BOARD FINANCE COMMITTEE MEETING MINUTES

APRIL 11, 2005

 

Members of the Board Finance Committee met on Monday, April 11, 2005, at 6:43 p.m. in the Auditorium of East Hills Middle School. Present were School Board Members Charlene Koch, Diane Rowe, Julie Venanzi, Dr. Craig Haytmanek, Margaret Williams, Rosario Amato, Joseph Craig, Loretta Leeson and William Heske. Also present were Dr. Joseph A. Lewis, superintendent of schools, Michele Kostem, associate superintendent, Stanley J. Majewski, Jr., director of business affairs, Mr. Scott Shearer, from Public Financial Management, and members of the press.

 

COURTESY OF THE FLOOR TO VISITORS - None

 

OPEN FORUM – No discussion

 

ACT 72 PRESENTATION

 

Dr. Joseph Lewis, Stanley Majewski and Scott Shearer gave a presentation on Act 72 and the implications it would have on the district. Act 72, also known as the Homeowner Tax Relief Act, is intended to reduce property tax through receipt of new money from gaming revenues and increases in local income taxes. Gaming revenues must reach $900 million dollars before any property tax reduction occurs. Of the $900 million in gaming revenues, $400 million must be placed in a state reserve fund. Act 72 requires school districts to increase local earned income tax by .1 percent to offset property tax savings. Districts would also need to get voter approval to increase taxes by more than the Index.

 

Mr. Majewski explained that the district has three options in relation to Act 72. Option one would be to decline the gaming revenues and not opt into Act 72. We would receive no additional money; everything would remain as it is. Option two would require the board to adopt a qualifying contribution of .1 percent earned income tax by May 30, 2005. In November 2007,a referendum increasing EIT or PIT must be placed on the ballot. Option three is if, by May 30, the board adopts a resolution to have the front end referendum in 2005, they are opting in but they’ve taken no action on increasing the EIT. At that point in order to increase taxes, a public referendum would be put on the ballot and the community will vote whether or not to have an additional .1 percent added to their EIT. However, if the community decides they do not want the additional .1 percent, the law requires the board still pass a resolution increasing the tax. The referendum does not have any meaning as taxes will increase by law.

 

Mr. Shearer from PFM explained how the gaming revenue would be allocated to districts that opt in. The state would need to set up two reserve funds; one must accumulate $400 million from the sale of licenses for the casinos. Any additional monies will go to the property tax relief fund. No funds will be distributed until the fund accumulates $900 million. Available gaming revenue will be certified by the Secretary of Budget in May of each year. Allocations to qualifying districts will be based on the Property Tax Reduction Index.

 

The Property Tax Reduction Index is ranked on four dimensions of relative wealth and tax effort. The Property Tax Reduction Index gives a greater share of property tax reduction to low income, low wealth, and high tax effort districts. Bethlehem ranks 229 out of 500 school districts.

 

Property tax reductions will be the same for all property owners. The qualifying contribution is only the first step. If a district opts in by May 30, 2005, and they approve the qualifying contribution, by November 2007, if the homestead/farmstead exclusion is less than the minimum provided via Act 72, there needs to be a ballot question offered to the community to increase income taxes and provide greater property tax reduction.

 

Another feature of Act 72, in addition to property tax reduction, will be the potential for imposing real estate tax increase limitations on school boards. Millage increases in excess of the Index must get to the community for a referendum approval. The Index is a calculated amount based upon the average of the state average weekly wage and the employment cost index which is an index that takes a look at the cost of salaries and wages in elementary and secondary education.

 

After the power point presentation there was much discussion about the ramifications of Act 72.

Mr. Craig stated he was concerned about the affect this would have on the budget cycle. The district would have to finalize its budget by February, while the state doesn’t begin their budget until February. There would be no way of knowing the amount of subsidies we would be getting from the state. He asked, if there isn’t enough gambling revenues in a given year, but we opted into Act 72, would we still have to abide by back-end referendum if we have to raise our budget? Dr. Lewis responded that once you opt in you are bound to the statutes of the referendum. You are also bound into levying the earned income tax. If we didn’t get gaming money because enough revenue wasn’t received, we would still have to put any increase out for referendum. This could result in major cuts in current programming to balance budgets.

