Wheatland Borough. Early Intervention Program Report. Prepared By:

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1 Wheatland Borough Early Intervention Program Report Prepared By: Pennsylvania Economy League, Central PA Division, LLC 88 North Franklin Street, Suite 200 Wilkes-Barre, PA March 2018

2 Table of Contents Page CHAPTER 1 GOV T STRUCTURE, OPERATIONS & DEMOGRAPHICS CHAPTER 2 HISTORICAL FINANCIAL REVIEW CHAPTER 3 FINANCIAL PROJECTIONS CHAPTER 4 OBERVATIONS AND RECOMMENDATIONS APPENDIX WHEATLAND/HERMITAGE JOINT MUNICIPAL AGREEMENT FOR PUBLIC WORKS ii

3 CHAPTER 1 GOVERNMENT STRUCTURE, OPERATIONS AND DEMOGRAPHICS In 2017, the Pennsylvania Economy League, Central PA Division (PEL), undertook an analysis of the financial condition of Wheatland Borough under the Commonwealth s Early Intervention Program. The goals of the analysis were to determine the Borough s current and future overall financial condition and to provide a guide for fiscal planning. The current analysis involved a review of the Borough s financial reports; independent audits; debt payment schedules; pension obligations; the 2018 budget; other fiscal data; and other relevant information and factors that may affect the current and future financial condition of the Borough, including socio-demographic data. In addition, PEL staff participated in discussions with Borough officials. PEL acknowledges and appreciates the full cooperation of all who contributed in the preparation of this study, particularly Mayor David Jones, Council President Dan Morsillo, Council Vice President Patricia Lewis, and Council members George Ashby, Samantha Gutshall, Darla Marchant, Mike Niddel, and Terry Thompson, as well as Secretary/Treasurer Sharon Stinedurf. The analysis could not have been successfully completed without this assistance. In the course of this project PEL: Analyzed the Borough s financial history from 2012 through 2016 focusing on such factors as revenues, expenditures, tax base, operating positions, and debt structure. Examined the historical data and the 2018 budget in relation to ongoing operations, other salary and benefit requirements, and other obligations of the Borough. Reviewed all tax bases and revenues, major user fees, and other revenue sources. Projected, to the extent possible based on known factors and available data, revenues and expenditures for 2018 through 2022 assuming continuation of obligated levels of wages and operations, existing revenue patterns, and other operating trends. Made recommendations to assist the Borough in developing and improving its financial management policies and processes.

4 Pennsylvania Economy League, Central PA Division 1-2 Government Overview Introduction The existence of municipal governments in Pennsylvania is authorized by the Pennsylvania Constitution and state law. All land within the Commonwealth is incorporated by law as a municipality with its own government. There are three primary types or classifications of municipal governments: cities (of the first, second, or third class), boroughs and townships (of the first or second class). Municipal governments in Pennsylvania are the principal providers of direct public services to citizens. Services often include, among others, police and fire protection; construction and maintenance of roadways and bridges; street lighting; parks and recreation facilities and programs; planning and zoning activities; enforcement of building and related codes; water treatment and distribution; sewage collection and treatment; storm water management; solid waste collection and disposal; recycling; etc. Location and Government Structure Incorporated in 1872, Wheatland Borough is located in Mercer County near the Ohio border, approximately 70 miles northwest of Pittsburgh. The Borough is approximately 0.9 square miles. Adjacent communities include the cities of Farrell and Hermitage and Shenango Township. In 1985, the Borough was devastated by tornadoes that destroyed and/or damaged many Borough homes and business. Wheatland operates under Pennsylvania s Borough Code. The form of government established by the Code is characterized by a strong and dominant council and a weak executive (in terms of duties, responsibilities, and powers). The Wheatland Borough Council is comprised of seven members. The powers of Council set forth in the Borough Code are broad and extensive covering virtually the whole range of municipal functions. The general supervision of borough affairs is in the hands of council, and many of the roles found in separate branches or levels of the state and federal governments are combined in the council members. Council serves as the legislative body by setting policy, enacting ordinances and resolutions, adopting budgets, and levying taxes. Council may also perform executive functions, such as: developing the budget, enforcing ordinances, approving expenditures, and hiring employees. While council may also play a large role in administrative activities by overseeing the day-to-day operation of a borough government, that function is handled by an appointed secretary/treasurer.

