Further School Budget Discussion . . . How will the District fund the gap?

Tonight is an important TESD Budget Workshop — 7:30 PM, auditorium at Conestoga High School.  Yesterday, I posted the agenda and materials for review.  This is our school district and our taxpayer dollars . . . how do you want your dollars spent and how do we fund the district deficit?

There have been many budget-related comments today on Community Matters — several of which were focused on EIT.  For further discussion, below is a commentary received from Ray Clarke.  In the past, Ray has offered his opinion on EIT but has updated his remarks based on TESD’s  current 2010-11 budget information.  Here are Ray’s comments — let’s use this as a starting point for discussion:

I’d like to get away from history (except as a guide to the future) and ponder what needs to be done to secure our kids’ education going forward. I think much of the evidence supports John’s advocacy of an EIT. I’ve posted it here before but here goes again, starting with updated budget numbers:

1. After one round of proposed program changes that have been vehemently opposed by many in the community, plus a 2.9% property tax increase, the school district will still be in the hole by $3 million in 2010/11, $8 million in 2011/12. (Note that it is relatively easy to squeeze expenses for just one year…..). No official word from Tredyffrin yet, but the township will need to fund contracted compensation increases next year, too.

2. A 1% EIT would raise $9 million for both Tredyffrin township and school district, of which $2.7 million is already paid by residents and $2 million would be paid by non-residents. (Easttown would also have to implement the tax.)

3. Perhaps a 2010 Tax Study Commission would ask a question like: “Would you prefer that property taxes increase 15% for all, or that the township residents not now paying a 1% EIT do so and the township gets a 1 for 1 match, worth $4.7 million a year now and increasing with inflation?” Might there be a different answer than to 2007’s question, which referenced only shifting taxes from property to income?

4. There will be in 2011 a county-wide mechanism to collect an EIT at low cost for all the other townships with this tax.

5. An EIT diversifies the tax base among all income earners and wealth holders.

6. The TSC stated that: “Had we been presented with compelling funding needs by the school board that could not be satisfied by the present system we may well have endorsed a change in the manner in which our schools are funded.”

So, given that …

 – There is no willingness by the TEEA to consider deferring accelerating teacher salary increases (6.9% in 2009/10 over 2008/9, and more contracted each year until 2011/12) and sharing health benefit cost increases

 – We need to fund $4 million a year in replacement capital and the capital fund is running dry

– There is no willingness to unlock capital tied up in unproductive properties (note: enrollment is projected to decline in the short and medium term)

 – $2 million of the $4 million proposed expense savings have only a one time impact

 …it seems to me that the need is indeed compelling. Whatever views one might have of past School Boards, it seems to me that the current one has to operate in a very different economic environment and that their actions should reflect that.

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31 Responses

  1. HERE HERE — Ray – congrats to you for a well thought out summary of issues. I also agree that there is no need to go back over the past 15 years – we are all aware, including JP, that the District is one of the best in the Nation. And that is due to 3 very important and different components. One is the socioeconomic makeup of the Townships – One is the invaluable teaching staff at all 3 levels of the school structure and One is the Administration folks. All three of these components are equally needed to insure the successes that have been reached.
    I do however feel that a hard look at the salaries and benefits paid to the Admin. staff needs to happen. As I look at the expense reduction recommendations I see that 2 FTE’s at the high school equal 1 staff reduction in Admin. And yet everyone points to teachers.

  2. Let’s be clear here: the School Board explained that an EIT is a possibility but not for 2010-2011. The Board has the ability to put an EIT on the ballot which would have an impact in 2011-2012 but NOT in 2010-2011.

    Also, the School Board is not allowed to pick the phrasing for the ballot question on the EIT. State laws impact that phrasing…so Ray’s suggestion wouldn’t be allowed.

    Additionally, the School Board can levy the EIT regardless of Tredyffrin or Easttown townships. There is a difference though. Tredyffrin or Easttown townships can implement an EIT WITHOUT going to the voters for approval. The school district cannot. The school district must go to the voters for approval.

