NORTHWESTERN LEHIGH SCHOOL BOARD VOTES TO KEEP TAX INCREASES WITHIN ACT 1 LIMITS.
POSSIBLE DILEMMA ON BUILDING PROJECT
Last nights school board meeting contained a discussion on the possible elimination of property taxes by the state. While only in the preliminary stages, there is a good possibility that a similar bill to Act 76 will pass the legislature this term. If this should happen, property taxes for school financing will be eliminated and funding will be replaced with increases in state income and sales taxes, this would spread the burden of school funding to all residents, not just property owners. If this law should be passed, school districts will be allowed to keep taxing property to retire their existing debt. Debt that is incurred after Dec. 31, 2016 will not be eligible to be paid for by property tax receipts.
This encouraged the administration to recommend that the school board pass a resolution to ask for a exception to the Act 1 limits on tax increases. The Act 1 limit for this year is 2.9 %, with the exceptions, taxes could be raised to near 6%. The school board voted 8-0 to keep taxes within the Act 1 limits. This does not mean that taxes will be raised, but that they can be raised up to 2.9% this year. The reason that Act 1 came into existence was to put a restraint on school boards excessive raising of property taxes. While well intentioned, it encouraged school districts to raise taxes by the Act 1 limit every year and bank the proceeds for future spending. It has been the unrestrained spending that brought about Act 1 and now Act 76. The property owners in Pennsylvania have been an easy touch for more funding, just produce 5 board members and in four yours you can raise taxes by near 12%, if you qualify for exceptions you can raise taxes by 25 % in 4 years. Everyone likes to keep local control of funding, but the abuse of property owners has resulted in this situation.
The other vote last night was to proceed with the funding options for this project, the vote resulted in a 4-4 tie. which stalls this decision until the next board meeting. Voting to proceed were, Willard Dellicker, Todd Hernandez, Joe Fatzinger and John Casciano. Voting no, Paul Fisher, Phil Toll, Darryl Schafer and Charlene Rauscher.
While this district has not raised property taxes for the past 6 years, the future does not look so bright. This school district has shown in the past that it can live within its means, if it has the discipline to control spending. It has been able to make improvements to buildings, including a new heating system, energy savings project etc. and at the same time increase the fund balance without raising taxes. While there is a consensus that renovations and remodeling is needed to protect the citizens property and maintain the existing building, the over expansion with no educational benefit is the issue.
The district now has existing building debt of $44,139,298, the new expansion project, in a time in enrollment decline, will add at least another $11,700,000 of new debt and diminish the fund balance by $4,000,000. This will bring the building debt to $55,839,298. This does not include pension debt of $56,933,624. The income of the school district is $39,658,705. This produces a building debt to income ratio of 140%. This compares to the districts closest neighbors, Parkland at 94% and Northern Lehigh at 80%. . Even the existing building debt is 111% above income for Northwestern Lehigh .
So, the dilemma is, if the school district borrows $11.7 million in new debt it will not be able to be paid for with property taxes if Act 76 passes. It will have to be paid for out of the fund balance. the remaining questions are what limitations may be put on fund balances in the new act.
There also is the question, if the school district is in danger of losing its ability to raise taxes, what are the considerations placed on lenders, whether through bond offerings or bank loans. There will need to be a complete re-evaluation of the credit worthiness of School Districts. Present debt levels will be an issue with lenders. The prudent thing for the board to do, would be to suspend the present project or at least limit it to $4 or $5 million dollars that would address the most pressing needs, this could be paid for out of existing revenue or fund balance. There is definitely going to be a period of uncertainty for the foreseeable future.
Former board member Joseph Reiter stated, that many legislators in other parts of the state are under pressure to eliminate the property tax, as many older and less wealthy citizens are loosing their ability to own a home.
Whether Act 76 passes this year or not, school funding through property taxes is going to come to an end. It will be necessary to keep the state competitive with other states in the future. Gov. Wolf is in a tight box, if he vetoes such a bill, he will most likely loose his re-election and the bill will be passed by the next Governor. If he passes this bill he may loose the support of his biggest support, the education industry. This should be a very interesting year in state politics.
While this district has not raised property taxes for the past 6 years, the future does not look so bright. This school district has shown in the past that it can live within its means, if it has the discipline to control spending. It has been able to make improvements to buildings, including a new heating system, energy savings project etc. and at the same time increase the fund balance without raising taxes. While there is a consensus that renovations and remodeling is needed to protect the citizens property and maintain the existing building, the over expansion with no educational benefit is the issue.
The district now has existing building debt of $44,139,298, the new expansion project, in a time in enrollment decline, will add at least another $11,700,000 of new debt and diminish the fund balance by $4,000,000. This will bring the building debt to $55,839,298. This does not include pension debt of $56,933,624. The income of the school district is $39,658,705. This produces a building debt to income ratio of 140%. This compares to the districts closest neighbors, Parkland at 94% and Northern Lehigh at 80%. . Even the existing building debt is 111% above income for Northwestern Lehigh .
So, the dilemma is, if the school district borrows $11.7 million in new debt it will not be able to be paid for with property taxes if Act 76 passes. It will have to be paid for out of the fund balance. the remaining questions are what limitations may be put on fund balances in the new act.
There also is the question, if the school district is in danger of losing its ability to raise taxes, what are the considerations placed on lenders, whether through bond offerings or bank loans. There will need to be a complete re-evaluation of the credit worthiness of School Districts. Present debt levels will be an issue with lenders. The prudent thing for the board to do, would be to suspend the present project or at least limit it to $4 or $5 million dollars that would address the most pressing needs, this could be paid for out of existing revenue or fund balance. There is definitely going to be a period of uncertainty for the foreseeable future.
Former board member Joseph Reiter stated, that many legislators in other parts of the state are under pressure to eliminate the property tax, as many older and less wealthy citizens are loosing their ability to own a home.
Whether Act 76 passes this year or not, school funding through property taxes is going to come to an end. It will be necessary to keep the state competitive with other states in the future. Gov. Wolf is in a tight box, if he vetoes such a bill, he will most likely loose his re-election and the bill will be passed by the next Governor. If he passes this bill he may loose the support of his biggest support, the education industry. This should be a very interesting year in state politics.
