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Budget outlook: Cloudy with a chance of falling skies
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So, in the recent election, Lehigh County Executive don Cunningham referred to Scott Ott as “Chicken Little” for suggesting the Lehigh County budget sky was falling. Maybe it was a leaf; after all it is the season.
Well, after sitting through hours of county hearings and now 5 township budgets, I can say that while the sky may not yet be falling the atmospheric conditions are such that the budget is “cloudy with a real chance of train wrecks.”
Commissioner Andy Roman referred to the 2011 budget in Lehigh County as a coming train wreck. There may be time to pull an emergency switch but it is going to take Superman to stop this budget train wreck (also known as a tax hike).
Much was made during the campaign that the cupboard was bare. All reserves had been used.
We can’t talk meaningfully of budgets at the federal level since they can simply print money (another form of tax increase). So, we start with the state.
Pennsylvania finally passed a budget by running down reserves, increasing certain taxes and getting a very lucky break. A large part of the so-called federal stimulus was earmarked for state budgets. In a very unusual definition of stimulus, states were allowed to take the money to fill the budget gaps.
Pennsylvania made very good use of stimulus funds to retain funding for schools. Basic education funding was not cut (it actually increased) but the part funded by state dollars was slashed. The question: What happens when federal stimulus funds aren’t there next year? Will the economy pick up enough to fill the void? Will we raise state taxes? Will funding be cut and schools be forced to raise taxes?
At the county level, the same thing happened. Reserves were used to fill a $19.4 million gap. All things being equal, if pensions are “normal” next year, an additional week doesn’t get added to the calendar and pay increases are typical for unions, that gap is cut in half but it still exists. Without reserves to fill it, do we have a tax increase?
Now, we are turning to the townships. I have sat through 4 budgets. In one case, Lynn, they slashed spending to keep the budget in current year balance. You start to wonder if they slashed too much because nobody else is getting close.
In 3 other cases (Weisenberg, North Whitehall, and Upper Macungie), the story is the same. 2010 spending will likely exceed 2010 revenue but reserves in the general fund will cover the balance. The problem is that the general fund excess is reduced in these cases.
Absent a very large pick up in the economy, taxes will need to go up in 2011 at the municipal level. The county needs to narrow that gap pr raise taxes. They are likely to increase at the state level a well without a major shift. School taxes always go up. So, taxpayers here in Pennsylvania are facing a potential tax increase at every level after years of local taxes holding steady. Train wreck, indeed.
And the problem isn’t spending. These budget reviews have supervisors trying to cut costs everywhere. One suspects 1-ply toilet tissue will be the order of the day.
Revenue is the problem. Only school districts, which rely mostly on the property tax, have avoided a big decline in revenue. Earned income tax collections are down. Unemployment above 10% will do that. A drop in incentive compensation for executives will do that, too.
Some property taxes are down as industrial concerns fight their assessments and win. Luckily, the limited amount of new construction tends to offset that to keep it steady. Still, the anticipated increases are missing.
Property transaction taxes are way down. One township is off 18% on the real estate transfer tax. They are thrilled it is only 18%. Others have seen a 60% decline. Fees for new construction are down.
The moral is that the sky may not fall but look beyond the headline of no tax increases for 2010 and see what looms ahead so you are prepared for 2011. Think of those days you carry an umbrella because Cecily calls for rain. It may not rain, but better to be prepared.
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