Doomsday tax hikes haven’t hit — yet
The real pandemic pain for area budgets could come in 2021
In the early months of the coronavirus pandemic, Emmaus officials feared the worst and acted accordingly.
There were many unknowns: How much would the borough would have to shell out for personal protective equipment? What would soaring unemployment do to income tax collection? Howmuchrevenue would the borough lose in fees for rentals and other services?
Ultimately, the borough laid off 60 employees, furloughed another 25, stopped running a second ambulance due to reduced call volume, and saved about $1 million, Manager Shane Pepe said.
However, his worst fears haven’t been realized. Earned income tax collection is on track to hit budgeted amounts. Grant money helped cover some costs. And the borough passed a 2021 budget that not only calls for no tax increase, but carries over more money than expected.
In fact, many Lehigh Valley municipal officials who initially feared disastrous financial implications for their towns are poised to pass budgets that call for no tax increases. Officials said they didn’t want to pass a burden of higher taxes onto their citizens during a difficult time.
The few that are resorting to tax increases to cover expenses
are the ones with little wiggle room in their tax base — older landlocked boroughs such as Northampton and Catasauqua, for example.
And although the bills are getting paid and services aren’t at risk of being shut off, 2020 was still their toughest budget season yet.
“2020 was a nightmare — I think everybody would agree with that,” said Northampton borough Manager LeRoy Brobst, whow rote two budget drafts this fall as conditions kept changing. “It was just so difficult to manage the unmanageable.”
Looking ahead
The most difficult times might not be reflected in municipal budgets yet, however. Jim Hunt, the director of governmental relations at Berkheimer Tax Innovations, which collects taxes for dozens of municipalities across the state, including those in Lehigh County, said municipalities might not be feeling the sting of pandemic financial strain because their budgets were carried by a successful 2019.
He anticipates a 9-10% loss in tax collections next year. Municipalities with more white-collar workers won’t be hit as badly, while those with more blue-collar workers will see more of their earned income tax decline.
That’s what Tom Beil, the Upper Saucon Township manager, suspects happened in the township. Census data shows many managers, professionals and college-educated people live in the township, and a small decrease in permit fees and local services tax was offset by a small increase in the real estate transfer tax.
The township’s 2021 budget calls for no tax increase.
The situation is similar in South Whitehall Township, where earned income tax collection is tracking at nearly normal levels, and the business privilege taxes are from a successful 2019 business year, Manager Renee Bickel said.
The biggest hit to South Whitehall’s revenues in 2020 was its admissions tax: Dorney Park admissions brought in just $156,000, less than a tenth of the usual $1.7 million, or 10% of the township’s general fund budget.
But in addition to putting off some capital projects, cutting overtime pay for staff and receiving federal relief money, the township had a serendipitous, unexpected revenue bump in real estate transfer tax through the sale of several Coordinated Health buildings over the summer.
South Whitehall’s 2021 budget holds expenses steady and taxes even.
“We actually did relatively well considering COVID,” Bickel said. “Honestly, I don’t know that there’s anything I would have done differently through the pandemic.”
In Lower Saucon Township, officials actually voted to give taxpayers a tax cut next year, slashing the real estate tax and the fire assessment from 6.39 mills to 5.14 mills. The cut represents about a 20% savings in real estate tax, said Cathy Gorman, the township’s finance director.
The township is in a unique position. Its earned income tax was 8.1% above last year’s levels, and it collects between $2 million and $2.5 million in fees from the landfill on Apple butter Road each year. The township has an $8.1 million general fund budget, and about $8.9 million in reserves, Gorman said.
“[Lower Saucon’s had a] really aggressive effort in the last several years to pay off our debt, and limit the use of any of the tipping funds we’ve received from the landfill for more infrastructure needs or emergency purpose needs,” she said.
Even Allentown fared better than expected. Tax collectors in the spring feared an earned income tax shortfall of up to 12%, but by year’s end, it was only down 1%, or about $300,000 under budget. Its 2021 budget does not raise taxes, but dips at least $1 million into cash reserves to balance. Bethlehem will also take about $1 million from cash reserves, but it needed a 5% tax hike to balance the budget, since the pandemic hit coincided with ballooning pension obligations.
Cutting expenses
Recreation was a source of significant hits to some municipalities. Northampton’s tax hike of 10% will generate about $200,000 for the borough, which is about what it lost in “culture and recreation,” owing largely to lost rent on pavilions and the Northampton Memorial Community Center it owns.
Most of Bethlehem Township’s $1 million hit in 2020 comes from the closure of its community center, which took in $600,000 less than expected, Manager Doug Bruce wrote in a memo.
The township offset losses with a $300,000 cut in personnel and operating costs at the community center. It also laid off part-time employees and put off capital projects. Township officials estimate the general fund will take a $1.4 million hit in 2021, to be taken out of the township’s fund balance.
They passed a budget with no tax increase, but Bruce recommended the township take out a low-interest, $2 million line of credit to use if needed.
In Catasauqua, officials are pursuing that option, in addition to a tax increase.
The borough usually ends a year with about $1 million in cash to carry forward into the next year’s budget, Manager Steve Travers said. It used the money it had left over from 2019 to pay bills this year, since its sources of revenue across the board were down by about 20% in 2020.
“This year, we’re just about out of money,” he said.
To cover similar, anticipated drops in revenue in 2021, the borough is raising taxes by three quarters of a mill — about an extra $100 a year for the average taxpayer. To cover its bills for the first three months of the year, which it would normally do with the leftover cash from the previous year, the borough is applying for a tax anticipation loan.
It also put off projects, but some can’t be put off forever. Travers said he won’t even try to open the pool this year, but he can’t go another year without paving roads.
He did avoid job cuts, which he considered a last resort. A minor coronavirus outbreak in the spring crippled his public works staff, and it proved expensive to hire outside help to run the sewer plant for two weeks. That’s the kind of curve ball that’s especially difficult to budget for.
“There are so many unknowns with where we’ll be next year,” he said. “I was hoping to have a better handle by now.”
Not every historic borough had so much trouble.
Early on, Bath initiated a budget protection plan that froze all nonessential line items and capital projects. By September, borough Manager Brad Flynn said the borough wasn’t seeing the downturn it expected. Even so, he put together a budget that accounts for 20% reduction in revenue and without a tax increase.
That’s partly because leaving the Colonial Regional Police Department in 2019 sent more than $400,000 back into the general fund. Nearly half of that cash has gone to plug deficits and stave off tax increases.
“But it will only go so far,” Flynn said via email. “Incremental tax increases must be considered in the future.”
But for now, through a study of its earned income taxes, borough officials discovered that most of its tax base works in the health care or logistics fields, as well as other sectors that accommodate working from home.
By its end, 2020 yielded many surprises for Lehigh Valley municipalities. Whitehall Township, for example, managed to end the year with a greater fund balance than it had at the beginning of the year, Mayor Michael Harakal Jr. wrote in his budget introduction. The township did furlough public works and recreation staff in the spring, however.
2021 is sure to yield more, particularly for municipalities that collect business privilege taxes. Those that come in — or don’t come in — next spring will reflect a turbulent 2020 full of business shutdowns.
To deal with the 2021 uncertainties, managers say they can do little but budget as conservatively as possible.
Brobst, of Northampton, approached his first budget draft in October with a tad too much optimism, he said. By the council’s next meeting in November, he had started over from scratch and presented a new one based on considerably less optimistic projections.
Even so, the borough employee of 55 years calls the work a labor of love.
“At least it’s not boring,” he said.