Wednesday, June 19, 2013

Wilkinsburg voting with its wallet

Here is a recent story looking at how Detroit’s property tax is hurting its economic prospects. From The Detroit News: Orr seeks to lower Detroit's property taxes to attract residents

Despite some beliefs to the contrary, the Pittsburgh School District's property tax rate is not high relative to many other districts in Allegheny county.  (13.92 mills) In fact one of the city’s immediate neighbors, the Wilkinsburg SD , has one of the highest property tax rate sin the state (school district:  36.67 mills).  Yes, I know there is a higher income tax rate, but hold that thought for just a minute.  

Now go read a story I meant to get back to is this in PG (May 31) : Ferlo hosts talks on 'unsustainable' Wilkinsburg education. Read the reaction Sen Ferlo got when he merely suggested the possibility that it is worth thinking about the Wilkinsburg school district being merged into the Pittsburgh School District.  This is to a crowd in Wilkinsburg, not the city of Pittsburgh.  They don’t like the idea and it took a bit of political courage to even float the thought. It's a lot more painful than crazy bloggers suggesting such things. I suspect he knew the response he would get. 

What I wonder about is whether anyone has pointed out just how much $$ the residents of Wilkinsburg would save if indeed they merged the municipality with the city of Pittsburgh. You might think that the prospect of lowering property tax rates by over 62% would at the very least not be frowned upon.

How much $$ does this really work out to? So using the market valuation that correlates to those millage rates… Wilkinsburg has approximately   $358 million in taxable property value.  Going from 36.67 to 13.92 mills would save Wilkinsburg residents a fair bit.  Potentially as high as $8 million annually (36.67 - 13.92) mills * $358  million.
To complete the calculation you at least need to add the additional income tax you get hit with as a city of Pittsburgh resident.  Wilkinsburg SD collects a 0.5% earned income tax, while the Pittsburgh SD collects  2%.  If Wilkinsburg collects on the order of 870K in earned income tax now (on par with that the borough of Wilkinsburg gets from its own 0.5% income tax), it would go up by roughly $2.6 million to approx. $3.5 million. Still seems like a good financial deal. The benefits go beyond the first order calculations of course. You just have to believe the high property tax rate is pushing down investment and keeping real estate values low.  Might  real estate values jump quickly if property tax rates dropped so much? Could be quite an equity windfall being passed up as well. 

What it all gets to is just how much people don’t like any hint of school district consolidation. Folks are clearly willing to vote with their pocketbooks and pay the price of staying separate.  Thus whenever you see the argument that regionalism leads to efficiency, it may be true, but equally discounted by many voters out there.  You need to go beyond the financial if you want to make the case for anything like this.

18 Comments:

Anonymous BrianTH said...

So the apparent reaction at that meeting was not necessarily representative of any sort of consensus among Wilkinsburg residents. The Wilkinsburg SD recently conducted a survey (through June 8), which may shed a bit more light on how locals feel about some of these issues. It is also worth noting that in the recent primaries, several new school board directors were nominated, including four endorsed by Neighbors Unite Wilkinsburg, which is a reform-minded group that, among other things, supported the waste and fire deals with Pittsburgh.

None of which is to suggest there are not in fact a substantial number of vocal opponents of any sort of school district merger. But how representative they might be, particularly of the residents and businesses in the community who are paying property taxes, is not obvious at this point, which in turn means there may be a bit less voting with their pocket books actually going on than one might otherwise assume.

Thursday, June 20, 2013 7:27:00 AM  
Anonymous BrianTH said...

By the way, I'm not sure that in a voluntary merger, it would be feasible for Wilkinsburg to immediately adopt Pittsburgh's taxation system. One way to think of the issue is to ask what Pittsburgh's cost per student of adding Wilkinsburg's student population might be (what you might call Pittsburgh's marginal cost).

Pittsburgh's marginal cost is likely considerably lower than its average expenditure per student, and I think it is also a good bet that Pittsburgh's marginal cost is considerably lower than Wilkinsburg's average expenditure per student. If true, that would mean that Wilkinsburg could in fact lower its total school tax revenues and at the same time provide Pittsburgh with a financial incentive to take in Wilkinsburg's students (meaning at a contribution per student higher than Pittsburgh's marginal cost per student). However, I'm not sure that deal would work if Wilkinsburg lowered its total school tax revenues all the way down to the level it would get using Pittsburgh's tax scheme, at least not immediately (eventually, I think the tax base in Wilkinsburg might increase enough, in part because of a merger, to make such a deal work, even if it didn't initially).

Of course maybe it WOULD work immediately--that all depends on exactly what Pittsburgh's marginal cost might be. My point is just that we won't really know what sort of taxation reduction Wilkinsburg could achieve in a voluntary merger until a deal is being seriously considered.

Thursday, June 20, 2013 8:29:00 AM  
Blogger C. Briem said...

If there was actually a merger, it would have to be a uniform tax rate. But for sure there could be all sorts of interim arrangements. If it were to happen, I suspect the effort would be to consummate it all quickly.

For sure the city's marginal cost is well below the average. Also, I suspect the state has a large interest in preventing the future W SD collapse and would be able to cover some of the costs to facilitate it all.

But the real incentive/disincentive/wrench is what about the Promise. Catalyst could be the Promise board saying W kids would be eligible for the promise.

Thursday, June 20, 2013 8:55:00 AM  
Anonymous MH said...

