Pension costs fuel possible tax hike

WEST CHESTER » As pension costs mount, borough council contemplates raising taxes.

Council voted Wednesday for a balanced 2019 budget that would raise the earned income tax .25 percent to 1.25 percent.

The borough’s take would increase by 50 percent. The school district and borough currently evenly split the 1 percent levy.

The budget voted on Wednesday night is only preliminary and might change. Council is required to enact a balanced budget by Dec. 31.

Outstanding pension costs have reached $15.2 million, with OPEB (Other Post Employment Benefits) totaling $4.4 million. OPEB covers medical insurance for retired police prior to their turning 65 or until they take another job.

If made permanent, the .25 percent increase might pay off 85 percent of the debt within 11.5 years.

A worker earning $25,000 per year now pays $250 and that would increase to $313. A $100,000 wage earner now is liable for $1,000 per year. That amount would jump to $1,250.

Council also considered selling off the sewer treatment

plant to a private company and using part of those proceeds to pay off the pension debt.

Borough Manager Mike Perrone told council that the sale of the sewer treatment plant might pump an estimated $19 to $39 million into borough coffers.

Perrone said the borough could meet both the projected 11-year payoff and balance the budget without raising taxes, but would operate with “only minimum functions.”

The borough now pays nearly the minimum required for the unfunded pension obligation.

Council President Diane LeBold, W2, said a vote in 2013 to raise the EIT failed by a 4-3 margin. She also noted that the borough’s credit rating is negatively affected.

“They chose to kick the can down the road,” LeBold said about the previous council.

She also noted that if the sewer plant is sold there would be no future income from fees. Perrone also said some jobs might be at stake.

Several months ago,

Councilman Michael Galey, W3, had suggested cutting current 2018 expenses. Perrone later said that the borough was able to trim $887,000 in projected 2018 budgeted expenditures.

Councilman Michael Stefano, W4, said that if the borough sells, the new owners would set the rates.

“We have to acknowledge that it’s a risk,” Stephano said.

While it is not known for sure, the plant might require more than $5 million in upgrades and improvements, Perrone said.

“We’d have to pump a ton of money into this,” Galey said. “That sewer increase is going to happen whether or not we put cash into our pocket.”

Stephano and several council members suggested that if the plant is sold, and the proceeds were used to pay off the pension and OPEB debt, then the EIT might be retracted.

While nothing was set in stone, Perrone suggested that council should plan ahead.

“For at least this year, we have to have a game plan in place,” Perrone said.