Levy of Taxes - 2010 Budget Message

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The Township’s ability to levy taxes is limited by State law. The State not only determines which taxes may be levied, but also regulates the maximum rates at which taxes may be levied.

Currently, the Township levies five taxes: real estate (RET); business privilege; mercantile; local services; and real estate transfer. The Township has not imposed the following taxes that are permissible by State law: earned income/net profits; occupation; per capita; sign; amusement; and mechanical device. Of the taxes levied by the Township, only the real estate tax is not currently levied at its maximum rate permitted by State law for Townships of the First Class. Also, the Township has not implemented the homestead exemption for RET (see below).

Without new revenue enhancement, the Township’s General Fund budget gap would be budgeted at about -$2.6 million for 2010. It is recommended that a RET millage rate increase of +0.14 mills, or +3.8%, be approved for the 2010 Proposed Budget. This increase is expected to generate $1.0 million in new RET revenue, decreasing the budget gap to around -$1.6 million.

The proposed 2010 RET millage rate would increase to 3.82 mills (from 3.68 mills in 2009). In 2007, 2008 and 2009, the RET was increased approximately +2%, or +0.7 mills each year. In addition to increasing the RET millage rate as a major source of funding for the GF, the Township has relied in the past on some modest (less than +0.8% in recent years) annual real estate assessment growth from new construction and building additions to generate new revenue. However, real estate assessment values have now stopped growing and may even decline for the foreseeable future.

It is important to remember that our RET has not provided and will not provide us any real revenue growth now or in the future without millage rate increases. At $27 million per year, or about half of our GF revenue budget, we will see no RET growth in the years ahead. This is because all property assessments are frozen at 1997 home values when the last County-wide reassessment was conducted. Of course, housing prices have nearly doubled since 1997, but assessments have remained virtually unchanged (except for some building improvements and minimal new construction). Even with the sale of a home, the assessment does not change. This is much different than most other states where municipalities gain added tax revenue when property values increase.

A phenomenon is now occurring at an increasing and alarming rate that is eroding the RET assessment base throughout the county. As was experienced in the mid-1990’s prior to the last county-wide reassessment in 1997, more and more property owners are successfully appealing their real estate assessment and are receiving assessment reductions. Now, more than twelve years after the last reassessment, this trend has clearly returned and is having a growing negative impact upon the Township’s RET assessment base. This unrelenting downward pressure on the tax base forces us to now project a flat, no-increase assessment base for the years ahead (2009’s increase was a meager +0.18%). Hopefully, this does not prove to be too optimistic.

Beginning in 2003, the Board of Commissioners also took advantage of Pennsylvania Act 50 of 1998 to protect low-income property owners from higher property taxes by adopting an ordinance that provides low-income property owners the opportunity to defer new RET tax increases. Property owners meeting the program eligibility requirements may request a deferral of payment on the increase in their Township RET resulting from millage rate increases after 2002. The deferred RET is ultimately collected by the Township when a property owner sells or passes on their property to heirs

Homestead Exemption:

Although not specifically included in the Proposed 2010 Budget, it is recommended that the Board of Commissioners consider the unique opportunity to implement the State-authorized Homestead Exemption in setting the 2010 RET millage rates. In recent years, the State of Pennsylvania enabled school districts and municipalities to assess RET in a non-uniform manner when receiving new revenue from other sources such as through user fees. This is accomplished by reducing the amount to be received from qualified owner-occupied households. The Lower Merion School District implemented a partial Homestead Exemption several years ago when slot machine gambling proceeds became available to help fund schools. Because the homestead exemption can only be implemented during a year when new, non-RET revenue is being raised, 2010 is a unique year for the Township to consider it, due to the newly-adopted 2010 SW fee rate increases, estimated to generate +$1.7 million.

The homestead exemption could be implemented for 2010 as follows: The Township would take the $1.7 million SW fee value, divide it into the approximately 14,560 registered homesteads in the Township and arrive at a RET exemption of $117 per homestead of reduced RET taxation for each of these designated property owners. However, in order to ensure that this $1.7 million in Homestead Exemption revenue is not lost, an additional $1.7 million in higher RET rates would need to be assessed in addition to the recommended $1.0 million, +3.8% RET millage rate increase. This would result in 9,200 homesteads (those assessed at or below $326,000) receiving a net zero or negative total RET rate increase for 2010. The remaining 5,360 homesteads with assessments higher than $326,000 would receive an actual tax increase. Approximately 2,200 of these homesteads (assessed between $326,000 and $534,000) would receive a +3.8% RET rate increase or lower. The remaining 3,160 homesteads (assessed above $534,000) would receive a RET rate increase between +3.9% and +9.5% depending upon their assessed values. All other non-homestead properties (commercial and rental properties representing about 33% of the taxable assessment base) would receive a +9.8% RET rate increase. This “redistribution” of tax burden among property owners in the Township is worth considering for 2010 if a central goal is to seek tax relief for those possibly least able to afford tax increases: those with lower valued homes such as young families, lower income wage earners, senior citizens on fixed income, etc.

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