Trends in Newtown’s “Volatile” Earned Income and Property Transfer Taxes

According to the 2017 Financial Report and Audit, Newtown Township collected $9,993,697 of tax revenue that year primarily from three sources: (1) Earned Income Tax (EIT Definition), (2) Real Estate Transfer Tax Definition, and (3) Real Property Tax Definition. In addition, the town collected $460,431 in Local Services Tax (LST Definition) in 2017.

In this post, I focus on the first two taxes, which are “volatile” in the sense that they depend on the state of the economy and the actions of neighboring townships that are beyond the control of Newtown planners.

I first learned about the volatility of these taxes during the 2018 Budget Presentation meeting in October, 2017, when the Township Manger discussed the issue (view the video of his remarks here).

Earned Income Tax

Resident and non-resident EITs account for about 79% of Newtown’s total tax revenue (see Figure 1) and 55% of the Township’s yearly TOTAL revenue from all sources. As I reported in the October 9, 2018, issue of Newtown News Update, Newtown’s financial situation, according to our auditors, is stable as long as the EIT revenue remains stable (read “All’s Well in the Garden as Long As…”). It is prudent, in my opinion, to examine the data for the past several years to determine if the trend verifies EIT revenue will remain “stable” in the future.

According to data from the 2017 Financial Report and Audit, there was a substantial increase in total EIT in 2017 compare to 2016 primarily due to better economic conditions with more people employed and/or making more money (see Figure 2).

But can we expect that trend to continue? Compared to the high of about $8.37 million in 2013, the 2017 EIT revenue represents a 6% DECREASE. This was only partially due to an “unusually high” Delinquent Residential EIT Collection of $320,519.30.

According to the Manager’s Budget Letter submitted to the Board of Supervisors (BOS) at the October 15, 2018, Budget Presentation, the estimated total EIT collected by the end of 2018 will be $ 6.938 million – a decrease of 12% compared to 2017. The 2019 Propose Budget estimates a 3% increase in total EIT compared to 2018; i.e., $ 7,120,000, which is still 3% below the average of $ 7,320,692 for period of 2013 through 2018.

It is obvious from Figure 2 that EIT is a “volatile” source of revenue for the Township and the trend is downward.

Aside from the impact of general economic conditions, the Town’s EIT revenue can be impacted by businesses moving out of town and by decisions of neighboring towns. For example, Newtown lost approximately $650,000 in EIT plus an additional loss of $44,000 in Local Services Taxes when Lockheed-Martin left town. Add to that the loss of $198,000 when Middletown Township implemented an EIT and a loss of $202,376 when Bensalem did the same and the result is a total loss of $1.1 million.

Real Estate Transfer Tax

Another “volatile” source of tax revenue is the Real Estate Transfer Tax, which is a 1% tax on all home and land sales in the Township. This tax is split between the Township and the Council Rock School District. Newtown’s 2017 share of real estate transfer tax collections totaled $943,172. That beats the five-year (2013-2017) average. However, 2017 represents the first year since 2013 that the final collection was less than the previous year (see Figure 3).

According to the Manager’s Unaudited Discussion & Analysis section of the 2017 Audit Report, “2018 may be concerning as the year to date [transfer tax collection] totals are running far below where we would expect them to be. Factors such as the long and harsh winter and rising interest rates may be the driving factor behind decreased collections.”

At the October 15, 2018, 2019 Budget Presentation, I asked the Township Manger about these trends. For example, the 2019 budget estimates $800,000 in real estate transfer taxes (see Figure 3). That’s a decrease of $125,000 from what was budgeted in 2018 but somewhat higher than the $741,775 that is estimated for the actual transfer tax that will be collected by the end of 2018.

Interest rates are rising, which may mean a drop in home sales or a longer time for homes to remain on the market, which can impact collections in 2019. In light of that, I wondered why township officials think we will collect more transfer tax in 2019 than in 2018? For the answer to that question, view the video at the end of this post.

Transfer Tax revenue could go a long way to pay for items in the budget without raising taxes – at least in the short term. The problem is that Newtown is reaching a point where there are less and less plots of land that can be developed for high-density housing unless zoning ordinances are changed. One example is the proposed development proposed by Toll Brothers. The BOS recently was presented a sketch plan that would require a change in the Conservation Management (CM) zoning for that project to move forward (read “Toll Brothers Twining Bridge Road Proposal”).

General Fund Balance

A good indicator of the financial health of a township is the balance remaining in the General Fund Definition at the end of the year. This is considered a “reserve fund” that can be used to pay for unanticipated expenses or shortfalls in revenue from taxes such as EIT and Transfer Tax.