5 Pennsylvania Economy League, Central PA Division 1-3 The position of mayor is granted few statutory powers by the Borough Code. The mayor has no vote on council except to break ties; however, the mayor does have some veto power. Borough mayors retain very limited administrative powers, chiefly centered on supervising the daily operations of the police department. The Borough also has an elected tax collector. Overview of Government Services, Staffing, Taxes, and Fees In addition to daily administration by the secretary/treasurer, the Borough provides direct police protection to its residents through a contract with the city of Hermitage. Fire protection is provided by the Wheatland Volunteer Fire Department. Solid waste disposal is provided through a contract with Tri-County Industries. Most public works functions are now handled through a contract with Hermitage, although the Borough has one part-time employee for tasks such as grass cutting. Richardson Inspection Services provides code enforcement services. In 2018, Wheatland Borough real estate taxes were mill including mills for general purpose, 0.5 mills for pensions and retirement, and 1.33 mills for streetlights. The resident earned income tax is 1.0 percent, which is split with the Farrell Area School District. Other taxes include local services tax, $52 ($5 goes to the School District); realty transfer tax, 1 percent; occupation tax, $5; per capita tax, $5; and mechanical devices tax, $50. Operations Review Borough Secretary/Treasurer The primary duties of the full-time Borough secretary/treasurer involve handling the Borough s finances. The secretary/treasurer processes and pays all bills through the Borough s online banking account and performs bank reconciliations. Bookkeeping is done first in a paper ledger and then transcribed into Quickbooks. The secretary/treasurer submits monthly financial reports to Borough Council and handles state reporting requirements. Other duties include answering phones, opening mail and dealing with the public in general, as well as acting as Borough Council secretary. The secretary/treasurer also assists the Borough Council with budget preparation. The current system appears contrary to best practices concerning municipal financial accounting in that it lacks certain internal controls, particularly concerning segregation of duties. Adequate accounting systems ensure that there is a system of checks and balances in terms of authorizing, performing, recording and reporting all financial transactions. It is important that the governing body establish and follow sound policies and procedures regarding financial

6 Pennsylvania Economy League, Central PA Division 1-4 management for many reasons including the fact that the governing body can be held responsible for the lack of adequate financial processes. Segregation of duties, in which separate individuals perform separate functions including initiating, authorizing, preparing, signing and mailing payments and reconciling bank statements, is key to best practices of municipal financial accounting. Segregation of duties and other internal controls minimize errors, limit potential liability, protect financial employees, and allow for greater public transparency. In the case of Wheatland, such separation of duties is difficult given that there is only one administrative employee. However, there are options available to perform the various necessary tasks such as retaining a bank, hiring an outside accounting firm and/or forming a committee of the governing body to handle one or more financial functions especially for a detailed review of financial transactions and analysis of monthly financial statements. The Borough is considering hiring an outside accounting firm to assist with these issues. Other Operations As noted previously, most other major public services are provided to Borough residents through contracts with other municipalities or third-parties (such as garbage collection and code enforcement), although the Borough has one part-time employee for tasks such as summer grass cutting. The Borough has a five-year contract with the city of Hermitage for police services. The flat-fee agreement expires in In November 2017, Wheatland entered into a joint agreement with Hermitage for street services including cleaning open ditches, cleaning and repairing catch basins, street sweeping, pothole patching, street and regulatory sign replacement, tree branch trimming, winter street maintenance, installation of holiday decorations and preparing streets for seal coating. Hermitage will also check on the Wheatland sanitary sewer pump station as necessary and report any issues. The public works agreement runs through December 31, 2020.

7 Pennsylvania Economy League, Central PA Division 1-5 Introduction Demographic Patterns Since 1970, Wheatland has become poorer, more diverse and less populated. The population has decreased by over 50 percent. Vacant housing units have been growing. Although housing values and incomes have increased since 1990, both are below the values for Mercer County and the Commonwealth. In terms of other wealth measures, approximately one-quarter of Borough residents live below the poverty line, higher than the rate in the County and the state. Population Wheatland s population steadily declined from 1970 to 2010, according to U.S. Census data, dropping by 789 residents or 55.5 percent from 1,421 to 632. The largest decrease was from 1980 to 1990 when the Borough s population fell by 372 residents. This was the same time period when the Borough was hit with tornadoes that caused extensive damage to the municipality and surrounding area. Mercer County also lost population during that time period, falling by 8.3 percent. In contrast, Pennsylvania s population grew by 7.6 percent during that time period. (See Table 1-1 and Graph 1-1.) Table 1-1 Population Trend 1970 to Change 1970 to 2010 # % Wheatland Borough 1,421 1, Mercer County 127, , , , ,638-10, Pennsylvania 11,800,766 11,863,895 11,881,643 12,281,054 12,702, , Source: U.S. Census Data

8 Pennsylvania Economy League, Central PA Division 1-6 Graph 1-1 Population Trend 1970 to ,600 1,400 1,200 1, Wheatland Borough Population by Race Wheatland s population has become much more racially diverse since 1990, even as its overall population declined. In 1990, the residential breakdown was white, 88.2 percent; black, 11.6 percent; and Hispanic, 0.7 percent. By 2010, the percentage of white residents had fallen to 76.9 percent, while the Hispanic population rose to 2.5 percent and the black population increased to 17.7 percent. The number of white residents fell from 665 in 1990 to 486 in (See Table 1-2.) Table 1-2 Population by Race 1990 to # % # % # % White Black Hispanic Other Total Source: U.S. Census Data

9 Pennsylvania Economy League, Central PA Division 1-7 Population by Age Group The Borough s population in the under 18 age group decreased by 10 or 16.8 percent between 1990 and 2010; the number of residents age 18 to 64 decreased by 75 or 17.5 percent; and those 65 or over fell by 43 or 20.8 percent. In 2010, 18.0 percent of the population in the Borough was under 18 years of age; 56.0 percent was between the ages of 18 and 64; and 25.9 percent was age 65 or over. (See Table 1-3.) Table 1-3 Population by Age 1990 to Change # % # % # % # % Under & over Total Population Source: U.S. Census Data Housing Units The total number of housing units in the Borough has remained relatively stable since The number of owner-occupied housing units compared to the total number of housing units has declined by 22.6 percent since In 1990, 72.4 percent or 270 of total housing units were owner-occupied, while rental units were at 24.4 percent. Owner-occupied units declined to 57.3 percent of total units by 2010, while rental units rose to 28.8 percent of total units. The change in vacant units between 1990 and 2010 was an increase of 325 percent, from 12 or 3.2 percent to 51 or 14 percent. (See Table 1-4) Table 1-4 Total Housing Units Owner, Renter and Vacant Housing 1990 to Change # % # % # % # % Owner Occupied Renter Occupied Total Occupied Vacant Total Units Source: U.S. Census Data