    Finally, an EIT does return money to the district. However, it disproportionately impacts renters and lower income people. You could have a six figure income from your investments and NOT pay anything under EIT. And there are a surprising number of people in this township who have substantial investment earnings. This is why the tax study commission strongly recommended a PIT. If we’re going to have a tax, it should be a fair tax. A PIT still exempts social security and pensions…but it means that all residents of T/E pay not just those who have to work for a living.

    • Actually we have been quite clear here in the past that the School Board needs to initiate a discussion with the Township in the Fall in order to implement an EIT for 2011/12.

      My point was that the way a question is asked can have quite an impact on the answer.

      Taxes do have to balance the revenue raised and the cost of collection. The TSC estimated the cost of collecting a PIT at 2% of the revenue collected and a collection rate of 50-90% (page 7).

      Perhaps if every resident, not just property owners, paid a tax that explicitly funded local services (rather than being subsumed in rent payments), then interest and involvement in township and school affairs might be stimulated?

  3. I’m wondering how many residents already pay an EIT to another locality. We do to Westchester. Would the EIT we pay then be transferred to our home district? i think that’s how it operates. Also, could someone explain the PIT to me? I’m not familiar with it.

    • While I have not heard the number of taxpayers, The Township has used a figure of $2.7mm that is currently paid by Tredyffrin residents to other jurisdictions, that would “come home” if we implemented an EIT. They also have said that $4.3 million would be paid by Tredyffrin residents that do not currently pay an EIT where they work, i.e., Upper Merion, Lower Merion, Radnor and Tredyffrin.

  4. Mike in Berwyn has been civil and helpful — so why did you feel the need to cite his last name? I don’t even know if you got it right, but Pattye — I want to officially request that you prevent JP from trying to make all of this far too personal NO last names, no links, no attacks. It’s not censorship — it’s civil monitoring.

  5. John says-

    “Not true… and I am not going to let you continue to say this unchallenged. ” I refer you to page 2 of the EIT presentation at the 11/14/09.
    $9.0mm in total projected EIT
    $2.7mm from EIT paid by Tred. residents in other jurisdictions.
    $2.0mm to be paid by non-residents (that work in Tredyffrin)

    9.0mm-2.7mm-2.0mm= $4.3mm from residents that do NOT pay an EIT currently.

    Another “honest mistake”, John?

    It’s interesting that those Tredyffrin residents that don’t work in “the other 95% of the other jurisdictions that charge an EIT” have 50% more in aggregate earnings than those that work where there is an EIT. Maybe, if given a choice, high earners choose to live and work in jurisdictions that don’t have an EIT (Radnor, Lower Merion, Tredyffrin)? Beware the unintended consequences of an EIT!

    • Mike – I get that you are opposed to an EIT, and understand your reasoning. You live and work in municipalities that don’t have EIT. This would be money out of your pocket. I understand. I am not debating the regressiveness or fairness of EIT either, but the fact is that it is already widely adopted, and the momentum continues that direction. Whether it is right or wrong there are current millions of dollars already coming out of TT residents’ pockets that don’t benefit TT or TESD at all.

      TT and TESD (and ET) need additional revenue, that is clear. Cost cutting won’t solve any problem without dramatically diminishing quality. Where do you want them to find that revenue? You say beware of unintended consequences of EIT, but any tax increase will have consequences. Why do you think that EIT consequences would be worse than the consequences of a prop tax increase? Or a new business tax?

      • Good points, Malvern Republican – and I appreciate the civil tone. In addition to the previous discussion with John P regarding the $2.7mm, a few of my thoughts:

        First of all, according to the Township’s numbers and assumptions, a 1% EIT would raise $5.5mm of new dollars for Tredyffrin in 2011. Will Township property taxes be reduced by $5.5mm? I’d like to see some very strong assurance of that before I would favor, for example, raise $5.5mm in EIT and reduce property taxes by $4.0mm. I happen be among those residents who feel the 2009 budgetary review was excellent, not perfect, and many necessary changes were made to the Township’s cost structure. I would not want to “backslide”.