The Government Finance Officers Association (GFOA) Best Practice recommends, at a minimum, that general-purpose governments, regardless of size, maintain unrestricted fund balance in their general fund of no less than two months (16 percent) of regular general fund operating revenues or regular general fund operating expenditures. Meanwhile, Jack Brod, chair of the Finance Committee, in a recent report to the BOS, suggested the “safe harbor” for a General Fund balance should be 30-40% of the operating budget (view video: “Newtown Township Finance Committee Report”).

Newtown’s General Fund balance is projected to be $2,537,544 by the end of 2018 (21% of the $11.93 million budgeted expenditure for 2018). That’s a reduction of $605,912 from the starting balance of $3,143,456. The 2019 budget, meanwhile, projects a balance of  $1,286,357 by the end of 2019, which would be a 49.4% reduction compared to 2018 and only 10% of the projected operating budget of about $12.4 million!

For clarification, I asked the township officials what they thought was an acceptable safe harbor number and the impact on future financing opportunities. For the answer, view the video below:

Posted on 22 Oct 2018, 01:43 - Category: Taxes

The Newtown Township Planning Commission Stymies Path Forward for Wawa - For Now

At its October 16, 2018, public meeting, Newtown Planning Commission members ripped apart the proposed Ordinance Definition amendment (a so-called “Text Amendment Definition”) to the Newtown Area Joint Municipal Zoning Ordinance (JMZO Definition) that is designed to allow a “modern, motor vehicle fueling center consisting of a convenience store with accessory motor vehicle fuel sales” on the Bypass. The ordinance was drafted by developers and their legal counsel and modified by Newtown Township officials specifically for a Wawa Super store, a Sketch Plan Definition for which was first presented to the Board of Supervisors (BOS Definition) in May, 2018 (read “Developer and Attorney Present Their Case for a WaWa Superstore on the Newtown Bypass”).

The following is a summary of the questions and comments made by Planning Commission members regarding this proposed ordinance, which would amend the OR District Definition zoning regulations to allow for this Conditional Use Definition, which otherwise does not allow such use. The Planning Commission review is the first step before the draft ordinance is presented to the Jointure Definition for approval by all three members (Newtown, Wrightstown, and Upper Makefield). Newtown is the only municipality in the Jointure that includes an OR District. Consequently, as pointed out by the Wawa representatives, if Newtown wants to change the ordinance that only applies to it, then the other Jointure members are not likely to oppose it (see videos here: “Updated Wawa Plan Presented to Newtown Planning Commission”).

For background, recall that Wawa representatives presented a sketch plan for a Super Wawa – convenience store plus gas station – on the southeast corner of Lower Silverlake Road and the Newtown Bypass. “This site is never going to be a corporate headquarters or office building,” claimed land use and zoning law attorney John VanLuvanne in remarks to the BOS (read “Developer and Attorney Present Their Case for a WaWa Superstore on the Newtown Bypass”). To remedy this supposed defect, Mr. VanLuvanne volunteered to draft an amendment to the JMZO. The BOS agreed to accept the draft and the result was the edited document before the Planning Commission.

Julie Bonds, the attorney representing the applicants, summarized the major sections of the document:

• Section 1 amends the OR District to allow a motor vehicle fueling center use E-25 by Conditional Use. Section 2 sets forth the dimensional criteria applicable to the motor vehicle fueling center.
• Section 2 specifies the dimensional requirements such as minimum lot area, minimum number of feet from any roadway, etc.
• Section 3 amends the use regulation with a definition of the E-25 motor Vehicle Fueling Center. It then lists the specific criteria that this use must comply with. Provisions deal with location, access, parking, lighting, signage, sidewalk, canopies, buffers, and loading zones.

Is There a Need?

Commission Chair, Alan Fidler began with the “whereas’s” that summarize the reasons for proposing this amendment and he focused on #4, which he quoted as saying, in part, “Newtown Township has acknowledged,” the need for such a use. He said this “gives an official assessment that there is a need present. I don’t know that there is a general consensus from the Planning Commission that this need exists. To use a blanket statement that everyone has recognized this ‘need’ can bias the public and I don’t want the Board of Supervisors or Planning Commission to be labeled with agreeing that this is an acknowledged use.”

Commission member Peggy Driscoll suggested that this ordinance should be discussed at a televised Supervisors meeting. The Wawa attorney responded that such a use has been discussed at Joint Zoning Council (JZC Definition) public meetings as can be attested to by the JZC tracking sheet (see figure below).

