STRUCTURING HEALTHY COMMUNITIES

1. STRUCTURING HEALTHY COMMUNITIES TAX REVENUE GENERATION AND FISCAL HEALTH

2. Presentation to the Governmental Research AssociationAugust, 2007 LeeAnne Clayberger Kerry Moyer

3. STUDY OBJECTIVES • Detail the relative fiscal health of Pennsylvania’s municipalities • Identify formidable threats to revenue generation (for instance, existing state legislation) • Determine public attitudes toward local government and fiscal health

4. THE STUDY • Includes 2,551 municipalities • Compares fiscal health with tax effort and tax capacity • Looks at changes from 1970 to 2003 • Uses maps to tell the story

5. Fiscal Health Measures • EFFORT (two components) Total Non-Real Estate Resident Tax Revenue Aggregate Household Income Total Real Estate Revenue STEB Market Value (Market Based Millage)

6. Fiscal Health Measures • CAPACITY 5% of STEB Market Value + Aggregate Household Income Number of Households

7. SUMMARY OF STUDY FINDINGS

8. Five Stages of Municipal Fiscal Health • Prosperity with low taxes • Increasing demand for services and gradually rising tax rates and service fees • Taxes increase; reductions in non-core services • Tax revenues decrease; reductions in core services • Loss of tax base, population, and increasing fiscal distress

9. Act 511 of 1965-menu of taxes, rates, caps Act 111 of 1968-strikes and binding arbitration Act 195 of 1970-right to organize/negotiate Act 205 of 1984-funding employee retirement obligations Act 47 of 1987-declaration of fiscal distress Current set of tools is insufficient to reverse the current momentum

10. Keep local municipal identity but administer regionally • Fundamental mismatch between fluid economy and structured municipal boundaries • Pennsylvanians like their local governments to remain local • Research does not show a public outcry for consolidations and mergers of municipalities

11. MUNICIPAL FISCAL HEALTH STATEWIDE

13. Five Stages of Fiscal Health in 2003

15. Extremes on the Healthy/ Distressed Spectrum; Comparison with State Average

16. CORRIDORS

17. Example of a Corridor

18. Corridor Example, Continued

19. Geographic Corridors

21. Pennsylvania’s Cities • Fiscally, PA’s most-distressed municipalities • All 56 fall below, and most fall significantly below, the state average for tax effort/capacity

23. Pennsylvania’s Boroughs • Most severe negative change seen for boroughs in Adams, Allegheny, Beaver, Berks, Cambria, Chester, Dauphin, Delaware, Erie, Lawrence, Lehigh, Perry, Somerset and Westmoreland Counties

25. Pennsylvania’s First Class Townships • 70 of 91 lost ground since 1970 • One township moved from below to above average • 25 moved from above to below average

27. Pennsylvania’s Second Class Townships • Group shows relative fiscal health with 948 (about 65%) above the state average • Since 1970 more townships became healthier (57%) than less healthy (43%)

29. Municipal/County Clusters and Subclusters

30. Boroughs cluster within fiscally distressed regions, but not within fiscally healthy regions Many counties have subclusters with varied fiscal health Clusters may present better ways to functionally consolidate services than groupings of adjacent communities The Nature of Clusters and Subclusters

31. REALITY VS. TAX POLICY Since 1970: • Significant population shifts (sprawl or suburbanization) • Growth in households, not population • Continued reliance on property taxes

32. Demographic Changes from 1970 to 2003*Inflation Adjusted DollarsAverages per household

33. Compounding Factors, 2003*Not including PhiladelphiaAverage per household

34. Overall, municipalities are increasingly fiscally distressed There is a growing use of earned income taxes and fees, but many communities still rely heavily on property taxes Revenue caps remain largely unchanged from the 1950s There is a general lack of flexibility in current legislation Communities need sufficient discretion in deciding how to tax themselves Problems identified

35. PUBLIC UNDERSTANDING OF FISCAL HEALTH AND LOCAL GOVERNMENTS

36. Representation and Responsiveness • Citizens equate local government to the local officials who run them • Support of local government often stems from a fear of losing representation and local funds for local projects • Local officials are “people like us”

37. Limited Knowledge of Local Government • Despite strong sentiment, citizens do not know a great deal about local governments, nor do they spend much time thinking about them • Most citizens are not concerned about fiscal distress as this “happens in larger cities” • Citizens in larger cities tended to underestimate their fiscal distress

38. Bigger is Not Necessarily Better • Local governments represent community norms in a manner that the state cannot • Even if wasteful and expensive, those issues are on a smaller scale for local government • Most citizens see local government as the primary form of government; state exists to serve local governments

39. State Government is Distant and Unresponsive “…these people (local government officials) are all visible to us and I think that there’s probably a sense that the farther government gets away from the people, the less responsive they are going to be.”

40. Some Support for Functional Consolidation There was general support for functional consolidation when: • Local governments get their fair share • Services are improved • Money is saved • Directed toward health care and pension sharing, joint administration efforts, and regional police forces

41. RECOMMENDATION #1 Allow communities to decide how and how much to tax locally • minimum restrictions • maximum constituent input

42. RECOMMENDATION #2 Modernize and enhance existing tax revenue optionsfor municipalities • Occurs on the state level • Avoids “one-time fixes” • Evaluate outdated legislation and change or replace as necessary • Remove restrictions in lieu of local options

43. RECOMMENDATION #3 Place wide menu of revenue generating tools in communities to avoid future fiscal distress • Again, a subtle difference – “communities”, not municipalities • Includes sources of revenue in addition to taxes (fees, licensing, debt management) • Include counties, school districts, and local authorities

44. RECOMMENDATION #4 Promote shared expertise for complex issues/services • Volunteers especially need assistance • Provide incentives, if needed • Many municipalities cannot, on their own, afford professional or technical assistance

45. RECOMMENDATION #5Conduct further study • Define and standardize measures of fiscal health • Forecast future municipal fiscal health • Analyze the expenditure and services side of the fiscal equation • Create a baseline database • Pay particular attention to the costs of retirement systems, health care and tax collection (Part 2 will begin early fall)