John Mack - Newtown Supervisor
Newtown Supervisors Review Interim 5-Year Financial Plan

Newtown Supervisors Review Interim 5-Year Financial Plan

UPDATE (August 31, 2020): ESI submitted its draft of the final report on August 24, 2020. The BOS and the Finance Committee are currently reviewing this draft. The recommendations cited in the Interim Report may not reflect the updated recommendations in the draft of the final report.

Econsult Solutions, Inc. (ESI) – the consulting firm hired by Newtown Township to develop a 5-year financial plan – presented an Interim Report of findings and recommendations of the proposed Strategic Management Planning Program (STMP) to the Board of Supervisors at the August 17, 2020, Work Session. Representing ESI was Steve Wray, ESI vice president and director. You can view the archived video of that Zoom meeting here.

The purpose of the program is to establish short- and long-term term financial and managerial objectives relative to revenue and expenditure trends and policies that strengthen the fiscal capacity of the Township.

Selected slides from that presentation are presented below. I have included audio snippets from the Zoom meeting and, in some cases, my personal comments.

Historical General Fund Balance

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 (GF) of no less than two months (17%) of regular general fund operating revenues or regular general fund operating expenditures. For Newtown, with a 2020 GF expenses of approximately $13 million, that would mean we should have a year-end fund balance of $2.17 million. The current projected GF year-end balance is about $1.3 million or about 10% of the operating budget.

ESI Slide #6: Historic Revenues and Expenses. Note the significant jump in expenses in the 2020 budget – a trend that ESI predicts will continue (see Slide #13: “Baseline Projections, 2020-2025”).
Historic Fund Balance Trend

The Township enacted policy to maintain fund balance level at least 10% of operating expenses. For 2020, that means the balance at the end of the year should be around $1.3M whereas the latest estimate is more like $800K.

ESI Slide #7: Historic Fund Balance Trend. Note that ESI predicts a 2020 EOY GF balance that is much less than the $1.3 million that is the estimated balance according to the 2020 approved budget.

In the following 2-minute audio snippet, Mr. Wray provides details regarding slide #6 and slide #7 of ESI's Interim Findings of the proposed STMP.

Mack's Newtown Voice · ESI's Steve Wray Provides Details of Newtown's Financial Trends
Some Benchmarks
ESI Slide #9: Comparison of GF Balance with Neighboring Municipalities, focusing on GF balance and personnel per 1,000 residents
ESI Slide #10: Municipal Millage Rates: 2016-2020. The numbers above the bars indicate the increase or decrease in RE millage rates over the five-year period. ESI proposes that Newtown implement a +6.50 millage increase in 2021 with no further increase through 2025 (see Slide #22).

In the following 4-minute audio snippet, Mr. Wray provides details regarding slides 9 through 11 of ESI's Interim STMP Findings. These slides deal with benchmarking the millage rates and real estate assessment values of neighboring municipalities with Newtown Township.

Mack's Newtown Voice · Benchmarking Millage Rates & RE Assessment Values

Mr. Wray said “EIT is capped! There’s no place to grow … EIT. So, if people [in neighboring townships] are looking to make up for shortfalls, the likelihood is that they’re going to be looking at real estate tax increases.” This is assessment is surprising because at practically every BOS meeting I have attended during which finances were discussed, it was always pointed out that other neighboring townships – such as Lower Makefield - might implement their own EIT tax to make up for shortfalls.

ESI Slide #11: Growth in Residential and Commercial Assessed Values, 2015-2019

It seems impossible for Newtown Twp to continue to increase commercial development at any rate near the rate shown in Slide #11. It would have been interesting to get resident/business feedback on this – perhaps there is some relevant feedback from comments to the surveys recently performed by ESI (see “A Fiscally Stable Newtown is Good for Business & Vice Versa” and “How Satisfied Are You With Newtown Township Services?”). Those comments will be in the final report, which is anticipated to be completed by the week of September 28, 2020.

A perhaps more relevant survey is currently being conducted by the Bucks County Planning Commission (BCPC), which is in the process of updating the Newtown Area Ten-Year Plan (see “Newtown Area Jointure Wants Your Opinion on Planning the Future”). This survey specifically asks: “Overall how satisfied or dissatisfied are you with the residential development within your community?” and “Overall how satisfied or dissatisfied are you with the commercial development within your community?”

Baseline Projections

With the exception of 2022, ESI projects the expenditure rate will outpace the growth rate each year from 2020 through 2025 if no corrective actions is taken (see Slide 13).

ESI Slide #13: Baseline Projections, 2020-2025.

In the following 2.5-minute audio snippet, Mr. Wray provides details regarding slides 13 and 14 (not shown) of ESI's Interim STMP Findings. These slides deal with baseline revenue and expenditures between 2020 and 2025 if no changes are made and the impact on Newtown Township's fund balance.

Mack's Newtown Voice · Baseline Projections, 2020-2025
Recommendations

ESI listed a slew of short-term, long-term, and ongoing recommendations to increase revenues, reduce cost and “optimize” staff. Regarding the latter, the consultants identified a need to hire in 2021 as many as 10 NEW employees o expand services and make “quality of life improvements.”

The new personnel include:

  • 1 full-time Assistant Township Manager at a salary between $80K and $90K
  • 1 full-time Assistant Township Manager at a salary between $65K and $85K
  • 3 full-time police officers
  • 5 full-time firefighters

Newtown Township police starting salaries are around $52,000 per year. Looking at the 2020 budget, I find that the average yearly salary of a Newtown Township police officer is $94,287 (based on the 14 officers below the rank of corporal) with a range of $59,226 to $108,892. ESI suggests that wages of new hires could be “partially offset” by reducing overtime and compensatory time.