The agendas of these meetings are not well advertised beforehand and, consequently, no one from the public attended. In addition, the minutes from those meetings, which can be found here, are very sparse and do not get into the details about what was said at those meetings. The October 16, 2018, PC meeting is the first time this proposed new use has truly been put before the public for comment. It is expected that the minutes of this meeting will offer more details. In the meantime, the following are my “unofficial” minutes of the meeting based on an audio recording.

Why Is This Being Put Forward?

At one point early on, Ms. Driscoll asked “Where did this come from?” In answer to that question as well as why this ordinance is being proposed, Mr. Fidler noted that the Township has “made itself available to corporations and businesses that are seeking to come to Newtown Township to set up meetings with staff and administrative officials to discuss what sites, what uses, what types of businesses is the Township looking for. The Township has always been very receptive to bringing businesses into the community that bring a degree of employment opportunities, and viability to the community. It’s not done clandestinely because at some point in time the applicant has to decide whether they move forward and submit a sketch plan or they go away. Apparently Wawa felt that the desirability of coming to Newtown weighed them to believe that working with the Town to get a zoning relief for a new use was to the benefit of the township and probably to a greater benefit to Wawa. This is not anything out of the norm,” said Mr. Fidler. “That being said, this remains a very controversial and sensitive issue,” he added.

Mr. Fidler also noted that the Township followed the same procedure when Lockheed Martin way back in the nineties approached the town to come in with their development. Of course, Lockheed Martin generated significantly more income for Newtown than Wawa would ever be able to do. For example, when Lockheed left with all it’s high-skilled, high-paid workers, Newtown lost more that $700,000 in annual Earned Income Tax (EIT Definition) revenue. Wawa, with a maximum number of 20 low hourly-wage workers, would generate at most about $2-4,000 in EIT per year.

What About Setbacks?

Mr. Fidler’s opinion was that the gas pump canopy should be 100 feet back from the property line, whereas the draft ordinance permits only 50 feet. “My concern is, if you have to have this, I want the insulation from the Bypass that does not throw this in the face of the residents and the travelers on the Bypass. Wawa’s perspective is completely different,” Mr. Fidler admitted.  “They want visibility.” A representative of the developer noted that there was a large right-of-way along the Bypass so that “essentially” the canopy would be more than 100 feet from the highway.

Speaking personally as a long-time resident, Mr. Fidler said he likes the “pristine vistas of the Bypass and if you have to come, respect that! Move your stuff back!” Of course, others don’t feel the vistas are all that “pristine.” 

“Shall, Can, or May”

Aside from the limited financial value for the Township’s revenue stream, Mr. Fidler questioned the wording in Section 3 regarding uses and noted that some uses “may” be included whereas other “shall” be included. He focused particularly on “charging stations” that was included in the “may” category of use. “The wave of the future, in my opinion,” said Mr. Fidler, “is energy efficient transportation. Royal Farms puts charging stations in their facilities and I don’t know why the township would want to give you the option [to put a charging station in or not to do so].” The point being, if Wawa can opt out of providing services like electric charging stations, ATM machines, and exterior pumps for the inflation of tires, then the value to residents is less than what it could be if these were required services.

A point was made that the draft ordinance, as written, would allow any other convenience store with accessory motor vehicle fuel sales to build on the site should Wawa refuse the conditions required by Newtown. That could open the door for Sheetz or Royal Farms, for example. Residents may have a lot less to like about these stores than a Wawa. Additionally, the ordinance sets the minimum lot size as 4 acres instead of 5 that was originally proposed. In light of that, Mr. Fidler asked for an inventory of any other plots of land greater than 4 acres within the OR District that this new ordinance could accommodate.

Some other bones of contention included:

• A Sidewalk to Nowhere serves no purpose! A sidewalk is not warranted unless it is connected to something. It does not connect to trails and would require a crosswalk across the Bypass, something that is considered impossible to do safely;


• Conducting Business on a 24-hour Basis. Fidler said this puts employees at risk of robberies in the early morning hours. “I really question whether this community would sustain a 24/7 economical operation for a Wawa,” said Mr. Fidler. It was also suggested that a 24/7 operation may be OK for the location being considered by Wawa but not for other complying parcels that may be closer to residential areas.


• No vehicle on site for more than 24 hours. The Commission asked who would be responsible for enforcing that? Would it be Newtown Police? Truckers could be pull in at 11 PM and leave before 9 AM the next day, allowing them to catch a few hours of sleep without violating this restriction.


• Lighting issues. The text calls for lighting the “generally” conforms to accepted industry standards. Mr. Fidler suggested that “either you conform or you don’t.” The Town Planner, Michele Fountain, said specific standards must be included as to light height, brightness, etc.