        Also, I have a concern about the fairness of an EIT, relative to a personal income tax. The burden of the EIT would fall completely on working families, while all, including those with very significant investment and pension incomes, would get property tax reduction. For example, the family with interest, dividends and other unearned income of $100,000 would see their property tax decline by, on average $300-400. For the working family next door with earnings of $100,000, their property taxes go down by the same amount but they would be paying $1000/year in EIT.

        Third, not a big fan of the “but everybody else is doing it” argument. Radnor, Lower Merion and Upper Merion, among many other local communities do not have an EIT – while most in Chester Co. have an EIT, only about 1/3 of Delaware County communities do An EIT makes our Township less attractive, especially for high earner and renters. There are many high earning, hardworking families whose Tredyffrin taxes will double, triple or more if there is an EIT. Also, it is less attractive for renters (which comprise about 20% of our residents), who would pay a new tax. Granted, their landlord would get property tax relief, but I wouldn’t count on landlords passing through that reduction to their tenants in he form of lower rents. There are a bunch of additional issues, chronicled in the Tax Study Commission’s report and elsewhere – it’s getting late, tonight.

        To answer your question, I suggest continued vigilance on spending and modest property tax increases. As Andrea and others have pointed out, our school taxes are relatively very low when compared to other high-quality school districts. We have gotten a bit of a “free ride” with tax increases averaging about 3% over the past 10 years – the rate of increase may be 4-6% for a few years. Also, this will keep the community focused on teacher comp, especially benefits, when the next contract comes up in a couple of years.

        BTW, I’m not inclined to build the TESD 5 year plan based on the PSERs “doomsday scenario” which would bankrupt school districts across the state. As they have in the past, the Commonwealth will “kick that can down the road” 10 years or so.

        • Mike – Thanks for your comments and perspective.

          I understand agree with your points re equitability of EIT as compared to PIT, or even prop tax. EIT isn’t the best solution in my mind either, but we already have it being assessed on TT residents. The widespread adoption of EIT throughout the state is a factor that needs to weigh very highly in the decision. Not because I advocate “everybody else is doing it”, but rather because the widespread adoption is relevant to nearly half of the TT residents already. EIT consideration cannot occur in a vacuum. Fairness extends beyond the simple comparison of EIT to PIT and prop tax.

          Ultimately it is expected and predicted that more municipalities will adopt EIT. As additional municipalities adopt EIT we would expect additional TT residents to be subject to the tax in their workplace municipality regardless of whether or not TT raises prop taxes next year (which they will). Is EIT less fair for the reasons you cite than having 40%, 50%, 60% or more of the residents be subject to an EIT that TT elects to not collect, but instead levies a prop tax increase on everyone?

          If equitable distribution of the tax burden, and net minimization of residents’ tax burden are the big factors, I expect that EIT will clearly be the best solution for the majority of the community within a few years. If we are also hoping to better diversify and smooth township and school district revenues EIT will accomplish that better than additional reliance on prop tax as well.

          I was not nearly as pleased with the TT 2009 budgetary review as you were. I simply disagree with the premise that the 2010 TT budget is well designed and forward looking, and completely disagree with the claim that there was no tax increase. Quite simply, the budget is balanced on the back of unsustainable deferrals and underfunded services, and the tax increase was shifted to the sewer fund and renamed “fee increase”. I understand we completely disagree on those points, that can be a discussion another day/thread.

          I appreciate your comment re the PSERs “doomsday scenario”. I hadn’t considered that perspective before and agree that your take on that is probably correct. However TESD will still have big challenges going forward even if the state steps up with some big PSERs relief. Bottom line is that they need additional revenue to make up for what was lost with commercial prop transfer decline just like TT.

          It would be nice if there was a mechanism for you and others with no EIT to be charged your modest prop tax increase, and for me and the others who pay EIT to have it come back to Tredyffrin. Then we will have minimized the net effect on all the residents, and TT and TESD get a revenue boost.

          Until then I expect there will continue to be three competing viewpoints on the issue, those who already pay EIT and are in favor of TT implementing it, those who don’t pay EIT and would prefer the prop tax increase, and of course those who would oppose any new tax regardless of the need….

