On Wednesday, Upper Darby Township Council will decide whether to adopt a one percent earned-income tax (EIT) amid the numerous economic challenges the township faces.<\/p>\n
Those include many financially struggling households, sizable debt, and an unrated credit status since S&P Global Ratings resigned its Upper Darby account last year. While S&P\u2019s withdrawal doesn\u2019t impugn the soundness of bonds issued already, it could severely burden the township should its leaders again seek to undertake such debt obligations.\u00a0<\/p>\n
The new income tax would come on top of real-estate taxes (RETs) that are the sixth-highest<\/a> in Delaware County when totalling school, municipal and county property taxes. The proposal does not lower the RET\u2019s cumulative rate of 42.2914 mills (or $42.2914 per $1,000 of assessed property value). So if Upper Darby joins the seventeen other Delaware County communities that impose an EIT, the township\u2019s combined RET and EIT rates will be in the county\u2019s top four highest combined tax burdens.<\/p>\n And while the planned tax burden would reach an uncommon height, Upper Darby incomes typically do not. At $62,200<\/a>, the township\u2019s median household income is more than $20,000 lower than the county median.\u00a0<\/p>\n The EIT vote will come shortly after the Council\u2019s Democratic majority attempts to limit discussion. At its most recent meeting, members passed a resolution<\/a> restricting each councilperson\u2019s remarks on a subject to 10 minutes during public meetings. And before the EIT public hearing and vote take place Wednesday, the Council agenda indicates members will vote on a measure<\/a> to limit any resident\u2019s speech during a hearing\u2019s public-comment period to five minutes.\u00a0<\/p>\n Mayor Ed Brown (D) and most council Democrats favor the EIT, pointing out that, per state law, $6.3 million of the nearly $18 million in projected annual income-tax revenue would come from residents who already pay an income tax to another municipality. Workers living outside Upper Darby but working in it would meanwhile pay $4.2 million yearly in total.\u00a0<\/p>\n EIT backers also note that Upper Darby, the sixth-largest municipality in Pennsylvania, has especially high government costs, including 134 full-time police and a combination (professional\/volunteer) fire department.\u00a0<\/p>\n \u201cThe one thing Upper Darby has that other places don\u2019t is\u2026 just a different government,\u201d Gordon Mann of PFM Advisors, a consultancy advising the township, said at a July town hall meeting<\/a>.\u00a0<\/p>\n But many critics of the current EIT proposal question whether so much new revenue is needed. Council members Matt Silva (D-At-Large), Brian Andruszko (R-3rd District) and Laura Wentz (I-At-Large) made remarks to that effect when the measure was introduced in early August. (The fiscally conservative First District Republican Meaghan Wagner was absent.)\u00a0<\/p>\n Some observers, like Township Treasurer David Haman (D), believe an EIT should come with targeted relief for less affluent RET payers. Still others, including former township finance director Gary Merron, would back an EIT as part of a revenue-neutral tax shift to come before decisions about spending and tax hikes. Merron lamented the suppression of property values wrought by the high RET.<\/p>\n \u201cIf EIT had always been in place\u2026, property taxes never would have grown to this number,\u201d he told Broad + Liberty. \u201cSo by putting EIT in place and turning all of it into property tax relief, that resets the property taxes to what they would have been if there had always been EIT. And what that does immediately is have an upward impact on the value of real estate in the township; I mean it\u2019s a huge win-win-win for everybody as long as we can get a commitment out of the administration that this is not a boondoggle and they haven\u2019t found a bunch of money to go spend.\u201d<\/p>\n While Merron emphasized that revenues must frequently rise to meet township expenses, he took issue with the figures township officials have cited to justify adding an EIT to the current property tax take. When EIT advocates first proposed the tax, the township anticipated an $11-million deficit in Fiscal Year 2025. But more recent budget figures suggest a roughly $2.6-million shortfall next year, something Merron called \u201cnot a big deal at all\u201d when compared with typical year-to-year cost increases.\u00a0\u00a0<\/p>\n Wentz, reaffirming her opposition to EIT\u2019s final passage, opined that Upper Darby should cut spending before hiking levies, let alone introducing an income tax that would raise revenues 33 percent above what the RET generates.\u00a0<\/p>\n \u201cI think that there is a lot of spending that can be cut and I keep finding out more about how I think they\u2019re mishandling our money\u2026,\u201d she said. \u201cI think that this one percent tax on the gross income of our residents will hurt our residents greatly.\u201d\u00a0<\/p>\n She cited top-tier management salaries as exorbitant and cited Chief Administrative Officer Crandall Jones\u2019s $191,000<\/a> yearly pay as an example. She also criticized the amounts spent on outside contractors like engineer Michael Galante. While she observed that the township is working to replace him, she recalled he received over $400,000 in 2023.<\/p>\n Andruszko agreed the township should economize before asking taxpayers to do the same.\u00a0<\/p>\n \u201cI understand that we are in a difficult financial situation, but I do not think enough avenues have been explored before taking this [EIT] step,\u201d he explained via email. \u201cAs a member of the finance committee, for the duration of my term on council, I have tried to present conservative budgets with only increases that were absolutely necessary. Unfortunately, I do not believe many members of the council want our government to operate that way, they would prefer to see us increase expenditures.