Letter to the Editor: Neshaminy’s Cloaked Over-$50-Million Tax Increase

Submitted by Charles Alfonso:

Allow me to inform all uninformed Neshaminy Taxpayers: State law prohibits School Boards from increasing taxes beyond the ‘Act 1 Index’ for a District, without forcing a Taxpayer Referendum (public vote). There are two ‘exceptions’ where Tax Increases above the Index would be allowed: 1) PSERS (Retirement Plan) contributions, and 2) pre-existing construction Debt.

However, since the passage of Act 25 of 2011, districts can be granted an ‘exception’ to the requirement for voter approval (Referendum) of TAX Increases greater than their indices if the extra increase is needed to cover, “The local share of EXISTING debt, or a portion of the local share of NEW debt…”

(http://www.psea.org/general.aspx?id=10011&MID=759).

Neshaminy pays its Operational and Capital Improvement expenses by levying Taxes on Taxpayers and taking out LOANS on behalf of the Taxpayers, in the form of Bond issuances. Recently, our School Board has proposed taking out a $50,000,000 loan (Bond) on Neshaminy Taxpayers’ behalf, requiring taxpayers to make annual interest (or principal & interest) payments until the loan is paid off or refinanced and extended.

A Bond is NOT a Grant. A Bond is NOT a free Gift. A Bond is a LOAN made to the District by investors and it must be repaid, with interest. Upon the Bond’s maturity, the issuer must have REPAID the principal (original amount of the loan) and interest, or the principal is paid annually with the interest, depending on the Bond’s repayment structure for the length of the loan (10 years). Like mortgages, the interest payments are concentrated up front and the principal payments are at the end of the Loan.

The above being explained, now follow this hypothetical example:

• Suppose that 3 years ago, Neshaminy issued a 5-yr $10-million Bond at a 6% interest rate with a maturity date of 2015. The 6% annual interest is paid out of TAX revenues, and the full $10-million principal is due to be paid back by 2015.
• In 2013, Neshaminy refinances the existing $10-million bond into a $50-million bond at 3% annual interest, but for 10 years. The 3% interest payments and the $50-million principal will continue to be paid out of TAX revenues from Taxpayers.
• If the original $10-million Bond had expired in 2015, Neshaminy Taxpayers would see a resulting DROP in school TAXES for the remaining years until a new Bond was required to pay bills. Hence, Neshaminy Taxpayers would see a substantial DECREASE in expense liability, which would enable the Board to REDUCE our TAX bills.
• Now, with the additional years of interest payments and a $50-million lump sum to be paid from School TAX funds by 2023, Neshaminy Taxpayers end up paying with their TAX money a $50-million Loan taken out in 2013 for the following 10 years.
• “But,” say the Board’s proponents, “what if we tell Taxpayers that this $50-million project is NOT an additional Liability (Tax Increase) and, instead, we cloak it as ‘issuing a no-tax-increase Bond’? This is intentionally squirming around Act 1’s Limits.
• THAT is a long-term TAX INCREASE and the Board can paint it any color they want. It is still a 10-yr $50-million+ TAX INCREASE on unsuspecting Neshaminy Taxpayers.
• So, what if we can’t repay the $50-million LOAN at maturity? The District will 1) keep refinancing the Bond over and over, maintaining this “TAX INCREASE” in perpetuity, to become our grandchildren’s grandchildren’s bill, or 2) apply for an Exception to Act 1 Limits to cover, as above, “The local share of existing debt… This is a cleverly-cloaked TAX INCREASE.

Remember I said “SOME” Board Directors. Not all support this “TAX INCREASE Deception Through Words.”

Why didn’t these Board Directors say “Hey, folks, we need to borrow $50-million to bring our schools up to standard and, instead of a direct TAX hit, the least-painful way to INCREASE our TAXES now is through refinancing our current debt at a lower interest rate and extend the TAX Debt over the next 10 years by issuing a Bond?” I object to the Deception, NOT the reasons for borrowing. There is no virtue in being Deceitful to Taxpayers.

This MUST go to a Taxpayer Referendum. The Board may have the LEGAL authority to approve this behind taxpayers’ backs, but the Board lacks the MORAL authority without Taxpayers’ full understanding, scrutiny, and approval. REFERENDUM NOW!