        • John:

          We have our differences of opinion – as long as you are civil and not personal with me and others, I think you add to the discussion here.

          In referring to an EIT, you say :

          “95% of the jurisdictions have enacted it.”

          According to the EIT presentation in Easttown Township in October, 90% of municipalities in Chester Co., 31% in Delaware Co., and 94% in Montgomery Co. have an EIT – the arithmetic mean is about 72%.
          That said, it is of very limited value to look at countywide numbers – how many of our residents work in London Grove or Yeadon or Perkasie? More importantly, look at neighboring communities, where our residents primarily work. Besides Tredyffrin and Easttown,
          Radnor, Lower Merion, Upper Merion, Marple, Newtown, Haverford, Edgmont and others DO NOT have an EIT. As you and I have discussed before, ad nauseam, more than 60% of Tredyffrin residents’ earnings are in jurisdictions that DO NOT have an EIT.

          BTW, I not categorically against taxes. However, I am against, additional tax “schemes”. Off the top of my head, I’m paying Federal, State, PA unemployment, Soc. Sec., Medicare, TE School, Chester Co., Tredyffrin Twp. plus a bunch of assorted business taxes. It’s hard enough for us to try to limit big increases in the taxes we pay now, without adding more tax “schemes” like the EIT. BTW, did you hear about the new plan to subject unearned income to 2.9% Medicare tax to help pay for Obamacare?

          • Mike – It is fact or speculation that Tredyffrin residents mainly work in those 9 municipalities that you reference?

            I believe a few Tredyffrin residents must also work in Charlestown, Downingtown, East Goshen, East Whiteland, Malvern Boro, Phoenixville Boro, Schuylkill, Uwchlan, Upper Uwchlan, West Chester Boro, West Goshen, West Whiteland, Westtown, Willistown, Collegeville, Conshohocken, Lower Providence, Plymouth, Royersford, Schewenksville, Skippack, Trappe, West Conshohocken, Whitemarsh, and Whitpain, which have all implemented EIT.

            • Malvern Republican:

              I have not seen the number of people but rather the potential revenue, which is driven by total earnings subject to EIT (or not subject).According to the figures the Township presented in November of 2009, there is a total of $7.0 million of potential revenue from Tredyffrin residents – $2.7mm of EIT is currently paid to other jurisdictions, therefore the remaining $4.3mm would be paid by Tredyffrin residents who do not currently pay EIT where they work. So, about 61% of the earnings the earnings are in Tredyffrin, Easttown, Radnor…

              • I said, “of the earnings the earnings” – apparently , I stutter when I get tired…

              • Mike –

                I have seen the same estimates, not sure how comfortable I with the accuracy. Nonetheless, assuming those number are reasonably accurate i have two questions:

                Is the $2.7M the number that would come home, or does that include Sterling $$ paid to Phila?

                I have not heard you comment that the 61% that is currently not subject to EIT will be shrinking over time. Do you disagree with that assumption?

              • Malvern Republican:

                Sorry this is “out of order”, but I’m replying to your post below at 8:56AM below – there was no “Reply” under your post..

                First of all, none of those figures – $7mm, $2.7mm or $4.3mm include Philadelphia earnings – it seems clear that Tredyffrin cannnot recover those dollars with an EIT. The $2.7mm would “come home”.

                The amount not subject to EIT would only shrink as new jurisdictions implement an EIT – or if there is a change in the mix betweeresidents working in EIT/non-EIT areas. There have only been a couple of new EITs implemented that I have seen – Yeadon and Upper Chichester, I think.

                Looking at a map, it is interesting that it seems that those that habve an EIT are primarily the less populated areas west of Tredyffrin. For those more densely populated areas like us, Radnor, LM, etc, the real estate tax base seems have been able to support thee local government. Also, at least if you look at the election results from 2007, when the EIT question was on the ballot, it was defeated by large margins (70%+ against) in most of these areas. So, I would not be quick to assume that everyone is going to be implementing an EIT i.