ESI also recommended that the township begin planning for renovation or relocation of the current police headquarters, but has not included the substantial costs associated with that in its recommended plan.

Meanwhile, most citizens feel pretty satisfied with police services as they currently exist. According to results of the Newtown Township Citizen Survey hosted by ESI, nearly 80% of 553 respondents rated the level of police presence Good (42%) to Excellent (37%).

Hiring 5 new full-time firefighters are necessary to provide 7-day fire coverage by paid firefighters, which is something the 2018 Fire and Emergency Study said would “eventually” be needed because of decreasing ability to recruit volunteers. The all volunteer Newtown Fire Association (NFA), however, NFA suggested the implementation of less costly options to address the staffing concerns in lieu of an immediate increase in the number of career firefighters. NFA suggested that an "Ad Hoc" committee be established to begin discussions and planning for the formal establishment of a "Combination Career/Volunteer Fire Department" to serve Newtown Township and Borough.

ESI suggested that the personnel costs (salary, medical, retirement benefits, etc.) of 5 new career firefighters “would be covered by a SAFERS grant” but only through 2023, after which the township will bear the cost. My understanding is that SAFER grants only cover 75% of salaries in the first 2 years and 35% the third year, then the township will have to pay 100%.

Public Works

Among all the township departments that service the community, the Public Works Department is one that must be considered when thinking of “quality of life improvements”. This is born out by the citizen survey in which “Streets and Highway Improvements” was the top choice (70%) that citizens felt needed improvement. Parks and Recreation also ranked high (25%) whereas Fire and Police improvements ranked lower; 6 % and 19%, respectively.

The quality of our streets is a major factor in rating the “quality of life.” I know this from personal contacts with residents and have brought some concerns to Newtown Manager, Mr. Lewis: such as fixing potholes on Commonwealth Drive and making the plantings on the median of Stoopville Road more attractive. On both occasions I was told that the problem was lack of enough PW workers to handle deal with these issues as well as all the other duties they perform, such as mowing the grass in public parks. So it is a mystery to me why ESI did not recommend the immediate hiring of new Public Works employees.

In the following 4-minute audio snippet Mr. Wray focuses explains the need for hiring 10 additional full-time personnel.

Mack's Newtown Voice · Recommended New Personnel Hires
Cost Containment

ESI recommended a few “Cost Containment/Management Measures,” which includes controlling the police overtime and “comp time” accrual. ESI believes that with a full complement of police officers, the township should not have the need for comp time and overtime as it has now. “That’s got to be part of the deal [regarding hiring more police officers],” noted Wray.

Mack's Newtown Voice · Some Cost Containment/Management Measures
Revenue Enhancement

ESI briefly touched upon several short- and long-term revenue enhancement strategies. The “elephant in that room was the recommendation to expand revenues through a new General Fund real estate millage in 2021. As detailed in Slide #22, ESI recommends a 6.50 mill increase in RE tax to pay for the new hires and maintain a general fund balance above 9% going forward. This amounts to a 144% increase in taxes.

The approximate average home market/assessed value in Newtown Township in 2018 was $400,000 (market value)/$43,600 (assessed value) [numbers from a Finance Committee report are: $483,000/$38.85]. Adding 6.5 mills would mean an additional $252.53 to $283.4 per year in RE tax for the average homeowner in Newtown (depending on whose numbers you use).

I would point out that over 62% of respondents to ESI’s Citizen Survey said they would NOT be willing to pay higher taxes for increased services.

Other revenue enhancement recommendations include:

  • Negotiate with Newtown Borough to pay its fair share of fire service expenses based on the percentage of service provide to the Borough vs. the Township;
  • Rezone and enhance the Newtown Business Commons
  • Undertake a publicity campaign targeting new business to the area;
  • Negotiate expanded shred service agreements with neighboring communities.

Aside from the 144% increase in RE tax – all these ideas were previously discussed by Board members in past public meetings.

Recommended Approach
Basically, ESI suggested three scenarios going forward:
a 4.7, 7.0, or 6.5 millage increase in real estate taxes
to pay for General Fund expenses (see Slide #22).

ESI laid out three different scenarios going forwarded as shown in Slide #22. All involved real estate tax increases.

ESI Slide #22: Recommended Approach. ESI presented three scenarios going forward: (1) status quo (no new staff) - 4.75 millage tax increase, (2) hire additional staff with cost containment or other revenue - 7.0 millage tax increase, and (3)the whole enchilada - 6.5 millage tax increase.

Mack's Newtown Voice · The Three Scenarios
ESI Slide #25: Revised Financial Forecast, 2020-2025. The revised forecast is based on Scenario #3 (see Slide #22).
Public Comment

Public comment regarding this plan can be sent to comments@newtownpa.gov before or during BOS Zoom meetings. All comments will be read aloud during the meeting.

See comments sent to the to the BOS 8/26/20 from resident Frank McCarron’s embedded below or download the PDF here.

You are also invited to give me feedback via a short survey. Your responses will be confidential. Upon completion of the survey, you will be able to see de-identified responses (no comments or personal information is revealed).

DISCLAIMER: This is not an official Newtown Township survey. It is hosted by John Mack to learn more about issues of concern to Newtown Township residents. The opinions expressed here are solely those of John Mack and do not represent the opinions of any other person or entity.

Next Steps

The current schedule is outlined in the following table.

Posted on 24 Aug 2020, 01:18 - Category: Finances

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The opinions expressed here are solely those of John Mack and do not represent the opinions of any other person or entity.
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