 

Mrs. Rowe stated that the district ranks 229 out of 500 school districts in the state considered for gaming funds allocation and that will never change. Regardless of whatever economic changes occur in Bethlehem as far as employment, income, whatever, we will rank at 229 forever.

 

Mrs. Leeson inquired as to the average household income in Bethlehem, and was told that based on the 2000 census the figure was $43,000. It is probably closer to $50,000 at this time. Mrs. Leeson asked for an updated estimate of the amount of applications in the county. She was informed that approximately 75 percent of eligible homestead properties were approved. May 1 is the due date for the counties to certify application approvals.

 

Mrs. Williams expressed concern about the ranking and asked why it never changes. She was told that the law speaks specifically to that. Thriving communities have an increase in tax base. If you are a school district with a decreasing tax base, what occurs is you hit the index sooner. The Act allows wealthier districts to provide programs that communities having depressing times cannot have and will be limited by the index and tax increases to maintain per pupil reserve. It will create less of an equitable funding mechanism. Dr. Lewis commented that legislators who oppose the Act are concerned that the Act will create inequities across the Commonwealth.

 

Dr. Haytmanek stated that the Act pits the renters against the seniors. The renters have no vested interest in property tax reduction. The renters will get hit with the higher EIT. He noted that 35 percent of our voters rent.

 

Mrs. Venanzi questioned as to how many districts will opt in. To date four districts have opted in. Current surveys show 80 to 90 districts will not opt in. The exact figures won’t be known until May.

 

Mr. Heske commented about the costs involved and the amount of changes that would be needed to implement Act 72. He stated that Act 72 is a costly ineffective way to implement property tax reduction. Areas of increased cost mentioned were tax collection, postage, and printing.

 

Mr. Amato asked if we participated in Act 72 to help defray property taxes through taxation on slot machines would we still have to enact a local income tax? Dr. Lewis stated that by law we would have no choice but to increase income taxes.

 

There was much discussion regarding what happens to the EIT money collected if the money from gaming does not come in in a particular year. The money cannot be used for current operation purposes and would have to be held until a year when the state has sufficient gaming money to distribute and then apply it to the Homestead/Farmstead Exclusion pot. It is possible this would have to be done for several years until there is money available.

 

The tape recorder failed prior to the Courtesy of the Floor to visitors section and several of the names and addresses were not obtained. Ten speakers approached the board to make comments.

 

COURTESY OF THE FLOOR

 

Theresa Friedmann stated that the Act 72 Advisory Panel contained too heavy a concentration of school district employes and officials.

 

Russell Trumbauer addressed the board.

Anthony Rybak addressed the board.

 

Jim Kritis commented that the Commonwealth stated that no harm to the school district credit rating would result from participation in Act 72.

 

David Freeman of 555 Spring Street complemented the board for all the time and effort they are putting into Act 72. He stated that Bethlehem is one of the best school districts in the country and the reason being is that education comes first. He stated the board should listen to the taxpayers but not to feel pressured by the county or state to have to do something they feel is wrong. The first thing to happen when extra layers of fiscal responsibility are added cuts are made all over the place. There will be no bands, no music, and no sports, maybe it’s not a big deal to the taxpayers but it is to the kids. He is very concerned that the real focus is education for the kids and their future and the future of Bethlehem and the state of Pennsylvania.

 

Frank Tupper of Highfield Condominium in Bethlehem Township stated he is a senior citizen and a member of the Act 72 committee and congratulated Dr. Lewis and Mr. Majewski on how the committee was organized. He stated it was a very fair process and during the three meetings people were shown all sides of the issues.

 

Judith Dexter, 1866 Homestead Avenue, commented on the Act 72 Advisory Panel and stated that Dr. Lewis clearly directed school district administrators not to take a leadership role so as not to unduly influence the Panel’s outcome.

 

 

A gentleman from the audience stated that he feels the board needs to negotiate better with the teachers and other employes of the district. Many companies have lost their benefits and pensions. District employes have excellent benefits and pensions. He stated that the taxpayer is getting hit twice because taxes are being increased to meet the teachers’ needs while many taxpayers are taking cuts.

 

Two other citizens approached the board to offer comments. One comment included support for opting in to Act 72. The other was concern for the use of gaming funds and the potential adverse impact gaming would have on people.

 

The meeting adjourned at 10:05 p.m.

 

 

Minutes prepared by:

Adele Embardino, Confidential Secretary to the Director of

Business Affairs