    • John:

      I have no problem with Mimi’s presentation – the presentation is quite clear. My question is with your misrepresentation of the facts available to us. The equation is in my post above – $4.3mm in NEW taxes on Township residents.

  6. A quick report from the Budget workshop. Only 25 or so residents tonight, probably reflecting that there was little discussion of program changes. The occasion was used mostly to lay out a framework, stake out some board member positions, and set up the important April 12 Finance Committee meeting where the next level of expense reductions will be discussed.

    However there were some really significant outcomes, worthy of full attention.

    The basic parameters being positioned to balance the budget are:
    – Implement the $4 million of expense reductions already discussed
    – Tax to the full 2.9% cap
    – Use $2 million of fund balance
    – Find at least $0.7 million of 2010/11 reductions from $1.5 million of mostly non-educational strategies
    Round numbers, subject to tweaking up or down.

    The principal dissent came from Dr Brake, who is not thrilled with the proposed changes to the Middle School program. He seems to be the only one on the other side of this.

    Dan Waters and Kevin Mahoney lost few opportunities to highlight the fact that these 2010/11 actions leave the structural problem untouched (shades of Tredyffrin’s “structural deficit”!). And they are right: 50% of the $4 million is one year only, and of course the fund balance use can’t continue for ever. The deficit for 2011/12 after the above programs would still be $7.5 million (8.2 – 0.7).

    So, the administration is going to do the following:
    – Deepen the study of the $2.6 million of class size, CHS period changes, etc. that – practically – can not be implemented until 2011/12. (Strategies 47-56, approximately.) If all were implemented, the deficit would be down to $4.9 million.
    – Study the implementation of an income tax. Taxing to a likely 2% Act 1 property tax cap next year would still leave the district $3 million short, so this – to me – seems inescapable.

    Some EIT information that’s new to me, and definitely has a major impact on the revenues for TESD: Kevin Mahoney stated that there is the potential to reclaim not only taxes paid to neighboring municipalities, but also to Philadelphia (which would apparently get reimbursed from gaming revenues).

    Kevin Grewell has posted a lot of helpful EIT information here. Important features confirmed tonight appear to be that this would be implemented under Act 511, which is coordinated with the Townships. Resident tax is split between School District and the townships, non-resident money is collected by the Township (which turns out to be looking at fire department funding).

    Debbie Bookstaber (from the last TSC) asked that the study include a comparison of an EIT and a PIT.

    The Board took pains to emphasize that program changes must be fully vetted, particularly in the Education Committee, and subject to public input. Back to that April 12th meeting. Also, decisions will need to be made soon on the health insurance funding and bond issuance as part of the $4 million 2010/11 programs – the former in particular being highly susceptible to assumptions. I’d like to be convinced that all aspects of utilization risk have been thought through.

    • Ray,

      You have obviously done a lot of homework on the EIT issue and I commend you. I have not looked into this stuff since I left the board. Just wondering – was Mahoney saying that we could recapture the Philadelphia money under Act 511? I had thought that was only possible under an Act 1 tax (which has to be used for proterty tax reduction and does not add any net revenue to the district). Maybe I’m misremembering this – it has been a long time and I have been enjoying my “retirement”.

      Thanks again

      • Thanks – I appreciate that. It is addicting – I keep saying I’m done, then I see another issue to comment on . . . . . .

      • Sorry, just found my way to this post. I’m afraid you’ll have to go to the videotape for the exact statement Mahoney made. I got the impression that the situation with Philadelphia is a recent development, but I have no idea whether it is related to Act 1 or Act 511. There’s a lot of value to the TESD study in resolving all the issues raised here, and more, and I’m really hoping that they do a thorough and objective job.

        Thanks to you and John for the kind words. I’m happy to add what I can to Pattye’s forum and hopefully encourage more general involvement on a subject that touches everyone and where we are close enough to decisions to make a difference.

        • Am I “misremembering” as well — did Tom Colman chair both BAWG and the Tax Study Commission? Maybe we should look for some new direction on our next financial study?