• Grading issues. Mr. Fidler noted that the Wawa sketch plan presented to the PC at a previous meeting put the grade “right at the Bypass.” The existing steep ten foot berm at that location is “going to disappear,” said Fidler. “To me, some of the beauty of the existing site is the elevation that exists.” Removing that increases the visibility of the fueling station and building contended Fidler. The engineer representing the Wawa developer disagreed and contended that a higher elevation would increase the visibility!


• Sign Regulations. Mr. Fidler read the description of an allowed free standing sign of 65 square feet, maximum height of 15 feet: “Changeable text or LED, provided not more than one change every 24 hours and limited to the advertisement of fuel prices.” According to Fidler, the Township “has been very hesitant to permit LED lighting.” Fuel stations, such as Rick Steele’s on Newtown-Yardley Road, are required to have signs that must be changed manually. The Township, said Fidler, “does not want to see the proliferation of LED lighting.” Rick Steele’s, a business that has sustained our community for many years, was denied a variance for such lighting in the past. The applicant argued LED lighting was “esthetically more pleasing.”

Mr. Fidler did not buy the argument made by the attorney representing the Wawa developer that as businesses evolve over time so must ordinances evolve to meet the needs of business. “In this particular case,” noted Fidler, “this is an evolution that benefits one specific property. It doesn’t benefit any one else. That’s where I question the fairness of this particular approach.”

Play By the Rules

In closing, Mr. Fidler seemed to express the consensus of the majority of Commission members when he said “Play by the rules, but if you want to change the rules, change them for everybody.” The Commission decided that the current draft was not ready for the Commission to make a former recommendation to the BOS. It will go back to the Township officials to revise the draft and then be brought before the Commission at a future date.

Posted on 19 Oct 2018, 01:18 - Category: Ordinances

A Scary Preliminary 2019 Budget, But at Least It Calls for More Roads to be Repaved

It’s that scary time of year again - budget season!

The ghouls, goblins and skeletons were all there last night at the 2019 Budget Presentation. These guys greeted me at the door!

Interim Township Manager Micah Lewis and former Manager, Kurt Ferguson - now a consultant working for Newtown - presented some pretty scary numbers to the Board of Supervisors (BOS) throughout the night. Those numbers have to do with:

• unpredictable Earned Income Tax (EIT Definition)
• decreasing Real Estate Transfer Tax Definition
• alarmingly low predicted year-end General Fund Definition balance
• the looming shortfall in the debt service fund

I will post more information about these scary items in the next couple of weeks leading up to Halloween. Meanwhile, feel free to access the unofficial draft of the 2019 Budget here.

For now, I will focus on some good news: the budget includes a road paving program funded mostly from a PA Liquid Fuels Program Definition grant. The proposal is to repave 2.34 miles of roads in 2019. And the winners are:

That's it for now! Come back tomorrow for some more highlights - including video- from last night's Budget Presentation.

Posted on 16 Oct 2018, 12:55 - Category: Roads

Summary of September 26, 2018, BOS Public Meeting

The following is a brief summary of the September 26, 2018, Newtown Board of Supervisors (BOS Definition) meeting based upon the official minutes of that meeting, which you can find here.

Committee Reports

Newtown Township Finance Committee: Jack Brod, Chairperson of the Finance Committee, made a presentation [of a] preliminary study [that] reflects the Committee’s views. [Read a summary of that presentation here and view a video of the presentation here.]

Mr. Calabro asked that the Committee create a 5‐year plan with issues regarding EIT Definition, real estate transfer tax Definition, and business development to promote the economy. The Board was favorable about the Committee willing to educate residents on real estate tax, school tax, EIT and other budgetary information during this budget period.

Planning Commission - Sit‐Stay: [Chairman Allen Fidler reported that the] Applicant is seeking relief to continue operating Sit‐Stay, an unpermitted daycare/kennel for approximately 50 dogs on a daily basis. The property is in the CM district and is over 18 acres where 25 acres are necessary to run a kennel. Applicant is willing to mitigate the situation by moving play yards, install sound proofing barriers and fencing, and plant evergreen landscaping to diffuse the noise. [There was much public comment pro and con regarding whether a dog kennel could be an accessory agricultural property under 25 acres, mitigating the noise level, and the background of this application.]