If there is actually a merger, people with houses in Wilkinsburg over by Frick are going to clean up.

Thursday, June 20, 2013 9:00:00 AM  
Anonymous Anonymous said...

I can see what is in this for Wilkinsburg residents, but why would the city and its school district support this?

PPS already has its plate pretty full with budget cuts, test scores, etc. Should it take on Wilkinsburg's problems too?

Thursday, June 20, 2013 9:12:00 AM  
Anonymous Anonymous said...

Anon: I can think of one thing. If a full merger of W and PGH occurred, instant population growth. Ka-Ching! (Most people don't realize it, but most of the growth in places like Phoenix and Denver comes from absorbing suburbs into the center core government.)

Thursday, June 20, 2013 9:22:00 AM  
Anonymous BrianTH said...

I should note that I have no idea of the legalities of school district mergers (and I think there is every possibility of an ad hoc process involving the state if it really got that far). I was just trying to define the parameters of a win-win merger from a financial perspective.

Speaking of which, in response to Anon at 9:12 . . .

As noted, one possible benefit to the Pittsburgh School District would be financial--it is entirely possible that their marginal cost to add Wilkinsburg's students would be considerably lower than the new funding Wilkinsburg could contribute to the District. All this is plausible because on the whole the Pittsburgh School District has high fixed costs and a lot of excess capacity, and in fact pretty much the same setup explains why it was a financial win-win to merge Wilkinsburg into the City's Fire Department.

Thinking more long term, I would suggest this may be an opportunity for the City to "buy low". Wilkinsburg has some serious problems, the relatively high property tax rates being among them. But it also has a lot of potential, including of the sort that is currently being unlocked in East Liberty and elsewhere in the East End. And there have been encouraging developments in recent years, both in terms of investment and governance.

So I think it is at least plausible that the tax base in Wilkinsburg would see unusually robust growth for an extended period following a merger of school districts. Accordingly, to the extent it was a fair deal financially for the Pittsburgh School District at the beginning, it could become a great deal financially in the future.

Thursday, June 20, 2013 11:58:00 AM  
Anonymous BrianTH said...

Oh, on Promise:

That is definitely a strong selling point on the Wilkinsburg side. Wilkinsburg also has established friends among Allegheny County's charitable entities (both for-profits and non-profits), so I wonder if it might work to pass the plate around to top up Promise funding as part of an overall merger deal.

Thursday, June 20, 2013 12:02:00 PM  
Blogger C. Briem said...

The question of what the city gains is actually pretty straightforward. Keeping Pittsburgh's immediate neighbor to the east from going downhill is only a positive for the city.

Thursday, June 20, 2013 1:54:00 PM  
Anonymous BrianTH said...

That too, and I would note there is a more positive corollary: a revitalized Wilkinsburg would likely increase the appeal/value of nearby Pittsburgh neighborhoods as well, particularly a revitalized commercial area around the Wilkinsburg Station on the East Busway.

In general, I would suggest the East Busway serves to partially tie together the fortunes of the communities it serves, both for ill but also increasingly for good.

Thursday, June 20, 2013 3:18:00 PM  
Anonymous Anonymous said...

"The question of what the city gains is actually pretty straightforward. Keeping Pittsburgh's immediate neighbor to the east from going downhill is only a positive for the city."

It can "only" be a positive? Are you trying to tell me there are no tradeoffs and no costs to the City involved. I'm not convinced.

The City already has needy neighborhoods within its limits (and on other parts of its border), why spend city resources on Wilkinsburg?

You also didn't address the school district. What kinds of students to you want to add to PPS's load. Looking at the PA AYP site, it looks like Wilkinsburg SHS is in Corrective Action II for the 5th year, so there are clearly alot of challenges there to face. What's the impact of adding that load to what PPS is already dealing with within the the city now? Is that "only" a positive for PPS?

Friday, June 21, 2013 9:42:00 AM  
Blogger C. Briem said...

Which makes it sound like Pittsburgh and Wilkinsburg are on two different planets that do not impact each other. A big failing school system bordering the city is just about as bad for the city as if the students were part of the school district or not. I'd walk out to East Hills/Regent square and note the gap between where one municipality begins and the other ends. I am told by some folks who live out there that refuse collection on some blocks gets covered by both jurisdictions on occasion.

Not to simplify a complex problem, but you have to believe the death spiral of declining fiscal capacity/tax rates has a lot to do with problems in the W school district. It is not going to get fixed on its own.

Friday, June 21, 2013 9:48:00 AM  
Anonymous BrianTH said...

It is worth noting the Wilkinsburg School District only has about 1200 students left at this point, which I believe is less than 1/22nd of the Pittsburgh School District population. That is a result of a combination of general population/demographic trends in Wilkinsburg and the fact a lot of the remaining parents in Wilkinsburg opt for private or charter schools instead.

Again, I wouldn't suggest Pittsburgh should take in these students without adequate financial compensation for the marginal increase in resources they would require. But it wouldn't exactly be a hugely disruptive change given the relatively small scale of the expansion.

Friday, June 21, 2013 5:21:00 PM  
Blogger Shawn Carter said...

So would you merge the School Districts alone or the municipalities?

A merger would require the affirmative votes of the electorates of BOTH municipalities.

I'm not sure Pittsburgh's voters would vote to do so even if Wilkinsburg's voters could be sold on the benefits.

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