10 Pennsylvania Economy League, Central PA Division 1-8 The Borough s median value of owner-occupied homes is significantly less than both Mercer County and the state. From 1990 to 2010, the median value of owner-occupied homes in Wheatland increased by only $20,000 or 77.5 percent, from $25,800 to $45,800. Median value in the County rose by $59,800 or percent and in the state increased by $89,600 or percent. (See Table 1-5.) Table 1-5 Median Value of Owner Occupied House 1990 to Change $ % Wheatland Borough $25,800 $41,500 $45,800 20, Mercer County $41,900 $76,000 $101,700 59, Pennsylvania $69,700 $97,000 $159,300 89, Source: U.S. Census Data Graph 1-2 Median Value of Owner Occupied House Compared to County and State 1990 to % % % % % % % % % Over/Under County Over/Under State Median Per Capita Income For the most part, Wheatland s median per capita income remained under that of the County and the state from 1990 to The Borough s growth in median per capita income was also well below that of the County and the state. Median per capita income in Wheatland

11 Pennsylvania Economy League, Central PA Division 1-9 increased by $4,595 or 39.3 percent, from $11,702 in 1990 to $16,297 in Meanwhile, Mercer County s median per capita income grew to $21,765 an increase of $10,429 or 92 percent, and the state s grew to $27,049, an increase of $12,981 or 92.3 percent. (See Table 1-6 and Graph 1-3.) Table 1-6 Median per Capita Income 1990 to Change $ % Wheatland Borough $11,702 $15,365 $16,297 4, Mercer County $11,336 $17,636 $21,765 10, Pennsylvania $14,068 $20,880 $27,049 12, Source: U.S. Census Data Graph 1-3 Median per Capita Income Compared to County and State 1990 to % 5.00% 0.00% -5.00% % % % % % % % % Over/Under County Over/Under State Median Household Income Median household income in Wheatland Borough increased from $19,444 in 1990 to $33,365 in 2010 a growth of $13,921 or 71.6 percent. During the same period, median household income in Mercer County rose from $24,599 to $42,573, a 73.1 percent increase. For Pennsylvania, median household income grew from $29,069 to $50,398 in 2010 or by 73.4 percent. (See Table 1-7 and Graph 1-4.)

12 Pennsylvania Economy League, Central PA Division 1-10 Table 1-7 Median Household Income 1990 to Change $ % Wheatland Borough $19,444 $27,596 $33,365 13, Mercer County $24,599 $34,666 $42,573 17, Pennsylvania $29,069 $40,106 $50,398 21, Source: U.S. Census Data Graph 1-4 Median Household Income 1990 to % % % % % % % % % Over/Under County Over/Under State Poverty Line Almost one-quarter of Wheatland s residents live below the poverty line, compared with approximately 14 percent in the County and 13.3 percent in the Commonwealth. Table 1-8 Percentage Below the Poverty Line 2000 and Wheatland Mercer County Pennsylvania Source: U.S. Census Data

13 CHAPTER 2 HISTORICAL REVIEW OF FINANCES 2012 to 2016 The Borough experienced deficits throughout most of the historical review period as earned income tax revenue declined significantly after 2012, most likely the result of the new consolidated collection procedure. The Borough raised property taxes by 1 mill in 2015 but the increase did not generate significant revenue. Public safety services and Borough payroll costs were the largest historical expenditures. In 2017, both of the Borough s public works employees left the Borough, resulting in a joint agreement with the City of Hermitage to provide public works services to Wheatland. In addition, the regional police department to which the Borough belonged disbanded, and Wheatland began to receive its police services through a contract with Hermitage. Methodology PEL compiled this historical review of the Borough s General Fund through analysis of year-end financial reports, independent audits, annual budgets, salary and benefit data, pension obligations and other financial obligations, as well as interviews with Borough officials General Fund Revenues and Expenditures Revenues during the historical review period varied from a high of $611,969 in 2012 to a low of $459,374 in The revenue change between 2012 and 2016 was a decrease of $152,596 or 24.9 percent. Expenditures steadily rose from $523,612 in 2012 to $598,986 in 2015, and then fell to $509,642 in The change from 2012 to 2016 was a decline of $13,970 or 2.7 percent. In 2012, the Borough ended with an $88,357 surplus. The Borough experienced deficits from 2013 to 2016 ranging from a low of $49,170 in 2013 to a high of $94,286 in The deficit was $50,268 in (Table 2-1 and Graph 2-1.)