\u201d<\/p>\n Debt Challenges<\/p>\n Upper Darby\u2019s future financial challenges include debt the township will pay over time, totaling over $308 million<\/a> as of December 31, 2022 (the end date of the most recent audited financial statement). Over two-thirds of that sum are Upper Darby\u2019s other (non-pension) post-employment benefits (OPEB).\u00a0<\/p>\n And the next time Upper Darby hopes to take on new debt to pursue large projects, it must either secure a new credit-rating agency or issue new bonds unrated. Some worry the former course could prove elusive because S&P withdrew its rating in April 2023, complaining<\/a> the township did not provide the company with a 2021 audited financial statement in a timely manner.\u00a0<\/p>\n S&P\u2019s withdrawal came not long after the agency downgraded the township\u2019s credit rating from A+ to A in July 2022. (Neither level is as stellar as it may look to laypersons: The highest investment-grade rating<\/a> is AAA and the lowest is BBB, with anything lower deemed \u201cspeculative,\u201d or unreliable.)<\/p>\n When it issued the downgrade, S&P cited OPEB liabilities as well as \u201cweak financial performance.\u201d Examples of the latter problem included the budget gaps filled by American Rescue Plan Act (ARPA) money in 2021 and 2022 as well as the township\u2019s low general-fund reserves.\u00a0<\/p>\n The agency also bemoaned Upper Darby\u2019s \u201cweak political\/management conditions given instability\u2026.\u201d Numerous municipal officials questioned the performance of then CAO Vince Rongione, who now serves as Delaware County\u2019s Democratic Register of Wills, including his handling of $6 million in allegedly missing ARPA funds. A narrow Council majority voted to fire Rongione, but legal uncertainties kept him in office until he resigned<\/a> in January 2023.\u00a0<\/p>\n Another event S&P mentioned during Rongione\u2019s tenure was the township\u2019s ongoing failure to hire a finance director, outsourcing the work to an outside accountancy. According to the downgrade notice, S&P was informed Upper Darby acquired a full-time finance chief after lacking one since September 2021.\u00a0<\/p>\n But an on-staff finance director wasn\u2019t actually hired.\u00a0<\/p>\n Two days after S&P announced the downgrade, Rongione sent a memorandum to municipal staff stating that Diane Scutti became \u201ccontroller,\u201d a different position from finance director. In September 2022, Haman sent a memo to then Mayor Barbarann Keffer (D) recalling that Keffer told him her administration did not hire a finance director.<\/p>\n \u201cI am concerned that [Rongione] made false statements to S&P and has put our township in grave [legal and financial] danger,\u201d Haman wrote.<\/p>\n In November, Keffer herself wrote to S&P clarifying that Scutti was working as controller and not as finance director.<\/p>\n \u201cWhen you lie to the credit rating agency, you are putting our relationship with them in jeopardy,\u201d Haman said. \u201cThat\u2019s why I reacted so strongly when I read the [Rongione] memo and then I read the S&P report\u2026. My fear was that Rongione was going to do something to get us sued by shareholders\u2026 It didn\u2019t happen, thank goodness\u2026, but Rongione\u2019s behavior put us at risk.\u201d<\/p>\n Haman said Rongione bears much responsibility for S&P dropping Upper Darby over its failure to submit financial statements because the CAO oversees all township administration.<\/p>\n Rongione may no longer be CAO and Keffer may no longer be mayor, but Haman said work remains to be done to put Upper Darby in a position to eventually get bond-rated again. That includes hiring a full-time finance director, a task not yet done.\u00a0<\/p>\n And ultimately, Haman said, the township must establish to a new rating agency that a contract would be a sound decision despite S&P\u2019s resignation. That, he suggested, will entail ending the township\u2019s political dysfunction, particularly regarding its inharmonious Council.\u00a0<\/p>\n The township issued $10 million in bonds for capital projects in 2021. Plans included two other $10-million tranches, but officials did not finally pursue them. The next time Upper Darby undertakes a bond issue, it could go unrated but it would pay higher rates as a result. An unrated status could also compromise the effort to get investors since many investment funds require certain credit ratings.\u00a0<\/p>\n Municipalities often pay<\/a> tens of thousands of dollars to get bond-rated. Yet recent research<\/a> by Matthew D. Peppe and Haluk \u00dcnal of the University of Maryland suggests that unrated localities miss out on \u201csubstantial potential savings\u201d that usually make the expense well worth it.<\/p>\n Wentz said she worries the S&P withdrawal will impact future township endeavors.\u00a0<\/p>\n \u201cI\u2019m greatly concerned we are not going to be in a situation to be able to get a bond anytime soon,\u201d Wentz said, emphasizing she was expressing her opinion. \u201cWe got dropped down to an \u2018A\u2019 \u2014 that\u2019s actually a huge change. And then to get dropped by S&P themselves, why would anyone want to take us on?\u201d<\/p>\n Haman observed there is no problem with debt already issued and he expressed optimism that the Brown administration will make whatever administrative changes are necessary to position Upper Darby to get bond-rated again if the need arises.\u00a0<\/p>\n \u201cI just think we had a very, very bad four years with some bad people [who] put us in a more difficult situation right now,\u201d he said.\u00a0<\/p>\n Neither Keffer nor Rongione returned a request for comment.\u00a0<\/p>\n