Welcome to the October 12, 2018, issue of Newtown News Update. Back issues and subscribing information can be found here.  If you do not wish to receive further updates, please use the "Unsubscribe" link at the bottom of this email.

The opinions expressed here are solely the those of John Mack and do not reflect the opinions of any other person or entity.

This is Part 2 of a series on the financial health of Newtown Township. Access Part 1: The Audit Report

A "Rapidly Approaching" Fiscal Precipice

Jack Brod, Chair of the Newtown Township Finance Committee (NTFC), presented the Committee's first-ever report to the Newtown Board of Supervisors (BOS) at the September 26, 2018, public meeting. According to the report, the Township is "rapidly approaching [a] fiscal precipice."

Deficit Spending Concern

The NTFC Report warns of several fiscal issues and concerns, the biggest of which is a history of deficit spending.

“The 2018 Newtown Township budget continues a multi-year pattern of deficit spending,” notes the report. “Combining the operating deficit [$400,000] with the money used from the Reserve Fund [$636,000], the township has an effective 2018 deficit of approximately $1,000,000.” This estimate is close to the $1.2 million deficit noted in the 2017 Audit Report.

Other concerns and issues mentioned in the report include:

• Effect of deficit financing on the Township’s Reserve Fund (yearly declining fund balances) creates a vulnerability for bond rating downgrades. Lower bond ratings increase the interest expense, resulting in higher borrowing costs to the Township.
• Anticipated increases in Township spending for salaries/benefits (upcoming new contracts for the police and fire departments as well as periodic raises for other Township staff) as well as capital equipment purchases (police cars, public works department equipment, etc.).
• Township building construction annual debt service: The current tax millage dedicated for loan repayment will not meet mandatory increased yearly payment amounts possibly as soon as 2020. The dedicated millage rate will need to be increased or supplemental revenue found.
• Effect of potentially mandated, Pennsylvania Department of Environmental Protection (PA DEP) storm water Definition regulation requirements with their associated implementation costs.

Multi-Year Financial Planning Needed

The most important suggestion made by the NTFC is that Newtown needs to get out of the “annual budgeting” mindset and move to a multi-year financial planning and budgeting cycle (at a minimum 2 or 3 years, possibly up to 5 years). A multi-year financial plan will outline short and long term financial, managerial and economic development strategies that Newtown can consider implementing to strengthen its financial capacity.

Specific measures that Newtown can take to effectively manage its financial position and achieve or maintain long term fiscal and economic viability include:

• expenditure reduction;
• revenue enhancement;
• implementation of long-term community and economic development strategies for tax base stabilization;
• adoption of best management practices to achieve operating efficiencies; and,
• pursuit of intergovernmental cost-sharing strategies.

NTFC, however, believes that the Township’s financial problems are mainly driven by “a lack of revenue and associated growth, not inefficient spending of existing revenue. It isn’t clear that any further reductions to ongoing staffing/services can occur without reducing service levels below standards that the BOS, township staff, and taxpayers would find acceptable.”

The NTFC recommends that “The BOS, working with their staff/experts/consultants/NTFC, should prepare a realistic 3 to 5-year budget implementation plan based on the proposed levels of services to be provided to the community. If reductions in spending and service are to be avoided, realistic and adequate revenue streams must be generated to support the level of spending required.”

Figure 1: The 2018 property tax millage of Newtown compared to several other local municipalities each of which - like Newtown - has a 1% Earned Income Tax (EIT).

Benchmarking and Education Needed

The above recommendations are long-term projects that require significant resources and cannot be implemented in time to impact the 2019 or even the 2020 budget. The NTFC, however, has suggested a few things that can be implemented immediately such as benchmarking and education of residents.

According to the NTFC, a full list of benchmarking metrics should include:

• tax millage compared to other Bucks County municipalities (see Figure 1);
• how other municipalities raise revenue, especially the extent to which they raise revenue streams less dependent on the general state of the economy;
• Reserve Fund levels (State of Pennsylvania recommendations as well as bond rating agencies);
• Police Department staffing, equipment and operations (FBI/other population standards; compared with other Bucks County departments);
• Fire Department operations (staffing, equipment, accepted population standards; compared with other Bucks County departments);
• Municipal staffing and budgets (administration, public works, codes, etc.) compared with accepted professional standards and other Bucks County municipalities; and
• Municipal assets (buildings/equipment/etc.) compared with accepted professional standards and other Bucks County municipalities.

“We encourage [the BOS] to build public awareness and education around these issues within the township," suggests NTFC. "We’re learning that there’s a lot of misinterpretation and misinformation [out there] especially regarding real estate taxes (see Figure 2). It’s not well-understood and I think the public is going to need to engage more deeply into the financial issues of this township.”

Figure 2. Allocation of Property Taxes in Newtown

Cutting Expenses Won't Cut It

Brod emphasized that the Township’s financial problems are “mainly driven by a lack of revenue and associated growth, not inefficient spending of existing revenue. It isn’t clear that any further reductions to ongoing staffing/services can occur without reducing service levels below standards that the BOS, township staff, and taxpayers would find acceptable,” said Brod.

2018 Draft Budget Presentation Meeting

The Newtown Board of Supervisors will meet on Monday, October 15, 2018, at 7:00 PM in the Public Meeting Room in the township building, located at 100 Municipal Drive, Newtown, PA. 

The draft 2019 Budget will be presented to the BOS at this meeting. Typically each department head - Police, Emergency Services, Public Works, Parks & Recreation - is present to answer questions from the BOS.

This is the first step in developing a balanced budget , which must be officially adopted by the Township before December 31, 2018.

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