14 Pennsylvania Economy League, Central PA Division 2-2 Table 2-1 General Fund Revenues, Expenditures and Surplus/(Deficit) 2012 to Change Actual Actual Actual Actual Actual $ % Revenues $611,969 $493,985 $470,170 $538,077 $459, , Expenditures 523, , , , ,642-13, Surplus/(Deficit) $88,357 -$49,170 -$94,286 -$60,910 -$50, , , , , , , , ,000 Graph 2-1 General Fund Revenues, Expenditures and Surplus/(Deficit) 2012 to , Revenues Expenditures Surplus/(Deficit) Revenue Components The Borough receives the bulk of its General Fund revenue from taxes, ranging from 77.8 percent to 87.2 percent of total revenues from 2012 to Tax revenue declined from $497,452 in 2012 to $400,488 in 2016, a decrease of $96,964 or 19.5 percent. Non-tax revenue varied from 10.5 percent to 19.7 percent of total revenues, peaking at a high of $99,356 in The change from 2012 to 2016 was an increase of $2,042 or 3.2 percent, from $64,517 in 2012 to $66,559 in Transfers were made to the General Fund from the Capital Improvement Fund in 2012 and (See Table 2-2.)

15 Pennsylvania Economy League, Central PA Division 2-3 Table 2-2 General Fund Total Revenues 2012 to Change Actual Actual Actual Actual Actual $ % Tax Revenue $497,452 $396,777 $393,162 $418,721 $400,488-96, Non-Tax Revenue 64,517 97,208 77,009 99,356 66,559 2, Transfers 50, ,000-7,673-57, Total Revenue $611,969 $493,985 $470,170 $538,077 $459, , Percent of Total Revenue Tax Revenue Non-Tax Revenue Transfers Total Revenue Real Estate Market Value and Assessed Value Both market value as calculated by the State Tax Equalization Board (STEB) and assessed value as determined by Mercer County declined from 2002 to 2016, which is indicative of the Borough s declining tax base. The Borough s STEB market value dropped by 13.2 percent from 2002 to 2016 and by 7.6 percent from 2010 to 2016, while the assessed value declined by 10.8 percent from 2002 to Assessed value was relatively flat from 2010 to 2016, growing by 0.9 percent. Declines in tax base value make it more difficult for the Borough to gain needed revenue through property taxes. The value of 1 mill in 2016 at a 100 percent collection rate was $10,705. Mercer County s last reassessment was in (See Table 2-3.)

16 Pennsylvania Economy League, Central PA Division 2-4 Table 2-3 Market Value and Assessed Value 2002 to 2016 Assessed Market Value Change % Change Value 2002 $26,621,300 $11,996,750 Change % Change ,165, , ,230, , ,353,300 1,188, ,070, , ,302,300-51, ,044,350-26, ,044,900-2,257, ,621,600-1,422, ,034,900-10, ,616,800-4, ,090,253 55, ,644,900 28, ,001,754-88, ,613,500-31, ,004, , ,613, ,874, , ,559,100-54, ,454,934-1,419, ,523,100-36, ,428,709-26, ,508,600-14, ,997,352-2,431, ,611, , ,014,385 17, ,618,700 6, $23,094,299 2,079, $10,704,650 85, Change ,527, ,292, Change ,909, ,

17 Pennsylvania Economy League, Central PA Division 2-5 Real Estate Taxes Real estate taxes are the Borough s largest source of revenue at approximately 60 percent of total tax revenue from 2013 through The Borough levies real property millages for general purpose, pension and street lights. General purpose millage was increased from mills in 2014 to mills in Pension and street light millage remained at 0.5 mills and 1.33 mills, respectively, throughout the historical review period. The current total property tax is mills. Property tax revenue increased from $237,756 in 2012 to $252,155 in 2016, an increase of $14,400 or 6.1 percent. (See Table 2-4.) Table 2-4 Total Tax Revenue by Source 2012 to Change Actual Actual Actual Actual Actual $ % Real Estate Taxes $237,756 $240,643 $238,025 $260,095 $252,155 14, EIT 208, , , ,950 94, , LST 43,314 46,599 43,771 45,215 39,566-3, Real Estate Transfer 6,203 2,115 5,987 3,816 10,511 4, Per Capita ,651 1, Other Taxes ,312 1, Total Taxes $497,452 $396,777 $393,162 $418,721 $400,488-96, Percent of Total Taxes Real Estate Taxes EIT LST Real Estate Transfer Per Capita Other Taxes Total Taxes Act 511 Taxes The Borough levies a 1.0 percent Earned Income Tax (EIT), which is evenly split with the Farrell Area School District, leaving the Borough with an actual collection of 0.5 percent of EIT. The Borough levies a $52 Local Services Tax (LST), of which the school district receives $5. The Borough also charges: realty transfer tax, 1.0 percent; occupation tax, $5; per capita tax, $5; and mechanical devices tax, $50.

