NEWTOWN TOWNSHIP >> A Five Year Financial Plan commissioned by the township is recommending a tax increase in 2021 to make up for a loss of revenue and to begin exploring cost sharing opportunities with neighboring Newtown Borough.
Steve Wray, from Econsult Solutions, briefed the board of supervisors on the report’s preliminary findings and recommendations during an August 17 work session.
In its report, Econsult outlines major recommendations to improve the township’s financial condition over the next five years, beginning with the addition of real estate tax millage to the general fund budget beginning in 2021 “to help diversify and broaden the base of revenues and also to make up revenues lost in the earned income tax.”
The report also recommends exploring opportunities for establishing cost sharing, particularly with Newtown Borough, for fire services, but also looking at some other shared service opportunities, which would be more long term.
In addition, it recommends adjusting staffing levels to meet the current management needs of the township, including hiring an assistant manager and code enforcement officer; bringing the police force up to full complement with three new officers while reducing or eliminating overtime and comp time; and hiring five new career firefighters through a federal grant.
“What we see from 2016 on is expenditures and transfers exceeding revenues,” said Wray. “You’ve been relying on your fund balance to cover your operations and capital transfers in every year but one since 2016,” said Wray.
A couple factors impacting the township’s revenue stream has been the introduction of an EIT in the neighboring Neshaminy School District, impacting the township’s nonresident EIT, and the loss of nonresident and resident EIT revenue from the closure of Lockheed Martin.
Both, he said, have put downward pressure on the township’s EIT revenue stream and resulted in flat revenue growth that has not kept pace with expenditures, particularly on increasing capital needs, said Wray.
“You also have a general fund that’s heavily reliant on income tax revenue with no general fund real estate tax millage,” said Wray.
“Overall your operating cost has been stable,” continued Wray. “It’s not necessarily been a cost problem. But you do have salary and health benefit costs that will continue to grow and they are growing at a faster rate than revenue has been growing with the EIT.
“Remember, incomes have not been growing to the level that property values have been growing so you’re not capturing some of the wealth that has been created in the community,” he said. “That’s part of what’s behind our recommendation.”
And that trend, he said, has impacted the township’s fund balance, which the township has been using to plug the widening deficit.
The township was carrying a high fund balance of 30 percent in 2015-16. By the end of this year it is projected to be eight percent. “What we’re seeing is a weakening fund balance position. And we would see that going forward if no changes are taken,” he said.
Generally, the Government Finance Officers Association (GFOA) recommends a municipality maintain a fund balance of no less than two months or 17 percent of general fund operating expenses. “You guys just have just adopted a measure to keep it at 10 percent. We think that’s a good idea and a very positive move,” said Wray.
Comparing the township to its neighbors, Wray said Newtown Township has the second lowest real estate millage rate. And the township’s millage increases have been consistent with the average increases across the municipalities.
Projecting ahead over the next five years, Wray said if nothing changes the township will continue to see “a growing spread” between revenue and expenditures with the fund balance projected to fall below 10 percent by the beginning of 2021 and continuing to decline through 2025 as it’s used to fund the widening gap.
“Your resolution requiring the fund balance being at least 10 percent of the budgeted expenditure that will require either new revenue or reduction in expenditures,” said Wray. “So were looking at real money that we have to find in order to hold that line.”
Wray said five measures the township can take to bring financial stability to the township include cost containment, adoption of best management practices to achieve operating efficiencies, revenue enhancement, implementation of a long term economic development strategy by growing its tax base and the pursuit of intergovernmental cost sharing strategies.
Under cost containment and management measures, the report recommends getting control of police overtime and comp time accrual. It makes suggestions on ways to accomplish that, including by bringing the department up to full complement with the hiring of three new officers. “If you have a full complement you do not have as much need for comp time and overtime,” said Wray. “We think that the wages can be partially offset by the overtime and comp time reductions. Probably not completely, but you would see some savings.”
Also recommended under cost containment and management measures is to contain salary and benefit growth rates.
“We don’t see a lot of room in there because your salary and benefits are pretty much within the market and in some cases may actually be low,” he said.
“That can be part of some long term planning processes - staffing, capital plans and fleet management. “Better control of long term looks at what your needs are going become opportunities for long term savings,” he said. “Savings come about because you don’t have as much turnover. On capital plans it’s thinking ahead to what is needed.”
The report also suggests periodically reviewing debt refinancing opportunities to lower interest rates and containing salary and benefit growth.
“We did see the need for some expanded services and quality of life improvements,” continued Wray.
The report recommends hiring an assistant township manager and a code enforcement officer to improve efficiencies in the administrative offices.
“With the code enforcement officer in particular, there should be some revenue opportunity from increased fees. Similarly with the assistant manager, it could allow staff to spend more time on economic development opportunities.”
The report also recommends the hiring of five career firefighters through a federal SAFER grant that would initially pay salaries and benefits over the first three years. As the grant expires in years four and five, Wray said regional cost sharing opportunities could make up the difference.
On the revenue enhancement side, in the short term the plan recommends diversifying and expanding revenues through new general fund real estate millage beginning in 2021.
“The magnitude of that millage depends on implementation of the recommendations,” said Wray. “But we think even at status quo you would need to raise those taxes just to stay at the level you want to be - benchmarked to that 10 percent (fund balance) goal.”
The study also recommends the township negotiate cost sharing agreements with Newtown Borough for fire services being provided and to seek out other shared services, including regional police coverage, with neighboring municipalities.
“As a township that has invested well in police, fire and emergency services and has been doing some shared services, are there other opportunities to do more shared services to make sure you’re getting your fair share of cost coverage?” asked Wray. “You already have shared services with planning and zoning as a result of the Jointure.”
In the longer term, the report suggests an emphasis be made on economic development initiatives to offset the shrinking nonresident EIT.
That could include an opportunity to rezone and enhance the Newtown Business Commons by adding in apartments, hotels and condos to the mix. “That’s one of your assets. A refresh, a rezone and a rethinking of that is important,” said Wray.
The study also recommends working closely with Bucks County, which is putting a renewed emphasis on economic development at the county level.
“How do you partner with those regional economic development agencies as a township? That’s an opportunity to be at the front of mind when the county is recruiting companies and businesses,” said Wray. “Your sitting in a good geographic location.”
Wray also suggests partnering with the county to do a publicity campaign targeting new businesses to come to the area.
And finally Wray suggests reaching out to township businesses and to meet with them on a regular basis. “Remind them that you’re here, they’re here. Those business outreach efforts can pay off in long term retention,” said Wray.