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A Pennsylvania Municipal Forecast

A Pennsylvania Municipal Forecast

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There Be Dragons ... There Be Dragons ... Presentation Transcript

  • A Pennsylvania Municipal Forecast E.J.Knittel Director of Events and Information Services, PSAB Robert Sabatini Keystone Municipal Services
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    • The opinions, ideas and comments expressed in this document and or report, do not necessarily express the views and or position of PSAB, and Keystone Municipal Services, its officers, employees or members. But are those of the authors and they alone are responsible for such.
    • Municipalities will see substantially lower Local Service Tax receipts as compared to 2007, (approximately 25% to 40% lower). This is a result of both the revisions to the law in late 2007 and lower employment.
    • Lower Liquid Fuels Funds payments as compared to 2008 (approximately 4% lower). This is a result of record high gas prices in 2008, and the resulting reduction in gas consumption because of the high prices and economic downturn.
    • Flat or declining Realty Transfer Taxes due to unavailability of mortgage credit and reduction in number of new homes built and sold.
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    • Flat or declining Earned Income Tax and Business Taxes (from 1% to 4% lower than 2008 receipts) due to economic downturn, layoffs and declining consumer confidence.
    • Low interest earning for municipalities, which have declined by 50% since the beginning of 2008. Rates are now around 2.2%.
    • Real Estate Tax Assessment Appeals, resulting in declining tax receipts and increased costs incurred by governmental entities in challenging the appeals. First wave of appeals will be from commercial, industrial and retail property owners, followed by homeowners, especially in areas that have seen a dramatic decrease in housing values.
    • foreclosure data
    • http://www.realtytrac.com/MapSearch/FreeSearch.aspx?a=b&StateSel=PA&accnt=137302
    • * Personal income tax (PIT) revenue in January was $1.1 billion, $141.2 million below estimate. This brings year-to-date PIT collections to $5.7 billion, which is $275.9 million, or 4.6 percent, below estimate.
    • Realty transfer tax was $22.4 million for January, $12.3 million below estimate, bringing the total to $200.9 million for the year, which is $54.8 million, or 21.4 percent, less than anticipated.
    • Since the recession began more than a year ago, Pennsylvania employers have eliminated more than 75,000 jobs while the unemployment rate has shot up from 4.6 percent to 7 percent.
    • Copyright 2009 Associated Press. All rights reserved.
    • April 03, 2009 Nonfarm payroll employment continued to decline sharply in March (-663,000), and the unemployment rate rose from 8.1 to 8.5 percent. Payroll employment has decreased by 3.3 million over the past 5 months. In March, job losses were large and widespread across the major industry sectors
    • unemployment data
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    • Pennsylvania could face a $1 billion deficit in the unemployment fund by the end of 2009, .
      • Posted on Tue, Feb. 24, 2009
      • By Amy Worden
      • Inquirer Harrisburg Bureau
    • Increased personal and corporate bankruptcies, resulting in utility, tax and other service fees not being paid in a timely manner. In addition, there will be other costs associated with municipal liens placed on the properties.
    • Flat or declining revenues from Cable Franchise fees, depending on the region of the state.
    • Significant price fluctuations on commodity prices, including fuel, salt, asphalt and road materials.
    • Possibility of higher commercial insurance costs caused by asset losses by secondary insurers.
    • Second half borrowing from other funds begins to meet expenses.
    • Reduced state funding for projects and services for all levels of government.
    • Banks are now selling properties at such low prices — many below what they sold for in the 1920s — (The F.D.I.C. estimates that each foreclosure costs a bank on average $50,000, more than if they were to do a loan modification.)
    • nytimes.com/2009/03/08/magazine
    • Continued decline in Community Development Block Grants, on average 5% to 10% each year. This will result in loss of staffing and reduction of scope of projects.
    • Medical insurance costs grow by 15% to 20% this year.
    • Reduced paving projects because of asphalt costs and increased contract costs caused by prevailing wage rulings.
    • Many municipalities will be looking at reducing staffing and programs, most especially in the non-public safety areas. Discretionary programs, such as recreation and code enforcement will be most affected.
    • At the end of 2009, some municipalities will not have the ability to repay tax anticipation notes, or will have to borrow out of reserves to repay note.
    • Municipalities in collective bargaining will face higher wage demands, as 2008 and 2009 CPI has outstripped most contracts. Probable higher legal and arbitration costs and labor unrest.
    • Other economy related revenues, such as landfill tipping fees, will continue to drop.
    • Expect higher than usual delinquencies for water, sewer, and refuse collection fees.
    • Municipalities that got involved in bond swaps will have concerns.
    • More FLSA investigations involving OT will be occurring.  Remember, treble damages.
    • Increase of embezzlements and thefts.
    • Continued downward trends for revenues, or stabilization, dependent on the part of the state.
    • Continued difficulty in borrowing funds for TAN and long-term debt.
    • Significant pressure on municipalities to hold the line on taxes because of significant tax increases by school districts, counties and the state in 2009.
    • New electricity rates will have a significant impact on municipalities, authorities, school districts and counties that will be greater than residential increases. Estimated increase of 40%, which is about 10% higher than the increase expected by residential customers.
    • GASB 45 requirements will be in place, requiring municipalities with post-retirement medical benefits to outline the unfunded liability costs for the benefits. Municipalities will either begin pre-funding the costs (an additional expenditure) or will have the unfunded liability included as part of its annual financial statement. This disclosure will result in higher interest rates for both short-term and long-term borrowing.