18 Pennsylvania Economy League, Central PA Division 2-6 EIT is the Borough s second most productive tax, averaging approximately 25 percent of General Fund total taxes throughout most of the historical review period. EIT fluctuated from a high of $208,394 in 2012 to a low of $94,595 in The fluctuation is most likely due to changes in the EIT collection process during that time period. The EIT change from 2012 to 2016 was a decrease of $113,799 or 54.6 percent. More than half of the Borough s EIT is collected from non-residents, mostly from residents of Ohio. Collections from EIT fell in 2016 due to the layoff at Wheatland Tube and increased in 2017 when new employer CT Hydraulics moved into the Borough, as reported by Berkheimer, which collects and distributes EIT for Mercer County. (See Table 2-5.) Table 2-5 Resident and Non-Resident EIT 2013 to 2017 Resident EIT Non-Resident EIT Total , , , , , , , , , , , , , , , Source: Berkheimer The LST accounts for approximately 10 percent of General Fund total taxes. LST ranged from a high of $46,599 in 2013 to a low of $39,566 in The change from 2012 to 2016 was a decrease of $3,748 or 8.7 percent. All other tax sources are less than one percent of total taxes. Non-Tax Revenue The Borough s main sources of non-tax revenue are license and permits and state aid. The majority of license and permit revenue is from cable television franchise fees, which began in Cable fees were $9,532 in 2012 and then steadily declined to $8,065 in State aid is money that the Borough receives from the state to defray annual pension costs. This category fluctuated from a low of $17,223 in 2012 to a high of $25,496 in The change from 2012 to 2016 was an increase of $8,273 or 48.0 percent. Miscellaneous includes various costs that varied depending on the year. (See Table 2-6.)

19 Pennsylvania Economy League, Central PA Division 2-7 Table 2-6 Total Non-Tax Revenues 2012 to Change Actual Actual Actual Actual Actual $ % Interest $21 $19 $7 $11 $ Rental 6,241 6,196 5,806 6,801 6, License & Permits 11,597 11,084 9,364 9,647 10,030-1, Charges for Services 4,298 33,597 1,900 6,218 1,733-2, State Aid 17,223 21,676 17,659 21,800 25,496 8, Volunteer Fire Relief 3,243 3,545 3,356 3,084 3, Miscellaneous 21,460 20,653 38,414 50,433 19,474-1, PURTA , Total Revenue $64,517 $97,208 $77,009 $99,356 $66,559 2, Percent of Non-Tax Revenue Interest Rental License & Permits Charges for Services State Aid Volunteer Fire Relief Miscellaneous PURTA Total Revenue

20 Pennsylvania Economy League, Central PA Division 2-8 Expenditures Personnel versus Non-Personnel Personnel expenditures make up approximately one-third of the Borough s total expenditures. Personnel costs rose from $188,327 in 2012 to $208,542 in The change from 2012 to 2016 was an increase of $20,215 or 10.7 percent. Non-personnel costs accounted for over 60 percent of expenses, ranging from $390,017 in 2015 to $301,100 in The change from 2012 to 2016 was a decrease of $34,185 or 10.2 percent. The following personnel and nonpersonnel tables include historic spending for public works. (See Table 2-7.) Table 2-7 Personnel versus Non-Personnel Expenditures 2012 to Change Actual Actual Actual Actual Actual $ % Personnel $188,327 $190,489 $206,156 $208,969 $208,542 20, Non-Personnel 335, , , , ,100-34, Total $523,612 $543,155 $564,457 $598,986 $509,642 Percent of Total Personnel Non-Personnel Total Personnel The largest personnel expenditure is Borough payroll expenses, which remained relatively flat throughout the historical review period at approximately $140,000. Borough payroll costs during the historical period included wages and various related taxes for the secretary/treasurer and two public works employees; pay for Borough council and the mayor; and commission for the tax collector. Salary and wages represents the $9,000 paid annually to the Borough solicitor and to a third party for zoning officer fees. Medical costs grew from $26,515 in 2012 to $40,259 in 2016, an increase of $13,743 or 51.8 percent. Workers compensation varied considerable, ranging from a low of $8,393 in 2012 to a high of $22,586 in (See Table 2-8.)

21 Pennsylvania Economy League, Central PA Division 2-9 Table 2-8 Personnel Expenditures 2012 to Change Actual Actual Actual Actual Actual $ % Payroll Expense $141,519 $123,707 $139,139 $144,396 $141, Salary & Wages 9,000 9,000 9,000 9,000 9, Medical 26,515 30,851 38,841 41,742 40,259 13, Life Insurance 1,742 1,742 1,849 1,769 1, Unemployment Comp 1,158 2,603 2,904 2,471 1, Workers Comp 8,393 22,586 14,422 9,592 14,189 5, Total Employee Expense $188,327 $190,489 $206,156 $208,969 $208,542 20, Percent of Total Payroll Expense Salary & Wages Medical Life Insurance Unemployment Comp Workers Comp Total Employee Expenditures Non-Personnel Forty to 50 percent of the Borough s non-personnel expenditures are for contracted services. The majority of contracted services costs were for participation in the now disbanded South West Mercer County Police Department averaging $133,000 annually. This category also includes smaller amounts for snow and ice removal. The pension and bonds category, the other major non-personnel expenditure, includes the Borough s pension payment of approximately $20,000 annually plus costs for public officials liability insurance and bonding for the tax collector and secretary/treasurer. (See Table 2-9.)

