2020 Budget – Trends, Forecasts & Alternatives

 

As you review the below information, understand that the budget is worked on daily, so specific amounts and projections change constantly.  If you have specific questions, do not hesitate to contact Director of Finance Michael Lynch at (610) 436-5108 x101 or mlynch@eastbradford.org.

What are the revenue trends? Property taxes (the most reliable source of income) have generally performed to budget over time.  Actual earned income tax (EIT) receipts from 2012 thru 2018 have increased a total of 2.7% for an average annualized increase of 0.45% over the six-year period.  However, EIT, which is the largest and most important tax revenue receipt (60% of total General Fund revenue), has exhibited a flat to decreasing trend, as have real estate transfer taxes, which have not been a budget-reliable source of tax revenue in recent years. This flattening trend likely is related to several factors, including limited development, purchased development rights (estimated in range of 500-600 units), aging in place seniors and retirees, and limited non-residential land use. These trends and factors may explain the 2018 year-end budget deficit of $40,706 and the 2019 budget gap of $163,827 between revenues and expenditures. Another apparent emerging trend relates to cable franchise fees (Verizon, Comcast). As technology changes to meet consumer demands and preferences; although this is a smaller receipt to the General Fund ($219,000 in 2018) a decline trend is indicated. Click here for more detail about revenue trends.

What are the expenditure trends? There are several expenditure trends that are important to highlight. Emergency support services – that is police, fire, and ambulance – comprise the largest category of Township service expenditures. The aggregate of these emergency services is projected to increase from $1,697,537 in 2019 to a current estimate of $2,038,415 in 2024 (20%) due to contract agreement renewals. The estimated annualized increase of 4.0% equates to an annual increase of $70,000. Other significant trends are legal and engineering costs, stormwater management costs, and infrastructure costs. Click here for more detail about expenditure categories. The Five-Year Forecast takes these trends (and others) and projects them out over five years. You will notice that the budget gap (deficit) is projected to increase over this period. Click here for more detail about expenditure trends.

Are Township taxes going to increase? During the approval of the 2019 Budget presentation, the Director of Finance indicated that a tax increase was warranted for 2020. This topic was also covered in the Winter 2019 Newsletter. Throughout 2019, the Board of Supervisors and staff continue to monitor the budget performance and updated forecasts to determine the magnitude and schedule for a tax increase in 2020 and beyond. Property tax millage has been increased only twice in East Bradford Township. In 2013, the tax rate increased from 0.017 to 0.34 mills and in 2016 from 0.34 mills to 1.0 mill. The former increase was determined necessary to stabilize the budget while the latter was to sustain and increase capital reserves (discussed more below). A list of other nearby local government property tax millage rates is provided for comparison.

What happened with the $5M the Township received from the sale of the sewer system? The Township is using the interest earnings from the receipt (about $125,000 per year) to balance the General Fund Budget and support existing operations. Preserving the proceeds for the long term is a fundamental fiscal strategy to ensure available funds in the event of an economic downturn, to cover unanticipated expenses, and to maintain the Township’s current AA stable S&P rating.

What would a property tax mean for me? The Property Tax Impact Table provides a breakdown of hypothetical property tax rates associated with a range of assessed values.

Are there limits on tax increases? Yes. Real estate property tax is the only tax revenue source practically available to municipal governments (under the Second Class Township Code) to impose tax revenue increases. The Tax Enabling Act limits both earned income tax and real estate transfer tax to the one percent (shared 50/50 with the local school district) (again, there is one exception that applies to East Bradford Township and that is the restricted 0.25 percent that is a levy on open space, but that has other constraints). In contrast, the statutory limit of the property tax rate for a Second Class Township is 14 mills for general purposes.

How would a property tax increase impact the budget forecast? The Tax Alternative Comparison charts (summary and breakdown) provide a comparison of four tax alternatives. In evaluating alternatives – both on the revenue and expenditure side – the Township’s objective is to stabilize the General Fund and maintain a fund balance-to-expenditure ratio above 25 percent (as required by Resolution 06-2011) – this threshold is an important consideration in maintaining our AA stable credit rating, which is long term value.

Is the Township also considering changes to expenditures to improve budget performance? Yes, the Board of Supervisors is examining staffing levels, infrastructure and capital needs, emergency services, and Township services and programs. And, as suggested above, the Township is contemplating a phased incremental approach to the needed tax increase.

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