Newtown News Update

Welcome to the October 9, 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.

Part 2: "The Finance Committee Warns of Approaching Precipice," will be published on October 11, 2018

All is Well in the Garden As Long As...

In the movie “Being There,” Chance, the gardener, answers a question from the President about stimulating economic growth by saying “As long as the roots are not severed, all is well. And all will be well in the garden.”

I was reminded of this quote after listening to Edward Furman, a partner at Maillie, LLC, who presented a summary of the 2017 audit to the Newtown Board of Supervisors (BOS) at the September 26, 2018, public meeting. In my opinion, the main takeaway of the audit report was "as long as non-resident Earned Income Taxes are not severed, all is well in the Newtown Township financial garden."

View Video of Audit Presentation

Taxing Issues

Resident and non-resident Earned Income Taxes Definition  (EIT) – a 1% tax on earned income made in Newtown Township – account for about 55% of the Township’s yearly revenue (see Figure 1). These taxes are “volatile” because people may lose jobs, business may shut down, and other municipalities may enact their own EIT. That means that Newtown can lose the taxes collected from residents of those municipalities who work in Newtown.

Figure 1: Newtown Revenue Sources in 2017.
Source: Newtown Township Annual Financial Report, page 61.

It is a well-known fact that Newtown Township has lost a significant amount of non-resident EIT over the years. First, when Lockheed Martin closed its operations in Newtown, the result was a loss of approximately $650,000 in EIT plus an additional loss of $44,000 in Local Services Taxes (LST Definition ). In addition, when neighboring municipalities enact their own EIT, Newtown loses revenue. For example, Middletown Township's 1/2% EIT translates into a loss of $198,000 to Newtown and Bensalem’s EIT resulted in a loss of $202,376. Taken together, these loses add up to a total loss of $1,094,376. Meanwhile, if Yardley Borough were to enact its own EIT – which it has considered doing in the past – Newtown would lose an additional $28,000 or more.

This loss is reflected in the 2017 audit, which reveals that the there was a $ 1,225,829 deficit in revenues compared to expenditures in 2017 (see Table 1).

Table 1: Newtown Township Statement of Revenues & Expenditures Year Ended December 31, 2017. Source: Newtown Township Annual Financial Report, page 22.

Supervisor Calabro expressed concern that if Lower Makefield enacts its own EIT, Newtown Township will lose an additional $400,000 to $500,000 in non-resident EIT. This one collection represents approximately 1.2 to 1.5 mills of real estate tax. In response, Mr. Furman said “the general fund is well above the safe harbor number so if you had a downturn in … EIT … you have some stability in the fund to get you through that without additional borrowings.”

In a public comment, candidate for PA Senate and former Lower Makefield Supervisor Steve Santarsiero said it is “probably unlikely” that Lower Makefield will enact an EIT anytime soon. Nevertheless, the Newtown Township Finance Committee believes that the trend of neighboring communities establishing their own EITs is well established and fiscal pressures will likely accelerate that trend. Therefore, it would be irresponsible for the BOS not to plan for significant reductions in non-resident EIT revenue over the next few years.

Meanwhile, residential EIT continues to rise. Obviously, this suggests more Newtown residents are in the workforce and/or their incomes are rising. Delinquent collections, however, were abnormally high and are not factored into the analysis of increasing incomes. The current EIT collections for the last 5 years (2013-2017) have averaged $4,315,336. Newtown’s 2017 collections totaled $4,718,519, beating the 5-year average by over 9%. However, the Delinquent Residential EIT Collections for 2017 were $320,519.30, whereas the Township had anticipated/budgeted for $100,000.

Figure 2: TOTAL EIT, which is about equally split between resident and non-resident contributions, increased by over $1 million in 2017 compared to 2016.

Other Taxes

Other taxes collected by Newtown include Real Property Tax Definition  and Real Estate Transfer Tax Definition . Real property tax revenue climbed in 2017 due to a 1 mill tax increase, which allows the Township to finance ongoing road repaving and repairs.

The Real Estate Transfer Tax, which is a 1% tax on all home and land sales in the Township, is split between the Township and the Council Rock School District. Newtown’s 2017 share of real estate transfer tax collections totaled $943,172. That beats the five year (2013-2017) average. However, 2017 represents the first year since 2013 that the final collection was less than the previous year (see Figure 3).

According to the Manager’s Unaudited Discussion & Analysis section of the 2017 Audit Report, “2018 may be concerning as the year to date [transfer tax collection] totals are running far below where we would expect them to be. Factors such as the long and harsh winter and rising interest rates may be the driving factor behind decreased collections. Typically, the largest collection months are through the summer, so the Township would anticipate that the monthly averages would increase.”

Figure 3: The increase in Real Property Tax from 2016 to 2017 was because of the 1 mill tax increase in 2017 for road repairs.

Download the 2017 Audit Report

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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John Mack