22 Pennsylvania Economy League, Central PA Division 2-10 Table 2-9 Non-Personnel Expenditures 2012 to Change Actual Actual Actual Actual Actual $ % Tax Collection $746 $840 $644 $805 $ Contracted Services 135, , , , ,466 13, Maintenance 53,564 28,528 6,683 33,797 3,854-49, Pension/Bonds 35,845 39,621 19,258 45,058 39,695 3, Street Light & I80 18,792 20,836 19,498 23,358 25,864 7, Vehicle Expense 18,747 16,872 19,721 15,723 8,561-10, Miscellaneous 11,591 25,950 25,627 16,062 14,104 2, Transfers 15,387 25,898 48,877 58,550 10,605-4, Utilities 10,167 13,220 14,902 12,803 11,825 1, Hydrant 11,996 12,874 12,936 12,948 12, Professional Services 5,829 6,200 5,400 5,500 5, Telephone/Internet 4,412 4,382 4,597 5,095 5, Supplies 3,456 4,111 2, , Volunteer Fire Relief 3,243 3,545 3,356 3,084 3, Office Supplies 2,128 1,417 1,420 1,345 3,899 1, Meetings/Seminars 1,245 1,275 3, , Travel , Dues , Postage/Printing Advertising 273 1,576 1, ,452 2, Street Signs ,400 1, Bank Fees Equipment Rent , Maintenance Contracts Minor Equipment Total $335,285 $352,666 $358,300 $390,017 $301,100-34, Percent of Total Tax Collection Contracted Services Maintenance Insurance/Bonds Street Light & I Vehicle Expense Miscellaneous Transfers Utilities Hydrant Professional Services Telephone/Internet Supplies

23 Pennsylvania Economy League, Central PA Division Change Volunteer Fire Relief Office Supplies Meetings/Seminars Travel Dues Postage/Printing Advertising Street Signs Bank Fees Equipment Rent Maintenance Contracts Minor Equipment Total Public Works Public works personnel and non-personnel spending averaged approximately $210,000 annually during the historical review period. In 2017, the Borough s two public works employees left, leaving no one to perform public works services. The Borough consulted with the Pennsylvania Economy League (PEL) about options for public works services as part of the Early Intervention Program review, specifically the option of entering into a joint municipal agreement with the City of Hermitage. PEL reviewed the historical public works cost information, the Borough s financial projections (See Chapter 3), the level of public works services that the Borough provides to residents, and the terms of the proposed joint agreement with Hermitage. In addition, PEL considered the legislative guidelines for the EIP, which includes promoting multi-municipal and regional planning, cooperation strategies and cost sharing opportunities between two or more municipalities. PEL concluded that the joint agreement with Hermitage was consistent with EIP goals concerning seeking multi-municipal and regional solutions. In addition, PEL believes that the agreement strengthens the Borough s ability to provide necessary and vital services while supporting the Borough s long-term fiscal stability. As a result, the Borough entered into the joint municipal agreement with Hermitage with the understanding that PEL would recommend in the final EIP report that the Borough apply for Phase II EIP funding to assist in implement the joint agreement. PEL makes the recommendation that the state Department of Community and Economic Development provide EIP Phase II matching funds to the Borough for the total annual cost of the agreement as follows:

24 Pennsylvania Economy League, Central PA Division percent, November 1, 2017 through December 31, 2018; 50 percent, January 1, 2019 through December 31, 2019; and 25 percent, January 1, 2020 through December 31, See Appendix A for the full test of the City of Hermitage-Borough of Wheatland Joint Municipal Agreement for Public Works Services. (See Table 2-10.) Table 2-10 Public Works Expenditures 2012 to Personnel $87, $80, $101, $110, $108, Utilities 3, , , , , Equipment Maintenance 18, , , , , Signs/Light 20, , , , , Capital Equipment 50, , , , , Road Work 33, , , , , Total $215, $176, $218, $219, $217,380 90

25 CHAPTER 3 FINANCIAL PROJECTIONS FOR PEL s financial projections for 2018 through 2022 indicate that the Borough s flat General Fund revenues will not be able to keep pace with growing General Fund expenditures. As a result, the Borough will most likely need to consider appropriate expenditure reductions or revenue increases in order to avoid future operating deficits in the General Fund. In terms of General Fund expenditures, the largest increases are projected for police and public works services provided by the City of Hermitage. PEL prepared its General Fund operating projections using the 2018 budget, the historical revenue and expenditure patterns outlined in Chapter 3, the current Hermitage agreements for police and public works services, actuarial pension data, amortization tables and similar information. Revenue Projection Assumptions No increase in tax rates or fees for baseline projections The 2018 budget serves as the baseline 0.6 percent annual growth in Real Estate Tax revenue 1.0 percent annual growth in Earned Income Tax revenue Local Services Tax revenue held flat Real Estate Transfer Tax revenue held flat State aid for uniform pension eliminated; state aid for non-uniform pension reduced to one employee Other revenues and transfers from other funds held at 2018 budgeted levels or average revenue Expenditure Projection Assumptions The 2018 budget with adjustments serves as the baseline Employee counts were assumed to remain at 2018 budgeted levels Secretary/treasurer wages increased by 2.0 percent annually; summer/part-time employee held at the 2018 level Police increases were estimated at the current contractual level

