Borough Manager's Private Memo Made Public

Contrary to a Morning Call report, a memo from Emmaus Borough Manager Craig Neely to borough council has been made public. The memo was posted on Emmaus Patch Tuesday.

The memo, distributed under the subject line “A Budgetary Philosophical Observation,” consists of Neely’s thoughts about property taxes.

addressed council during the public comment portion of to complain that their separate open records requests for copies of the memo were denied by Neely, the borough’s open records officer.

Neely gave Emmaus Patch the document with the condition that it be posted in its entirety:

MEMORANDUM

TO: Emmaus Borough Council and Mayor Winfield Iobst

FROM: Craig B. Neely, Emmaus Borough Manager

DATE: July 21, 2011

RE: A Budgetary Philosophical Observation

I was discussing the school tax with Dave Faust the other day, and it caused me to think about the relationship between property taxes paid versus the benefit conferred upon the taxpayer by the governing body.  His observation, as with so many other people, is that you can be obligated to pay substantial school taxes, between $4,000 and $5,000 for some Emmaus property owners, but not have, never had, and never will have, a child in the school system.  It seems unfair, and I think that a lot of people agree.  But, it made me think about how the Borough raises revenue, and whether it is as fair as it can be when considered from the perspective of whether the taxpayer is getting her or his proportional benefit of municipal services when municipal services are funded primarily by a tax on real estate.

We have the General Fund, Water Fund, and Sewer Fund as separately funded revenue accounts, and separate expenses.  They are “Enterprise Funds,” which exist, in theory, to raise money to pay expenses for the enterprise.  I have always subscribed to the philosophy that these Funds are most appropriately handled as stand alone funds that exist to support the operation of the enterprise.

In late 2008, when the Borough faced a significant budget crisis, the Budget and Finance Committee met with the Auditor, Al France, who advised that the Borough could eliminate the division of the three funds, and commingle the revenue from the three funds to pay all expenses from the single commingled General Fund.  The Budget currently has three separate balanced budgets for the individual Funds.  Changing to the accumulated fund concept would result in a single budget in which the revenues and expenses that are currently in the Water and Sewer Funds would still be itemized as part of their own sections of the budget.

I have always opposed the consolidation idea, and I have not changed my mind.  However, during my discussion with Dave, I thought of something that gives me pause to at least think about whether my long-held belief is correct.  I am not advocating changing course.  But, I want to share my thoughts with you so that you can at least think about whether there is any merit to my analysis.

The analysis is based on a single question—is there a way to best allocate revenue from property owners so that the payments made to the Borough for municipal services is, as fairly as possible, related to the amount of Borough services received by a property owner?  What I observe is not an exact science, but I think that it makes some sense, and is maybe as fair as we can be when it comes to funding Borough operations, if we base it on the level of services received by a property owner.

As an example, take a family of 5 living on the north end of town that pays $1,000 per year to the Borough in real estate tax.  Assume that there is a mother, a father, and 3 children, ages 12, 14, and 16.  The 5 residents all enjoy Borough services, such as use of the parks, police protection, ambulance and fire services, and well-maintained road infrastructure.  So, for $1,000 the 5 people obtain these and other government services.

Assume that 6 years later, all of the kids are out of the house, having all moved out of the area.  Now there are 2 people benefitting from the same $1,000, using substantially less of the government’s services.  Now assume that a year later the husband suffers an unfortuitous heart attack and dies, leaving only 1 person benefitting from the Borough’s services, but the one person still paying $1,000 for it.

The majority of the Borough’s services are funded primarily by the real estate tax, which has no nexus between the amount paid and the number of people who take the benefit of the public services.   I have always looked at it as a “best we can do” type thing.  But, I am not sure that is the case.

Consider water use, which directly translates into a water and sewer bill.  It is indisputable that water use is directly proportional to the number of people living in a home.  A family of 5, with 5 people taking showers, 5 people using toilets, 5 people having laundry done, and 5 people washing dishes, will consume substantially more water than a family of 2.  In fact, it can be fairly stated that the amount of water consumed in a household is directly proportional to the number of people residing in it.

If that is true, is it not also true that water consumption at a residential property is directly proportional to the number of people in a household benefiting from government services?  If that is true, then, is it also true that funding government services via water and sewer consumption more equitably allocates government charges, as residences with greater consumption, which have more residents, pay more?

As another example, consider the elderly widow living alone on a fixed income, who is always one that we should consider when determining taxes or rates.  Typically, she does not use many Borough services, and, she does not consume much water.  If property taxes increase, relatively speaking, she foots more of the bill as compared to the family of 5, as she uses little government services.  On the other hand, if revenue is raised via the water and sewer charges, the widow will see very little increase in charges, while the family that uses more government services will incur a greater increase than her.  Is that a more fair approach to funding government services?

I note almost parenthetically (though I rarely use parentheses, because if it is worth saying, it is worth not having it said parenthetically) that the manner in which we pay bills uses the General Fund alone.  Revenues are paid into 3 separate bank accounts, Water, Sewer, and General.  But, the only checking account is the General Fund, from which we pay all bills.  The Treasurer makes transfers from Water and Sewer to General to pay Water and Sewer expenses.  So, even though, from a budgeting perspective, the enterprise funds take care of themselves, procedurally, expenses of all are paid from the same account.

I am not suggesting that we change anything.  But, I think that the analysis is food for thought.  If you have any questions, or wish to discuss it, please contact me.

Craig B. Neely, Emmaus Borough Manager