Proposed tax increase could cost average worker $113 more per year

WEST CHESTER » In a bid to rein in pension costs, West Chester officials are considering raising the Earned Income Tax from 1 to 1.25 percent, but took no action, at Thursday’s meeting.

State law gives municipalities and school districts the legal authority to levy a tax on individual gross earned income/compensation and net profits. The

tax is based on the taxpayer’s place of residence and not their place of employment. The EIT is separate from the Pennsylvania personal income tax.

The West Chester Area School District and the borough currently split the income from the 1 percent EIT levy, which is determined by income listed on a taxpayer’s W-2 form. The borough would keep the entire increased amount.

Unfunded pension liability runs more than $15 million. Raising taxes .25 percent would generate an additional $1.69 million per year. According to Borough Manager Michael Perrone, by conservative estimates, that amount would pay off the pension debt and the $4 million Other Pension Employee Benefits fund balance by 2033.

A taxpayer with an annual salary of $45,000 now pays $450 in EIT and that number would jump $113 per year, to $563, if the tax were increased by a quarter percent. A wage earner making $100,000 would pay $250 more per year.

Finance Committee Chair Bernie Flynn said the borough “can’t keep kicking the can down the road. It’s the elephant in the room that we’ve got to pay attention to — we don’t want to get caught with $20 million (unfunded liability) in two years.”

Council President Diane LeBold said the liability affects the borough’s credit rating and “just keeps growing because we are not contributing a sufficient amount.”

Councilman Michael Galey questioned whether ongoing $5 million renovations at Borough Hall should have been pushed back to save taxpayers from a tax increase.

LeBold said that the police department headquarters at Borough Hall had become obsolete.

“Perhaps we should have a discussion about how to tighten our own belts,” Galey said. “Perhaps we can do other things to solve the problem.”

Perrone talked about “trimming fat” and discussing what the “borough needs and doesn’t need.”

Finance Director Jeff DaSilva said the borough could consider looking at functioning “more efficiently.

“How can we tighten certain things up?”

Galey said the talk of a tax raise seemed premature.

Councilman Michael Stefano said addressing the debt was gaining urgency.

“This has been an ongoing conversation,” Stefano said. “It’s not going away.”

Mayor Dianne Herrin also suggested looking at borough finances.

“I strongly believe we need to quantify our core competencies, our needs and all possible revenue sources in their entirety, approach this like any good businessperson would, and prepare a five-year economic sustainability plan for the borough,” Herrin said. “If we find we need to raise the EIT, then so be it. But it needs to be part of a cohesive plan with all of the pieces put together so we can have the opportunity to present this to our constituents, justify it and answer all of their questions.”

Staffers partially blamed the stock market’s fall in 2008 for a multi-million dollar financial hit.

Resident Richard Thompson inquired whether a similar stock market drop might hurt borough finances.

“The numbers can always change,” Perrone said. “There are five or six variables.”

The borough has not raised property taxes since 2011. Flynn supported the EIT increase rather than shifting the burden to property owners. He said that only active wage earners would be affected by the current suggestion.

Perrone noted that 35 to 40 percent of properties in town, including West Chester University and churches, were tax-exempt.