          • Tom Colman did chair BAWG and Tax Study Commission.

            • Lifetime Resident and Pattye:

              You both “misremembered” – Rachel Gibbs was the Chair of the Tax Study Commission, Tom Colman chaired the BAWG.

              • Thank you for the correction.

                • You’re welcome, Pattye. BTW, Mr. Colman was not a member of the Tax Study Commission.

                • Tom Colman had a son who went through Boy Scout Troop 106, back when Pete Motel was the Scoumaster and I was an Assistant Scoutmaster. Tom was the troop Committee Chairman for a couple of years, and so Pete knew him very well. Pete came up with the idea of doing a comprehensive review of all of the district’s finances and operations, to see where savings could be achieved without cutting program. We discussed it, and it sounded like a good idea to me, so Pete started talking it up on the board and it was decided to go ahead with the idea. Pete was board President at the time. I was Chairman of the Finance Committee (later Kevin Mahoney took over the Finance Chair, although I continued to serve on that committee as a member).

                  Pete asked Tom Colman to head up the project.

                  Tom Colman had an extensive background as a top executive in major pharmaceutical companies, and he had friends who were very high caliber coprorate people who knew operations and finance. He recruited several people to serve on what was to be called the “Operations and Opportunities Committee”. The Committee members served without pay or expense accounts – top consultants who would have commanded hundreds of dollars an hour each had they charged for their services. Over several months, they met frquently with school administrators, board members, etc. and poured over tons of documents about school district operations and finances. They were given access to everything – if they asked for a document or data set, it was provided without any restrictions.

                  They issued a report with recommendations. For the next couple of years these ideas were implemented, being vetted through the Finance Committee. Essentially, every contract with every vendor of goods or services was reviewed, re-negotiated, or changed vendors to get the same services for less wherever possible. We restructured our debt – refinancing several bond issues to take advantage of lower interest rates. We improved revenue and budget forcasting. Lots of changes were made, and the district realized a savings of at least $10,000,000 (estimated by the time I ran my last campaign in 2007) Some of these savings were ongoing, so the figure is no doubt higher today.

                  As a result, we had a tax increase one year of 1.4% followed by 0%. The next couple of years we did raise taxes but the average tax increase during my last four years on the board was 2.19%. Inflation during that period ran between 3.5 and 4%. This was an improvement over the past.

                  Tom did a great service to the district.

  7. I agree with the poster who noted that EIT seems to be the wave of the future. I would be much happier paying our EIT to the township where we live. Property tax increases are hard on seniors and others on fixed incomes. No one likes new taxes, but it seems the easy ride is over for Tredyffrin and our country.

  8. I agree that an EIT is only of benefit to the municipalities as well as the school district at this point. Revenue sources are a big issue right now. Although I believe both the townships and the school district are in the position they are in because they have not appropriately raised property taxes enough to meet their needs (or, to be fair, significantly reduce spending over the last 5 years), I do believe that new revenue sources such as EIT will help provide the significant dollars needed to help.
    I have paid and EIT for the last 11 years to other localities and it drives me crazy knowing my townships and school district are falling short. Give me the paperwork…I’m ready to send that money home!

  9. Thanks to Ray for this update. I’m sorry there were only 25 folks there, but I just wasn’t able to attend.
    I’d be interested in hearing more about Dr. Brake’s objections, as i had an opportunity during the last election to hear his wife explain to countless voters how their children did not attend the middle schools but would be back for the high school — that they felt the middle schools were not good. I sent both my children through the middle school program and can only say that middle school programs are one thing — middle school students quite another — and most issues that arise in middle school have more to do with adolescent challenges, differing levels of parent supervision and expectations etc.
    Off topic to be sure — but one last comment. Kevin Mahoney is in a top job at Penn Health systems. He has my proxy and approval for any decision he recommends relating to self-insurance. I personally don’t believe the district is in the health care business, but Mahoney is — and with the fact that most of the schools in the consortium that TESD benefits from are leaving in favor of self-insurance, perhaps it’s time to follow until the national health care program shakes out.

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