Budget Deficit Update

In my last update I made two mistakes: I got the average household township tax wrong, and I got the deficit wrong. I’m writing to correct those mistakes and to bring you all up-to-date on the budget process after Monday’s meeting.
First, I understood that the average assessed property value in Radnor was $150,000. (In my defense, I thought that because of the entry in the proposed budget that reads “Average Assessed Value of Residential Real Estate: $150,000.”) That’s incorrect; the median assessed property value is closer to $270,000. As a result, a five-to-ten percent tax increase would cost the median resident an extra $52-to-$105 per year. In her latest article, Linda Stein urges residents to “hold onto your wallets.” That’s maybe a little melodramatic for $4.33 per month, but, admittedly, it’s not nothing.
Second, and more concerning, it turns out that my $350,000 deficit projection is only accurate if the Township neither (1) pays into the post-employment healthcare fund for the year; and (2) undertakes nocapital projects in 2019. When our OPEB costs and planned capital projects are added back into the budget without an additional source of revenue, the deficit climbs to more than $5,775,000. 
There’s some good news: we have enough money in the reserve fund to cover the overrun. The Township’s existing budget rules, however, require us to maintain a reserve fund balance equal to 25% of our budget, or approximately $9.6MM next year. If we spend the reserve down in order to fund next year’s budget, that policy requires the Township to pay the $5.8MM we spend back to the reserve in 2020. In other words, cutting into the reserve now requires us to find twice as much money next year, because we’ll still have the same costs we’re struggling with this year in 2020, as well as an obligation to repay the reserve fund.
Of course, we can rewrite the reserve fund policy and choose not to pay the money back. It’s our money, it’s our policy, and it’s up to us whether we keep a reserve fund or not. But, as I wrote in my last e-mail, the reserve fund exists to offset shortfalls in the taxes we receive from local businesses, which fluctuate. Given the likelihood of a down-year in the near future, spending down the Township’s reserve fund would be fiscally irresponsible. In fact, much of the reason for the shortfall this year is because local business tax revenues were down by $2MM in 2018; having a reserve is self-evidently an important component of an unpredictable tax stream.
We could also choose not to make our OPEB payment this year, and do no capital projects in 2019. That would still leave us with a deficit, but it wouldn’t be nearly as egregious. The problem is that, without a millage increase, there’s no reason to expect additional revenue next year; that means that at this time next year we’ll be faced with the exact same pressure to ditch our OPEB obligations and capital project budget. The OPEB bill will eventually come due, and we’ll be in a hole we can’t get out of without resorting to truly extraordinary measures. Skipping capital projects means losing out on the grant funds that have already been awarded for many of the Township’s planned projects and, obviously, allowing an already languishing infrastructure to degrade further, increasing the incidence of emergency failures. And, maybe most importantly to the residents of this ward, it will be difficult to convince the Board to fund stormwater relief in the First Ward if capital projects in the rest of the Township are put on hold.
There are some ways to economize. For instance, Commissioner Sean Farhy has found a way to save the Township $55,000, which has real value. But the reality is that a budget shortfall of $5.8MM isn’t going to be solved by cutting corners here-and-there. By way of example, the Township would have to cut its entire public works, solid waste, and parks budgets entirely in order to make up that deficit.
Since my last newsletter I’ve received nine e-mails in favor of a tax increase, and seventeen survey responses, unanimously in favor of a tax increase. I’m leaving the survey open, and I’m still very much open to your feedback. But, based on what I’ve heard so far, my proposal for next year is to raise millage by six percent, or five dollars per month for the median household. That should raise approximately $760,000, still leaving a substantial deficit. With luck, business tax revenues will return to or exceed historical norms next year, particularly with the construction of significant new businesses like the new Penn Medicine facility, which will offset the deficit sill further. The balance of the deficit will be funded next year with debt and a small invasion of the reserve fund. At the end of 2019, the Township can reevaluate, and step up millage again if necessary, in order to avoid additional borrowing in 2020. In the meantime, we’ll be looking for creative ways to increase revenue without cutting services; I already have a few ideas that I have shamelessly stolen from the residents I’ve spoken to about this problem.
During my campaign, I called this year’s budget season an existential fight for the future of the Township. I was clearly right, although I didn’t understand at the time just how severe the deficit would be. I stand by what I said at the time: Radnor Township residents expect quality services from the Township, and are willing to pay for modern and reliable infrastructure. I remain committed to providing those things, and am accordingly asking you for an extra five dollars a month.