A Deep Dive Into Newtown Township's 2020 Budget

Newtown Township's Board of Supervisors (BOS) is scheduled to vote on the Preliminary 2020 Budget at the December 11, 2019, public meeting. This might be the last chance for Newtown Township residents to have a say in the matter.

[UPDATE: The budget was approved at the December 11, 2019 meeting with the following updated year to date and year end projection figures, according to the Manager's Report: "The result is an estimated total revenue projection of $14,413,898, with projected total expenditures of $13,081,611, and an estimated net fund balance of $1,332,287, which equates to 10.18% of total expenditures.]

In this article, I offer a summary and personal analysis of the budget numbers. You should refer to the official Preliminary Budget on the Township website (here) to see and analyze the data firsthand. Also read “Newtown Township Begins 2020 Budget Review Process” in the October, 2019, issue of Newtown News Update.

Revenue vs. Expenditures

The 2020 budget projects a revenue of $12,031,386 – not including a transfer of $2,372,029 from the reserve in the General Fund – versus $13,081,611 in expenditures (see Tables and Figures below). The result is a deficit of $1,050,225. This continues a "deficit spending trend" that was noted by Jack Brod, member of the Newtown Township Finance Committee, at the November 23, 2019, BOS meeting.

For several years General Fund reserves have been used to cover the deficits when spending exceeds income. The preliminary 2020 budget projects a year end reserve fund balance of $1,342,706, which is about 10% of General Fund expenditures. Although this satisfies the 8-10% requirement that is codified in an ordinance passed by the BOS several years ago, the Government Finance Officers Association (GFOA Definition) Best Practice recommends, at a minimum, that general-purpose governments, regardless of size, maintain unrestricted fund balance in their general fund of no less than two months (16 percent) of regular general fund operating revenues or regular general fund operating expenditures.

Meanwhile, Mr. Brod, in a 2018 report to the BOS, suggested the “safe harbor” for a General Fund balance/reserve should be 30-40% of the operating budget (view video: “Newtown Township Finance Committee Report”).

Table 1: Projected 2020 Revenue According to 2020 Budget. (1) includes state aid for pensions, “foreign fire insurance premiums”, and PennDOT plowing income; (2) includes income from fire prevention inspections, CRSD school resource officer, and building permits; (3) includes land development fees, Zoning Hearing Board fees, and plan review fees. The “deficit” is the TOTAL Revenues from this table minus the Total Expenditures from Table 2. Refer to the Preliminary 2020 Budget for details.

Figure 1: 2020 Budget Revenue Pie Chart. Resident and Non-Resident Earned Income Tax (EIT Definition) and LST (Local Services Tax payable by all individuals who hold a job or profession within Newtown; currently $52 per year) account for nearly two-thirds of the total revenue.

Table 2: 2019 versus 2020 Expenditures. These are numbers from the respective budgets and may not represent the actual expenditures. Note that “Parks & Rec” expenditures include staff salaries and benefits, program costs, and park maintenance. Administration includes Legislative Body (Board of Supervisors) stipends and expenses, executive staff salaries, and building/plant maintenance costs. Employee Benefits include police, firefighters, and non-uniform pension plans. Refer to the Preliminary 2020 Budget for details.

Figure 2: 2020 Budget Expenses Pie Chart. Police andEmergency Services and Administration expenses account for nearly 2/3 of the total expenditures budgeted for 2020. One new police officer was hired in 2019. BOS Chair Phil Calabro suggested that looking to the future "we will have to expand our police force by a few more officers." If given a blank check, Police Chief John Hearn said he would ask for four more officers in 2020. See the video of Mr. Calabro's and Chief Hearn's comments here.

Figure 3: 2020 versus 2019 Budgeted Expenses. This chart shows major increases or decreases in expenses from 2019 to 2020 for several budget categories. Increases in Parks & Recreation expenses are mostly due to increase in support staff salaries and medical insurance. For Police Services, most of the increase is due to an increase in management and support staff salaries. The Employee Benefits decrease is mostly due to reductions in pension plan expenditures. Refer to the Preliminary 2020 Budget for details.

Figure 4: Dwindling Reserve Funds. The budget continues a "multi-year pattern" of deficit spending, said Brod at the November 26, 2019, Board of Supervisors meeting (see video below).

The General Fund account is "essentially a reserve fund that the township has been tapping into to offset the difference between revenue and expenses," said Brod. He quoted the year-end reserves in the General Fund for the years 2016 to 2020 (projected), which are plotted in this chart.

Planning for the Future

“With the progressively diminishing general fund balance,” said Mr. Lewis, “we have significantly cut back expenditures in the proposed 2020 budget to offset projected shortfalls.” It is clear that this practice is not sustainable. Hopefully, the proposed Financial Analysis and 5-year budget plan will offer alternatives (read “Newtown Township To Develop a 5-Year Financial Plan”).

Econsult Solutions, Inc. (ESI), an economic consulting firm, responded to Newtown's Request for Proposal to develop the plan. ESI developed a plan for Pottstown Borough that made recommendations to mitigate the need for future real estate tax increases to remain competitive for new business investment. The report included an in-depth review of the Borough’s economic development efforts and recommended strategies to expand the local tax base.

Representatives from ESI will attend the BOS Work Session on December 16, 2019, to review the proposal for the Newtown Township 5-year financial plan and to answer questions from supervisors and the public.