Lower Merion Citizens for Responsible Budgeting (CRB)
E-mail reponse from Mr. Cleland, Township Manager
June 18 , 2007
Citizens for Responsible Budgeting: Mr. Cleland, at the beginning of the meeting you stated that we could expect tax increases every year due to the nature of the revenue stream. Would you please elaberate on the need for tax increases related to the revenue stream?
Mr. Cleland, Township Manager:
Thank you for your email.
I believe what you are referring to is the Township's "systemic revenue problem" we have been discussing for the past couple of decades.
First of all, costs to a municipality do not grow at the rate of the Consumer Price Index (CPI). The CPI has a much different "market basket" of items measured (property rentals for example make up about 1/3 of the CPI) compared to the total costs of a municipality. A verylarge portion of our municipal costs are for salaries and benefits; in recent times, human resource costs throughout our country have exceeded CPI rates.
Of course, cost containment and savings measures should be the continuous goal of local government. Here at Lower Merion, even though service delivery expectations continue to grow, we are operating with less full-time staffing today than we did in 2000, 1990 or even 1970.
In Pennsylvania, local real estate taxes do not grow naturally, other than approximately 1% to 2% per year from new development and building additions. This is because everyone's real estate assessment is frozen at the rate of the last reassessment. In Montgomery County, that was at approximately 100% of market value as of 1996. Now, eleven years later, property market values have more than doubled, but properties are still assessed at 1996 levels.
In fact, a phenomenon that reduces assessments has begun to occur as we getfurther removed from the last county-wide reassessment. More and more property owners appeal their assessments and are successful, thus eroding the normal, modest 1% to 2% tax assessment growth. Back in the mid-1990's, prior to the last reassessment, the Township's real estate tax assessment in fact showed no annual growth, with some actual negative annual growth.
Since over half of the Township's annual general fund revenue comes from the real estate tax, agrowth rate of less than 2% (and declining) does not contribute sufficient revenue to offset normal municipal cost increases - thus the "systemic revenue problem." This requires the other general fund revenue sources to be the "bread winners" for the Township, and grow annually at quite a healthy rate to help compensate for the low real estate tax revenue growth rate.
These "other" revenue sources (deed transfer taxes, business taxes, building permits and investment income) are sensitive to the economy and usually do well in good economic times. Lower Merion is one of less than 5% of Pennsylvania municipalities and school districts that does not assess the Earned Income Tax.
Therefore, in general, for a Township in Pennsylvania to have sufficient revenue growth, most years they need to seek additional revenue fromtheir real estate tax and this can only be accomplished by increases in the millage tax rate.
Regarding your other question, the Township has done some research in recent years on employee incentive programs. I will be happy to discuss this with you and others when we meet on July 16 with the Federation subcommittee.
Doug