    • Municipalities with defined benefit pension plans will have substantially higher payments to meet their Minimum Municipal Obligations. The next actuarial valuation will be in 2009, which will take into account the 2008 financial (-30%) meltdown and loss of asset valuation, but without any potential gains in assets that may be forthcoming.
    • Increased use of unfunded debt, especially for municipalities that do not have the ability to raise real estate taxes.
    • Some increase in EIT funding because of anticipated reforms in the collection and distribution process. However, not all municipalities will see growth.
    • Increased default on TAN repayments and missed bond payments.
    • Increased default on TAN repayments and missed bond payments.
    • Greater borrowing from other funds, with delayed repayments.
    • Increases in health insurance will continue to be 15% to 20% over previous year.
    • New state mandates, including the Chesapeake Bay Initiative, will increase utility costs and consumer pressures.
    • Heavy pressure on municipalities facing catch-up costs for uniformed employee wages that did not meet CPI in previous 2 years.
    • Federal and State funded infrastructure projects will create cost pressures on separate municipal construction projects because of availability of contractors and materials/equipment.
    • Additional employee layoffs, this time affecting both uniformed and non-uniformed employees, resulting in increased unemployment insurance costs.
    • Slight improvement in revenues, as compared to 2010. However, many municipalities will be at 2008 revenue levels with higher 2011 costs. (Note: home prices in 2009 are at 2005 prices, in some instances at 2003 levels.)
    • Full impact of new costs from 2010 will be felt.
    • Continued layoffs for municipal employees.
    • Municipalities will begin exploring Home Rule Charter in order to improve their taxing capability. Particularly with EIT
    • Municipalities with Water or Sewer Authorities will look to taking over those authorities in order to utilize additional revenues generated by those entities to supplement revenues.
    • Many Third Class Cities, larger boroughs with police or fire departments, and urbanized townships will be unable to meet expenses after September. EIP or Act 47 proceeds for these communities.
    • Funding for DCED may be inadequate to handle the number of Act 47 municipalities or Early Intervention Program requests.
    • Municipalities will not be able to pay off TANs or make bond payments.
    • 1. Permit an increase in earned income tax from 0.5% to 0.7% or some other figure.
    • 2. Modify the method in which tax billings are based upon the current assessment, which oftentimes is decades old. Instead, build in a modifier based on either Common Level Ratio or market values.
    • 3. Permit municipalities with existing Business Privilege Taxes (gross receipts) to update their ordinances in conformance with Act 511.
    • 4. Eliminate the use of arbitrators from the American Arbitration Association, and instead use state mediators. This will result in significantly lower costs for mandatory arbitration and better decisions.
    • 5. Allow Cities to use their own per capita tax rolls rather than being mandated to use county lists.
    • 6. Allow municipalities that have provided post-retirement health benefits to invest dedicated benefit funds as it does with pension funds. Currently, municipalities must invest those funds in the same manner as other municipal funds, thus preventing actual growth in the fund assets.
    • 7. Adjustment of the bidding requirements from $10,000 to $20,000, reducing the advertising and bid proposal process costs, and indexed to Consumer Price Index on an annual basis.
    • 8. Adjustment of prevailing wage limits from $25,000 to $150,000 or more, and indexed to Consumer Price Index on an annual basis.
    • 9. Make defined benefit plans optional for police, potentially reducing MMO costs and improving long-term fiscal stability.
    • 10. Enact changes in the Third Class City Code on a fast-track basis to modernize the code and reduce municipal operating costs.
    • 11. Increased immigration, homeownership and business development.
    • Orchard Workers needed in upstate NY for temporary work 3/9-12/15/09 Northern Orchard, Peru, NY. Duties may include; manually planting, cultivate and harvest crop, tilling soil, transplanting, weeding, thinning and pruning crops; applying fertilizers, pesticides, herbicides, cleaning, packing, and loading harvest products. May construct trellises, repair fences and farm building. Operate tractors, tractor-drawn machinery to fertilize soil or to plant, cultivate, spray and harvest fruits and vegetables by hand. Repair and maintain farm vehicles, implements, and mechanical equipment. Harvest apples by hand. Picking apples requires worker to handle ladders up to 20 ft., pick into buckets strung around shoulders that weigh up to 40lb. Piece rates are $.70, $.64 and $.40 per 1 1/8 bu. Box, guaranteed hrly wage of $9.70. Workers must pick sufficient quantity and quality of apples per day to meet productivity standards. Tools and equipment supplied at no cost. Workers expected to work at least 8 hrs. a day, 5 or 6 days a week, weather and crop conditions permitting. Workers guaranteed 3/4 of hours in contract. Housing provided at no cost, one-time transportation and subsistence expenses to the job will be reimbursed to workers who reside outside the commuting area. 6 months verifiable experience required for 30 positions. Report or send resume to nearest Pennsylvania Workforce Agency, referring to job order #NY 0895286
    • Harrisburg Patriot-News, March 10, 2009
    • Corrugated paper orders – increase,
    • Help wanted ads – increase,
    • Overtime hours – increase,
    • Military recruitment – decreases,
    • Shortage of building materials,
    • Inflation – to many dollars chasing to few goods,
    • Increase of building permits – for renovations,
    • Interest rates increases – long term 6 month+
    • Hiring of part time employees and increase overtime,
    • Increase costs/payments for recycled materials: copper, aluminum and paper.
    • http://www.scrapindex.com/metal.html
    • http://www.metalprices.com/FreeSite/metals/al_scrap/al_scrap.asp
    • http://minerals.usgs.gov/minerals
    • Increase of trash and waste disposal tonnage.
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  • Sailing forth …
    • E.J.Knittel
    • email: [email_address]
    • [email_address]
    • Robert Sabatini:
    • [email_address]