Sunday, January 17, 2010
Property Tax Effect On Hazleton Property Owners
The media has lost focus in the debate over the proposed sale of the water department under the governing of the Hazleton City Authority. Before they talk whether it should or should not be sold the question of "WHY" needs to be addressed.
When Mayor Lou Barletta proposed his plan he DIDN'T WANT to sell the water department; he proposed it as a possible SOLUTION to the financial crisis facing the City of Hazleton. What is the consequence if the City does not sell the water department to Hazleton taxpayers?
For two years he was asking Hazleton's City Council for ideas and ways to bridge a continual gap between income and expenses. No plan was brought to the table. He felt the need to propose his plan before the City reached the point of no return. Political pundits have distracted the taxpayers from the reason behind his plan and are trying to gain focus on the water department as a means of pushing their political agenda.
The City of Hazleton has unpaid bills and debts owed to the tune of over $3,100,000.00, around 3.5 mills in additional taxation over and above the 70% increase in taxes for 2010. The Mayor and City Council debated long and hard about department cuts and what was in the best interests of its citizens. Debate over police cuts were furious but in the end police protection was paramount to the wants and needs of its citizens, business owners, and the public at large, rightfully so.
Hazleton taxpayers must face the fact that decades of stagnant revenues due to a millage cap of 25 mills by Pennsylvania law was the precipitating factor leading to this "perfect storm". Rising health insurance costs, pension costs, employee salaries, heat, light(the city pays for every street light) and fuels costs coupled with declining property tax revenues, a steep decline in Emergency Municipal Services Tax revenue, and stagnant mercantile and business privilege taxes in a severe overall economic decline not only nationally but globally brought Hazleton to this point. Hazleton is not alone by any means. Municipalities across the state and the nation are in financial dilemmas.
In the calculations on the slide above SOP added the additional property tax millage needed to bare bones fund the budget to the base year of 2009. For 2010 Hazleton City Council already announce a property tax millage rate of 2.38. In order to erase the $3.1 million dollar deficit another 3.5 mills would be needed in 2011 plus the funding for any income shortfalls.
At the present time the City's budget is approximately $1.5 million short in revenues vs. expenses. That figure must be added to the defict erasing millage to set the correct millage needed for 2011 and each year after that assuming no change. That figure would be a staggering 7.6 mills or $744.80 per $100,000.00 assessment for 2011. An additional 1.67 mills would be needed every year thereafter to make up for the $1.5 million dollar shortfall assuming no inflationary pressures and the same income vs. expense stream.
For 2012 the tax rate would be 9.27, 2013 would be 10.94, and 2014 would be 12.61. For year 2014 Hazleton taxpayers would be paying an unbearable burden of $1236.00 per $100,000.00 per year. For a property owner with a $200,000.00 assessment that tab would be $2,472.00 just for Hazleton property taxes.
None of those figures include any amount for debt service which is represented on the bar to the right of the millage for the corresponding year.
What started out as $233.00 per $100,000.00 of property assessed value will balloon to $1236.00 in just four years. Those who complain about the effect of increased water rates on seniors are not being honest with the real impact those on limited incomes face without the sale of the Water Deparment at this point.
In contrast the average residential water bill according to HCA audit figures is $34.43 per month. If those rates increased by even 30% the bill would only rise to $44.76 per month. The total increase would amount to $124.00 per year and property tax rates would remain stable due to the interest income from the irrevocable trust created with the net proceeds of such a sale funding the unfunded expenses in the budget.
The benefit to those customers not living within the boundaries of Hazleton City would be the increased property tax revenue to their respective municipalities when tax-exempt properties are placed back on the tax books due to ownership by a private entity, not a tax-exempt body.
In the case of providing water service to Pardeesville residents alone the audit for 2009 demonstrates that the loans, not the total cost, borne by the Hazleton City Authority for that project amounted to $7,106.00 per customer for a total of $568,543.00. The project was funded in 2000.
The water revenue bond for that project will mature in 2033. HCA asked for an extension of their life which should have ended in 1988 according to the Municipal Authorities Act to 2043. If their bonds end in 2033 according to their audit the question remains for the necessity to extend life to 2043. Where the Board Members forthright in their request?
If Hazleton taxpayers don't want the sale of the water department another solution must make it to the table. Dr. David Sosar was quoted "There has got to be a better way to do this." In another article by Mia Light of the Standard Speaker she writes Director David Sosar urged any citizen with a viable idea to step up and make their voice heard. Even Dr. Sosar admits he doesn't have the answer. If he does then Dr. Sosar and anyone else should propose it to the Mayor and City Council.
Until those ideas emerge here is a chart of the property tax stability that will occur if the water department is sold and the proceeds are put in an irrevocable trust. Property taxes would remain stable while water ratepayers will only experience a small increase in water rates. Inflationary pressures are devoid of the figures in the chart above but that is the case for the chart below as well.
Obviously a steady rate of 2.38 mills would be the preferable option to 12.61 mills. It would be hard to make the case that the P.U.C. would allow a 30% increase in water rates by 2014 if they are frozen for the next two or three years.
What should not be lost is the emotional toll and the prospect facing HCA Water Department employees in such a transition. Mayor Barletta has been clear about the need to preserve their jobs and preserve the jobs of Hazleton employees. If one entity loses jobs to the other there would be no net gain. Obviously, even to the novice, that wouldn't be acceptable. As far as the rate increase goes this quote says it all. Witness Mayor Barletta's committment.
"We want to make sure there is a rate freeze for a number of years. Second, we want to make sure the employees are retained," Barletta said in an interview on Thursday.
Unlike the Pennsylvania legislature that promised us reduced school property taxes here is a plan that will make property tax reduction happen, reduce the burden on those with fixed income, and preserve jobs.
One must not lose sight of the fact that American Water operated and controlled the operations of the water department of the HCA from 1943 until 2006. When the majority of the board makes comments about keeping safe, clean drinking water they are less than disingenuous. American Water has a history of keeping safe, clean drinking water in this area for approximately 63 years. Aqua American dates back to 1886. The oldest serving Board Member has only been there for 18 years, hardly a track record to hang a hat on. But be mindful 18 years can be too long for anyone who is so entrenched that the public as a consideration is not the real reason.