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[Posted April 21, 2007] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the past several months, there has been a fair amount of talk about something called the "PEL Study." PEL stands for Pennsylvania Economy League, and the study is one that was commissioned by five Pennsylvania towns that host state universities, including West Chester. The purpose of the study was to determine the economic impact of a state university on its host community, and the results have attracted attention from all across the state. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The story of how the study came about begins back in the 1960s.
Before that, the West Chester State Teachers College served about
2000 students on a campus whose newest building, Anderson Hall,
was built in 1938. In 1960, the College dropped "Teachers" from
its name and began to add both students and buildings. A decade
later, there were 9,000 students and nearly a dozen new
buildings. In the same period, students gained legal rights that
were unthinkable to their parents, and some began to move off-
campus into houses abandoned by residents moving to the
"suburbs." That created several effects including stagnating
property values and a loss of tax revenue to the Borough. Other
factors played a role, but the displacement of long-term
residents by short-term student renters contributed to the
Borough's decline in the 1980s.
Borough government officials complained to anyone who would listen, but unfortunately for them, the people who mattered -- state legislators who determine the size of state university budgets -- were not among them. At best, every so often one or more legislators would make a proposal, but it would die in the legislature, where a majority believed that a state university could only be a benefit to its host community. The State System of Higher Education, which administers the fourteen state universities, contributed to the perception by periodically releasing studies that showed the universities pumped millions of dollars into their respective regional economies. In the political climate of the 1980s and early 1990s, local government officials were portrayed as incompetent complainers who failed to take advantage of the opportunity offered by a state university. |
Table of Contents2. A Statistical Analysis of the Fiscal Impact of Pennsylvania Universities in Host Municipalities 3. Area Wide Comparisons 4. Case Studies
5. Examples of Local Government Fiscal Strain: Edinboro and
West Chester Boroughs
9. Findings and Conclusions
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Officials in towns like West Chester knew better, and when they
realized that the state government was not going to help them
out, they took matters into their own hands. In he late 1990s,
they began to organize under the auspices of the
"University-Community Network" of the Pennsylvania League of
Cities and Municipalities (PLCM). They decided to finance heir
own study and hired the non-partisan Pennsylvania Economy League
to study five university host communities. The study was not
cheap -- the total cost was $130,850 and West Chester's share was
$12,500 -- but with the help of a grant from the state Department
of Community & Economic Development, the PEL Study went forward
in 2005 using data from West Chester, Indiana, Millersville,
Bloomsburg and Edinboro.
The results became available last November in a 302-page study that is available on the Borough's web site. It is divided into ten chapters that define the problem, describe the PEL's methodology, examine each of the five host communities, discuss specific issues like policing, local government cooperation and how other state governments deal with the problem, the study's conclusions and its recommendations. In essence, the study attempts to show what a local government's economic situation would be if it did not have a state university within its borders. The study does this by comparing host communities to other communities within the same county for things like average property value (which relates to local tax revenue), residents per capita income, number of police officers, and the cost of other local government services. The PEL relied on 2003 data from the state Department of Community & Economic Development, since that was the latest that was available. The following table shows how West Chester compares to Chester County as a whole.
