Weak tax collections crimp public raises

Jill Pistory delivered the grim news on April Fool's Day, and it was no prank.

Save for uniformed personnel, the annual April 1 raises were off indefinitely for all Buckingham Township employees.

The overall economic climate had been unpleasant enough, but in the new year, a slumping real estate market had approached moribundity in the prosperous Bucks County township, threatening to put further stress on the budget. The 2 to 5 percent raises would have to wait.

It is impossible to gauge yet how a weakening market might affect tax revenue over the long haul, but a short-term effect already is showing up in Buckingham and elsewhere.

Taxes collected from property sales are significant sources of revenue for towns and state governments, but they have plummeted all over Pennsylvania.

Pistory, Buckingham's finance director, and other municipal managers say they are looking to squeeze already tightly pinched pennies.

"We had a huge drop in the first two months of the year," said Pistory, one of the 30 or so raise-less township workers.

Last year, Buckingham collected $1.1 million, down about 25 percent from $1.5 million the year before. But in the first two months of 2009, the amount was a frighteningly anemic $66,235 - way below even the modest expectations in a down market.

"We assumed a drop," Pistory said. "We didn't assume quite as dramatic a drop."

Statewide, collections in the first two months of 2009 were less than half of what they were a year earlier.

For the first quarter, transfer-tax collections were about $80 million under projections, Revenue Department spokeswoman Elizabeth Brassell said.

"The first quarter of any calendar year is not the most conducive in the Northeast for real estate," said Aimee Cuthbertson, chief financial officer in wealthy Radnor Township. Even so, she said, "it is worse than we expected."

Pennsylvania imposes a 1 percent tax on all real estate sales prices, with the town, the school district, or both typically collecting an additional 1 percent. The state's $491.9 million total for fiscal 2008 was off 17 percent from 591.4 million a year earlier.

The New Jersey variant, the realty transfer fee, is remitted to the state for a variety of uses, and no additional levy is imposed by the locals. The fees aren't quite as hefty as those on the other side of the river, but they have one thing in common with Pennsylvania's: The numbers are way down, from $184.9 million in the seven months ending Jan. 31, 2008, to $123.8 million through January 2009. In January, New Jersey collected only about one-third of what it had anticipated.

In fiscal 2008, the Pennsylvania slowdown was especially evident in Delaware County, according to Department of Revenue figures, with collections down 47 percent.

"They dropped like a rock last spring," said L. Michael George, chief money counter in Bethel Township, which had been one of the fastest-growing municipalities in the state.

"It's not so much our average sales price that's down," Radnor's Cuthbertson said. "It's just the volume."

So far, Radnor and Bethel have avoided drastic cuts. Radnor has benefited from increases in collections of other levies, such as business-privilege taxes, Cuthbertson said. But the township did freeze all nonunion salaries in the 2009 budget.

Bethel has tapped into some reserves, George said, but it foresaw a drop in transfer taxes. On top of the slowdown, land for construction in Bethel has become scarcer.

Sales prices have held their own in both states. According to the Pennsylvania Revenue Department, average prices nudged up 1.7 percent in fiscal 2008.

However, sales volume of existing homes was off 11.9 percent, and the numbers of new housing units were off 30 percent.

In the first two months of this year in the Philadelphia region, new housing numbers were a third of what they were last year, and overall they dropped nearly 45 percent throughout Pennsylvania and New Jersey.

"Nobody's building right now," George said.

The state treasuries haven't been devastated. The real estate levies constitute only about 1 percent of the revenue in the two states. In Pennsylvania, overall revenue increased slightly in fiscal 2008, due in part to a rise in income-tax collections.

But in Pennsylvania towns, the transfer tax has been more important. In 2005, according to data from the state Department of Community and Economic Development, it constituted at least 25 percent of all taxes collected in 32 towns in the region, including Buckingham.

"This is definitely something we're concerned with," Pistory said.

"We're trying to evaluate all our expenditures, and putting off projects," she added - not to mention those raises.

"I think people understand," she said. "I don't think anybody's happy."