Newtown Township Begins 2020 Budget Review Process

In the first step to approving a budget for 2020, Newtown Township Board of Supervisors (BOS) listened to and commented on the township manager’s presentation of his recommended budget. In attendance were Supervisors John Mack, Dennis Fisher, Phil Calabro, and Linda Bobrin. Supervisor Kyle Davis was absent.

Township Manager Michael Lewis read verbatim his 2020 budget letter. This review includes quotes from his presentation.

“As presented in the past, the Township continues to face significant financial shortfalls,” noted Mr. Lewis. The current budget projects our 2020 year end fund balance to be $1,342,706, which is about 10% of the general fund expenditures. The Government Finance Officers Association (GFOA Definition) Best Practice recommends, at a minimum, that general-purpose governments, regardless of size, maintain unrestricted fund balance in their general fund of no less than two months (16 percent) of regular general fund operating revenues or regular general fund operating expenditures.

Meanwhile, Jack Brod, chair of the Finance Committee, in a 2018 report to the BOS, suggested the “safe harbor” for a General Fund balance should be 30-40% of the operating budget (view video: “Newtown Township Finance Committee Report”).

Nevertheless, when questioned about this by Supervisor Fisher, Mr. Lewis confirmed that the township has maintained its AAA bond rating.

According to Mr. Lewis, this shortfall is “ primarily caused by the loss of past Earned Income Tax (EIT Definition) revenue, other towns enacting an Earned Income Taxes, and reduction in Real Estate Transfer Tax revenues.”

Reliance on Uncertain EIT

“Earned Income Tax continues to be the predominant source of revenue in the budget,” said Mr. Lewis. According to the 2018 Audit (here), “Newtown Township's reliance on the non-resident EIT cannot be understated. The Township suffered a tremendous loss [over $700,000] in non-resident EIT with the closing of Lockheed Martin and the enactment of an EIT in Middletown Township and Bensalem Township.”

“Drastic” Reduction in Transfer Tax Revenue

2018 represents the lowest collection of Real Estate Transfer Tax Definition in the last 5-years (see chart).

“Our real estate transfer taxes have decreased drastically this year [2019],” said Mr. Lewis. 2019 may be concerning as the year to date totals are running far below where the township expected them to be. “Factors, beyond our control can affect the decline in real estate transfer taxes; such as diminishing supply, rising costs, increasing interest rates, demand, and many other things,” said Mr. Lewis.

Newtown Enjoys Low Tax Millage Rate...

...But Suffers From "Unsustainable" Cutbacks

Mr. Lewis ended his presentation warning that continued cutbacks are not sustainable. “With the progressively diminishing general fund balance,” said Mr. Lewis, “we have significantly cut back expenditures in the proposed 2020 budget to offset projected shortfalls. The proposed Capital Plan is dramatically less than in previous years. We have also suspended the proposal to bring on additional staff to expand the operations of each department. Line item expenditures have been re-evaluated, and reductions have been applied where applicable. This practice is unsustainable, as costs for services and personnel continue to rise. It is recommended that future budgets contain sufficient revenue increases to support the diminishing general fund balance, as well as other funds, to offset the volatility of our current funding structure.”

With regard to future budgets, the Democrat Board members approved the hiring of outside consultants to develop a 5-year financial plan that will identify additional sources revenue, including possible sources of economic development within the township (read “Newtown Township To Develop a 5-Year Financial Plan”).

Q&A

After his presentation, Mr. Lewis and Police Chief John Hearn answered questions posed by the Supervisors (see video below). 

Posted on 15 Oct 2019, 11:18 - Category: Budget