Taken together, these figures show that West Chester contains many more people crowded more closely together, earning less money and living in less expensive houses than people in the surrounding communities. Crowding people together reduces the cost of providing services to them (i.e. short sewer lines, less driving to reach them) but increases the potential for conflicts (i.e. more police calls; more traffic problems) and, as everyone in the Borough already knows, makes it harder to provide adequate parking. In terms of the money that the Borough has to address these issues, lower average income means less receipts from earned income tax, while lower median home prices means less property tax. The figures in the table also show that West Chester's population is older, and much less likely to own their own homes than people in the rest of the County. An older population means there is less demand for schools (but they are provided by school districts, not local municipal, government), but there is more demand for space for automobiles. In terms of the demand on Borough services, the age ranges obscures a significant difference between the Borough and the County, an extraordinarily high percentage of people aged 18 to 24. hat's the group that is most likely to generate nuisance calls for police, and least likely to own their own housing or earn salaries that pay significant amounts of earned income tax. As the PEL study notes, "A high percentage of renter-occupied [housing] can be considered a weakness in a community's overall housing market stability" (page 5.2). In other words, West Chester's population is more transient and less able to pay taxes, but at the same time is more likely to require services, than comparable populations elsewhere in the County. One chapter of the PEL study used the data from Edinboro and West Chester to discuss "Local Government Fiscal Stress." Surprisingly, although both towns experience fiscal stress, they do so for different reasons. In Edinboro, a small rural town with a sprawling university campus, the main program is one of tax-exempt land. Edinboro University owns 43.5% of the land in the 2.3 square-mile borough, all of which is tax exempt. On top of that, Edinboro also has a high percentage of rental properties (64.2% in 2000) whose tenants pay no earned income tax. Rental income for landlords is exempt from earned income tax, as are any wages paid to on-campus students. That leaves the regular residents of the town to foot the bill for municipal services including a nine-officer police department that costs nearly $400,000 per year. As a result, wealthier and "middle class" residents tend to move outside of the Borough to neighboring townships with lower tax rates, leading to shrinkage of the Borough's tax base. In West Chester, fiscal stress comes from a different source. The report notes that the Borough appears "dynamic and affluent" because it has "aggressively used the preservation and marketing of its history and period architecture along with a very aggressive downtown revitalization program, and has leveraged and encouraged the role played by the University in the cultural, educational and economic vitality of the region" (page 5.6). But economic growth does not generate a proportional growth in tax revenues. For instance, the assessed value of taxable real estate grew from $596,269,100 to $625,065,900 between 1998 and 2005. That produced only $110,000 in additional property tax revenue in seven years -- an annual growth rate of 0.66% -- which was not enough to pay for increases in Borough salaries during the same period. [Note: See the October 2005 General Borough Financial Conditions Report for more on this problem.] The report used Iron Hill Brewery as an example of economic growth that resulted in a net loss to the Borough. The success of Iron Hill generated $8,452 in additional taxes thanks to reassessment of the property from $646,000 to $1,109,700 and the earned income taxes paid by its 247 mostly part-time employees. That is only about one-tenth of the cost of a police officer, yet Iron Hill "attracts thousands of people into town on a weekly basis" who require parking, safe streets, litter baskets, way- finding signs and other Borough services. The report notes that state law currently limits the ability of local governments to directly tax the fruits of economic development, and suggests that either a 10% tax on alcohol sales or the diversion of a portion of the state sales tax to municipal use (as in Allegheny County) would help. The report contains many other interesting details about West Chester. For instance, an appendix on page 6.9 shows that West Chester has a much higher number of police officers per person than any of the other four towns in the study. The need may be greater, since West Chester is more "urban" than the other four towns, but it also raises the question of whether hiring more police would result in a reduction in crime.
The study notes that a few other states like Wisconsin, Connecticut, Rhode Island and, for a brief time, New Jersey, include money to compensate local communities in their annual budgets for higher education. It also lists a number of communities that have worked out local agreements with their universities, including Penn State University in Centre County, Rowan University in Glassboro, NJ, the University of Massachusetts in Amherst, and the University of California at Berkeley. The study concludes that officials of host communities were not exaggerating when they claimed that local universities are a burden. Specifically, host municipalities collect less tax revenue per capita than comparable non-university communities because students often do not work, work only part time, or pay wage taxes to their home municipality. That problem is aggravated if universities own large amounts of tax-exempt property. As a result, host communities have higher tax rates than neighboring communities, and that drives prosperous tax payers to move out. Although students do spend money in the host community, that does not generate revenue for local government because Pennsylvania law does not allow either a local sales tax or a business gross receipts tax. In addition, the presence of a university stimulates a higher rate of conversion of properties into rentals, which further reduces local government revenue and hurts the community's health. At the same time, host municipalities spend more on police services for off-campus student housing and "partying" issues such as vandalism. Ultimately, even though a university injects millions of dollars into the state and regional economies, its tax-exempt status and the fact that many of its employees live outside the host municipality, coupled with state laws that prohibit taxes on local sales or rental transactions, means that local government cannot offset the cost of services on its own. As you might expect, the PEL study has attracted interest all across the state. To read more about the PEL study, or to view the complete study for yourself, use the following links:
Pennsylvania League of Cities & Municipalities Philadelphia Inquirer Lancaster Online WFMZ-TV Download the complete PEL study in a smaller zipped version or in a larger PDF version from the PEL or West Chester Borough web sites.
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