History of the Township's RET - 2010 Budget Message

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Historically, increases in the Township’s RET millage rate have been moderate. In the past ten years, the Township’s millage rate has increased a total of +40%, while the School District’s and County’s millage rates have increased approximately +105% and +30% respectively.

In the mid-1960’s, the Township’s RET represented over 87% of GF annual revenue. Today, the RET represents less than half (49%) of the GF (and related Solid Waste Fund) annual revenue. This means that non-RET revenue sources have bolstered the Township’s revenue base over the years, thus reducing the relative Township RET burden upon Lower Merion property owners.

The RET rate was increased 21 of the 28 years between 1965 and 1993, at an average annualized rate of over +5% each and every year of the 28-year period. While this was admittedly a time of higher inflation, it was also a period when local government employment was expanding but infrastructure maintenance and upkeep was being deferred. The Township employed 453 full-time employees in 1970, compared to only 432 budgeted for 2009 – a reduction of 21 full-time employees or nearly 5%.

In 1992 and 1993, the Township created a new Solid Waste Fee (SWF) (+$2.7 million) and implemented the results of a Fees and Rates Study (+$0.2 million). This new annual GF-related revenue substituted for the need to otherwise increase the RET millage rate by +17%.

For the ten-year period of 1993 through 2002, the Township’s RET rate did not increase. Instead, during this period, significant new, non-RET GF-related revenue was raised, including higher SW fee rates (+$1.5 million), miscellaneous fees and rates increases (+$0.4 million), a new alarm registration fee ($0.3 million), changes to the business tax rules (+$0.2 million) and increased parking meter and fine rates (+$0.8 million). These non-RET revenue increases (effectively adding to the GF revenue base) totaled +$2.2 million, avoiding RET increases of about +13%. Therefore, even though there were no RET rate increases during this ten-year period, had the other revenue increases not been implemented, RET rates would have had to increase about +30% (17% plus 13%) during this period, or at an annual rate of about +2.7% each and every one of the ten years.

This ten-year period also generally coincided with the greatest economic expansion of the United States’ national economy. Had the economy been less robust, revenue pressures would have far exceeded the +2.7% annual need for new GF-related revenue that was satisfied by the aforementioned other revenue-raising measures.

The Township prospered during this ten-year period. New programs and service enhancements were added, including: new police bike patrol and canine units; expanded library hours; a growth in staffing of 19 full-time and 2.9 full-time-equivalent (FTE) part-time staff for a total of +21.9 FTE; the automation of the office environment; the new government access television channel; the website; the natural areas stewardship program; purchase of Rolling Hill Park and a new leaf composting site; and major improvements to the Public Works Complex and two reconstructed fire stations. The combined GF and SW Fund expenditures (since they have always been inter-related via the Solid Waste GF subsidy) for 1993 were $30.6 million, and combined revenues were $31.8 million. Ten years later, in 2002, combined expenditures had grown +44.4% to $44.2 million, with combined revenue growing +28.0% to $40.7 million. This resulted in going from a $1.2 million operating surplus for 1993 to a $3.5 million operating deficit for 2002. The deferral of revenue-raising measures was possible due to a planned partial drawdown from the strong GF fund balance during this period. Capital spending and borrowing continued, with the Township’s outstanding debt increasing from nearly $37 million (46% of non-electoral capacity) in 1993 to over $56 million (43% of non-electoral capacity) in 2002. In addition, substantial capital plans were in place to spend nearly $36 million (from proceeds from future bond issues) in the 2002-2007 CIP, highlighted by nearly $11 million for the much-needed Township Administration Building and Public Safety Building Addition project.

By 2003, the Township had deficit spent (planned) in the GF since 1999 – five straight years of utilizing a portion of its then healthy GF fund balance (generated due to the prosperous economy, conservative spending and some infrastructure deferrals) to forestall RET or other GF revenue-raising measures during the second half of the ten-year “no RET increase” streak. Since deficit spending could no longer be sustained, a major RET rate increase was required for 2003 of +$4.0 million, or about +22%, to close the growing GF budget gap. If one adds the +22% RET to the above-noted +30% “effective” RET increase (from other revenue sources) from 1993-2003, a +52% “effective” RET rate increase is arrived at for the eleven-year period ending 2003, or an annual “effective” RET increase rate of nearly +4% for each and every year of the eleven-year period.

Thereafter, it was necessary to increase the RET for 2004, 2005, 2007, 2008 and 2009 by a total of +$3.5 million, or about +15% for the six-year period. In addition, the (now-named) Local Services Tax was implemented in 2004, which replaced the Occupational Privilege Tax (OPT), adding an additional +$1.2 million in annual, non-RET tax revenue. Miscellaneous fees and rates were increased each year to add an additional +$0.4 million to the GF revenue base. These non-RET revenue-raising measures substituted for what would have otherwise been the need for additional RET increases of about +8%. Adding the RET of +15% to the noted +8% results in a +23% “effective” RET rate increase for the six-year period, or nearly +4% of “effective” annual RET increases for each of the six years through 2009.

During this entire period, Lower Merion has been fortunate to remain in the shrinking minority of about 5% of the municipalities and school districts in Pennsylvania not to assess an Earned Income Tax upon its citizens and workers.

In summary, the Township’s RET millage rate increased at more than a +5% annual rate for the 28-year period of 1965 to 1993, and at an “effective” annual rate of nearly +4% from 1993 through 2009. Alternative GF revenue-raising measures, however, bolstered the GF and kept the actual RET annualized rate of increase at only about +2.2% for the 16-year period of 1993 through 2009. Therefore, over the last 44 years, it has been necessary for the Township to raise its Township RET millage rate (or alternate GF revenue-raising measures) by over +4% per year.

This information is intended to demonstrate what all municipalities in Pennsylvania have long learned: moderate frequent increases in the RET millage rate are inevitable to provide consistent service delivery levels. Wishful thinking to the contrary fails to acknowledge the long lessons of history and the basic economics of local government in Pennsylvania.

The single-family residential detached home in Lower Merion Township, with a current average real estate assessment of $365,000 paid approximately $10,139 of annual real estate taxes in 2009: $1,343 (Township), $984 (County) and $7,812 (School District).

2009 RE Tax Dollars

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