26 Pennsylvania Economy League, Central PA Division 3-2 Public works increases were estimated at the current joint agreement level Health insurance increased by 6.0 percent annually Other insurances increased by 2.0 percent annually Workers compensation reduced to $2,000 in 2019 since only one employee remains Other major items increased by 2.0 percent annually; items less than $5,000 held flat General Fund Revenues and Expenditures Projections indicate that revenues will be relatively flat, declining by $1,956 or 0.5 percent, from $431,338 in 2018 to $429,382 in Expenditures are anticipated to increase by $46,125 or 9.5 percent, growing from $483,808 in 2018 to $529,933 in The Borough is projected to end each year with a deficit starting at $52,470 in 2018 and ending at $100,551 in (See Table 3-1 and Graph 3-1.) Table 3-1 General Fund Revenues, Expenditures and Surplus/(Deficit) 2018 to Change Estimated Projected Projected Projected Projected $ % Revenues $431,338 $421,556 $424,143 $426,752 $429,382-1, Expenditures 483, , , , ,933 46, Surplus/(Deficit) -$52,470 -$63,783 -$79,635 -$89,846 -$100,551

27 Pennsylvania Economy League, Central PA Division ,000 Graph 3-1 General Fund Revenues, Expenditures, and Surplus/(Deficit) 2018 to , , , , , , , Revenues Expenditures Surplus/(Deficit) General Fund Revenues Over 90 percent of the Borough revenues are from taxes. Tax revenue is anticipated to rise by $11,142 or 2.8 percent from $391,770 in 2018 to $402,912 in Non-tax revenue falls from $28,003 in 2018 to $14,639 in 2019, and then rises to $14,905 in Annual transfers are made from the Sewer Fund ($5,300) and the Pension Fund ($6,115). (See Table 3-3.) Table 3-3 Total Revenues 2018 to Change Estimated Projected Projected Projected Projected $ % Tax Revenue $391,770 $395,352 $397,853 $400,373 $402,912 11, Non-Tax Revenue 28,003 14,639 14,725 14,814 14,905-13, Transfers 11,565 11,565 11,565 11,565 11, Total Revenue $431,338 $421,556 $424,143 $426,752 $429,382-1, Percent of Total Revenue Tax Revenue Non-Tax Revenue Transfers Total Revenue

28 Pennsylvania Economy League, Central PA Division 3-4 Tax Revenue The largest projected growth in total tax revenue is from real estate taxes, which is anticipated to rise by $5,982 or 2.4 percent from $247,000 in 2018 to $252,982 in Real estate taxes are approximately 63 percent of total tax revenue. The earned income tax onequarter of total tax revenue is likely to grow by $4,060 or 4.1 percent. No growth is anticipated in local services taxes. Other sources are less than one percent of total taxes. (See Table 3-4.) Table 3-4 Total Taxes 2018 to Change Estimated Projected Projected Projected Projected $ % Real Estate Taxes $247,000 $248,482 $249,973 $251,473 $252,982 5, EIT 100, , , , ,060 4, LST 40,700 40,700 40,700 40,700 40, Real Estate Transfer 2,000 3,000 3,000 3,000 3,000 1, Per Capita 1,100 1,100 1,100 1,100 1, Other Taxes 970 1,070 1,070 1,070 1, Total Taxes $391,770 $395,352 $397,853 $400,373 $402,912 11, Percent of Total Taxes Real Estate Taxes EIT LST Real Estate Transfer Per Capita Other Taxes Total Taxes

29 Pennsylvania Economy League, Central PA Division 3-5 Non-Tax Revenue The largest decrease in non-tax revenues is anticipated in the state aid category, which drops by $13,498 or 81.2 percent, falling from $16,633 in 2018 to $3,135 in The decrease is expected because the reduced number of Borough employees means that state aid for pension payments will drop. The only anticipated growth is in the license and permits category, which increases by $400 or 4.4 percent. (See Table 3-5.) Table 3-5 Total Non-Tax Revenues 2018 to Change Estimated Projected Projected Projected Projected $ % Interest $150 $150 $150 $150 $ License & Permits 9,020 9,420 9,420 9,420 9, Charges for Services 1,300 1,300 1,300 1,300 1, State Aid 16,633 2,869 2,955 3,044 3,135-13, Miscellaneous PURTA Total Revenue $28,003 $14,639 $14,725 $14,814 $14,905-13, Percent of Non-Tax Revenue Interest License & Permits Charges for Services State Aid Miscellaneous PURTA Total Revenue

30 Pennsylvania Economy League, Central PA Division 3-6 General Fund Expenditures Personnel versus Non-Personnel Projections indicate that personnel expenditures will likely decrease by $4,709 or 5.7 percent from 2018 to Personnel expenditures are anticipated to account for fewer than 20 percent of total expenditures from 2018 to Non-personnel costs, which are over 80 percent of expenditures, are expected to increase by $50,834 or 12.7 percent. (See Table 3-6.) Table 3-6 Personnel versus Non-Personnel Expenditures 2018 to Change Estimated Projected Projected Projected Projected $ % Personnel $82,612 $75,691 $76,413 $77,151 $77,903-4, Non-Personnel 401, , , , ,030 50, Total $483,808 $485,339 $503,778 $516,598 $529,933 46, Personnel Non-Personnel Total Personnel The largest personnel increase is for salary and wages, which are anticipated to grow by $2,446 or 3.8 percent. Workers compensation expenditures are likely to decline by $7,650 because of the reduction in Borough employees. (See Table 3-7.)