Planning Commission - Penns Trail Investment: Joe Blackburn, Esq., represented applicant seeking relief in connection to the construction of a 2‐story, 12,000 sq.ft. medical office use building with 129 parking spaces on a 3.89 acre property, with an existing 7,300 sq. ft. 2‐story medical office building with 98 parking spaces. The proposed construction does not comply with the dimensional regulations, parking requirements in according with the NT [Joint Municipal Zoning Ordinance] JMZO Definition. The Commission had no general consensus on points of relief being requested. One primary point was made by several members asking applicant to show hardship. Applicant stated that they had tenants for the existing building and to enhance the medical use of the property, they needed the additional square footage to create a medical campus. The question the Commission discussed was on one hand the Joint Zoning Ordinance protection and the greater good of the community and Township at large.

Fiscal Responsibility

Audit Report: Ed Furman of Mallie presented the 2017 Financial Statement. The information went through an electronic audit of the general ledger and can depict each expense account with monthly activity. He indicated that the report gave the Supervisors an idea of the financial strength of the Township as of the end of 2017. Real estate transfer tax and EIT revenues were discussed briefly. [Read a summary of that presentation here and view a video of the presentation here.]

Ordinances

Anti‐Discrimination Ordinance Discussion: David Bria discussed Yardley Borough’s Ordinance Definition that was adopted earlier this year. He noted that the existing anti‐discrimination law PA Human Relations Act enables municipalities to create their own Human Relations Commission. The public opinion has been popular and businesses have been implementing this policy, most recognized is Amazon which wants to be located in a state that has complete anti‐discrimination law. Any anti‐discrimination complaints are heard by the Human Relations Commission, and there are no specific requirements but that members of the Commission may not hold office with any political party. Other discussion was related to training, advisory councils/resources, filing complaints, handling abusers to the complaint process, etc.

Ms. Bobrin motioned to have the Township Solicitor draft and advertise an anti‐discrimination ordinance for Newtown Township. Mr. Mack seconded. Motion Discussion: With various communities taking part in this, there should be standards in creating the ordinance rather being different. There was discussion regarding how to handle claims, including frivolous claims, and awards. The motion was amended to authorize the drafting of an anti‐discrimination ordinance submission to the Board for review. Ms. Bobrin made a motion to approve. Mr. Mack seconded, and the motion passed 5‐0.

Consideration to Approve Amendment to Noise Ordinance: [Mr. Sander - Township Solicitor - reported that on the advice of former Police Chief Pasqualini and Code Enforcement Officer Martin Vogt, he is recommending that the Board advertise amendments to the noise ordinance (see Summary of September 12, 2018, BOS Meeting).] Mr. Mack stated it was discerning to remove an ordinanceo because it was difficult to enforce. Discussion was about removing certain portions and having some complaints being subjective. The motion passed 4‐1, Mr. Mack voted “nay”. [For more information about this, read "Board of Supervisors Decimate Noise Ordinance"]

Consideration to authorize the Solicitor to draft and advertise an ordinance prohibiting the discharge of firearms on Township property: Mr. Sander stated that the PA Uniform Firearms Act pre‐empts local municipalities to enact or pass laws that deal with possession, sale or transportation of firearms as defined by the Act. The Township can prohibit the discharge, or use, of the firearm on Township owned and public property with exception of law enforcement and self‐defense. Hunting is excluded in the ordinance. Carrying a firearm is considered possession and the Act pre‐empts the Township from adding it to the ordinance. The motion passed 5‐0.

Posted on 12 Oct 2018, 12:24 - Category: Board of Supervisors Minutes

September 2018 Newtown Police Calls Report

Interim Police Chief Jason Harris presented the Calls Report for September 2018 at the October 10, 2018, Board of Supervisors (BOS) meeting. In September, the Newtown Police Department responded to 1,423 total calls, 238 (17%) of which were in Wrightstown Township (Newtown Police provides services to both Newtown Township and Wrightstown). See a summary of the report below. Note: Not all calls are listed.

A couple of things to note:

1. There was a significant increase in the number of struck deer compared to August (19 vs 9). This is to be expected given that it gets darker earlier when more vehicles are on the roads commuting.
2. There was also an increase in noise complaints (10 vs 3). I’m not sure if these complaints were made before of after the Newtown Board of Supervisors (except me) voted to “decimate” the noise/nuisance ordinance at the September 26, 2018 public meeting. Read more about that here.

Chief Harris also submitted a Traffic Citation Summary for September, 2018, to the BOS. At the meeting, I mentioned that there were 9 speeding citations handed out on Swamp Road between September 20 and September 26, 2018. This compares with just one such citation made in the previous 8 months of 2018! I assumed that this increased police activity on Swamp Rd was in response to residents’ complaints made at the September 12, 2018, meeting when PennDOT was here to answer questions about the safety issues of Swamp Rd (see video here). Chief Harris confirmed that that was the case.

Posted on 12 Oct 2018, 01:18 - Category: Crime