregate earnings (and earners) of Tredyffrin residents already subject to EIT in other municipalities will grow as well. At some point the residents for whom a Tredyffrin EIT would be a new tax become the minority. How would a proposed property tax increase fly if it had a net adverse effect on more residents and more earned income than EIT?

      • Justin:

        So if 95% of PA municipalities have an EIT and 62% of Tredyffrin earnings are not currently subject to an EIT, that suggests a few possibilities, among them: that those Townships without an EIT are close to us (Tredyffrin, Easttown, Radnor, Haverford, Lower Merion and Upper Merion) and/or those Townships without an EIT are attractive places of business for high earners. Beware the unintended consequences of an EIT.

        Mike

        • Mike:

          Agreed with respect to a lower EIT adoption rate in this area, especially Delaware County. The expectation is that more will adopt EIT going forward, and based on the numbers now we would expect disproportionate adoption locally going forward simply because most that don’t have it are nearby. Tredyffrin’s 62% of earnings not subject could change quickly to 62% becoming subject. Or 75% subject. etc.

          With no guarantee whatsoever that a non-EIT municipality today will continue to be a non-EIT municipality tomorrow it wouldn’t factor highly into my decision process when looking at leasing or purchase options, and certainly wouldn’t cause me to move.

          Considering that all income earners who don’t currently pay EIT are susceptible to its implementation at EITHER their workplace municipality and/or resident municipality, unless they are both the same, chances are high that they will pay it sooner or later as adoption increases locally.

          I can appreciate and agree that there will be consequences of any tax increase or shift, I am just not certain that the consequences of EIT or worse than property tax increase or flat rate business tax. The township needs new revenue or they will likely have to cut services further + TESD needs new revenue or they will cut services further. None of those cuts will do much to make Tredyffrin more attractive to buyers or tenants either.

          I do not think thus far that we have had the honest and intelligent analysis that we need or deserve.

  14. Go to http://www.munstatspa.dced.state.pa.us
    to see a listing of all municipalities and boroughs in PA – 2,439 in all. As of 2007, the most recent year listed , only 122 of them did NOT collect an EIT. In all of Chester County there are only 6 municipalities besides Tredyffrin that do NOT impose an EIT.

    Clearly, many local governments, big and small, affluent and struggling, have made the painful decision to impose a tax tied to income as well as a property-based tax. For the most part, the few without an EIT are tapping other sources of business-based revenue such as a business privilege or gross receipts tax (no longer options for Tredyffrin.)

    It’s no surprise that high-income Tredyffrinites not currently paying an EIT do not want to pay this tax and will fight against its adoption. We saw this in 2007 with Act 1, and again with the BAWG’s pre-determined rejection of an EIT.

    But I think Justin is correct. An EIT is coming to Tredyffrin. Without one, our property taxes will skyrocket given the current TESD budget shortfall
    .
    We should work with Easttown on this, but I believe It’s just a matter of time before an EIT benefitting both the school district and township will merit a serious look.

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