31 Pennsylvania Economy League, Central PA Division 3-7 Table 3-7 Personnel Expenditures 2018 to Change Estimated Projected Projected Projected Projected $ % Salary & Wages 64,762 65,371 65,971 66,583 67,208 2, Overtime 1,200 1,200 1,200 1,200 1, Social Security 6,000 6,120 6,242 6,367 6, Unemployment Comp 1,000 1,000 1,000 1,000 1, Workers Comp 9,650 2,000 2,000 2,000 2,000-7, Total 82,612 75,691 76,413 77,151 77,903-4, Salary & Wages Overtime Pension Social Security Unemployment Comp Workers Comp Total Non-Personnel Contracted services for police are projected to increase the most of any non-personnel expenditure, rising by $30,991 or 23.1 percent. The highways category, which encompasses the joint public works agreement with Hermitage, is likely to grow by $8,434 or 10.5 percent. Pension and bonds is expected to increase by $2,538 or 8.1 percent. All other non-personnel expenditures are five percent or less of the total. (See Table 3-8.) Table 3-8 Non-Personnel Expenditures 2018 to Change Estimated Projected Projected Projected Projected $ % Contracted Police Services $134,125 $137,355 $149,765 $157,253 $165,116 30, Contracted Highway Services 80,000 82,500 85,000 86,700 88,434 8, Transfers 34,797 34,797 34,797 34,797 34, Pension/Bonds 31,391 32,007 32,635 33,276 33,929 2, Street Light & I80 23,500 23,970 24,449 24,938 25,437 1, Tax Collection 20,700 20,900 21,102 21,306 21, Miscellaneous 13,373 13,523 13,676 13,832 13, Medical 13,230 14,010 14,837 15,713 16,642 3, Hydrant 13,000 13,260 13,525 13,796 14,072 1, Utilities 12,100 12,260 12,423 12,590 12, Professional Services 6,000 6,000 6,000 6,000 6,

32 Pennsylvania Economy League, Central PA Division Change Telephone/Internet 3,210 3,210 3,210 3,210 3, Vehicle Expense 3,000 3,000 3,000 3,000 3, Volunteer Fire Relief 2,869 2,955 3,044 3,135 3, Dues 2,403 2,403 2,403 2,403 2, Office Supplies 1,500 1,500 1,500 1,500 1, Meetings/Seminars 1,400 1,400 1,400 1,400 1, Life Insurance 1,368 1,368 1,368 1,368 1, Advertising 1,000 1,000 1,000 1,000 1, Bank Fees Supplies Travel Maintenance Contracts Postage/Printing Street Signs Total Non-Personnel Expenditures $401,196 $409,648 $427,364 $439,447 $452,030 50, Contracted Services Highways Transfers Insurance/Bonds Street Light & I Tax Collection Miscellaneous Medical Hydrant Utilities Professional Services Telephone/Internet Vehicle Expense Volunteer Fire Relief Dues Office Supplies Meetings/Seminars Life Insurance Advertising Bank Fees Supplies Travel Maintenance Contracts Postage/Printing Street Signs Total Non-Personnel Expenditures

33 CHAPTER 4 RECOMMENDATIONS Introduction The Borough of Wheatland is likely to continue experiencing annual deficits in the future despite solid efforts to keep costs under control. Meanwhile, the demographics and small size of the Borough pose a challenge to paying for and providing services. The Borough s population has decreased to less than 700 residents in the 0.9 square mile community. Income and housing values are lower than Mercer County and the state, while poverty rates are higher. In addition, the number of vacant housing units has increased, which could result in more blight and less property tax income if values decrease or homes are abandoned. Earned income tax revenue has fallen and a property tax increase in 2015 netted little additional revenue. Given the circumstances, the Borough has appropriately sought regional solutions in order to maintain public safety and public works services to residents while attempting to keep costs low. The recent decision to enter into a joint agreement with Hermitage for public works services potentially saves the Borough over $100,000 annually. As noted in previous chapters, the Borough should apply for an Early Intervention Program (EIP) Phase II grant to financially assist in its transition from in-house public works to mostly receiving those services from Hermitage. Given its fiscal situation and lack of resources identified in the historical and projection chapters of this report, the Borough should also seek Phase II EIP grant assistance to strengthen its internal financial management system. The Pennsylvania Economy League advises the Borough to seek EIP Phase II grant funds for the recommended initiatives as outlined in the remainder of this chapter. Recommended target dates for initiatives are immediate, short term (one to two years) and long term (two years or more). FINANCE FIN 01: RECOMMENDED INITIATIVES Seek Phase II EIP grant to defray costs of the joint agreement with Hermitage to provide public works services Target Date: Immediate Responsible Party: Borough Council Budget Impact: Potential expenditure reduction

34 Pennsylvania Economy League, Central PA Division 4-2 Public works spending averaged approximately $210,000 annually during the historical review period. Table 4-1 Public Works Expenditures 2012 to Personnel $87,973 $80,409 $101,550 $110,402 $108,538 Utilities 3,673 4,035 5,863 4,626 3,865 Equipment Maintenance 18,906 16,150 20,721 12,762 7,388 Signs/Light 20,542 21,498 20,841 24,455 27,865 Capital Equipment 50,804 8,089 11,001 17,663 12,584 Road Work 33,125 46,504 58,194 49,892 57,138 Total $215,026 $176,689 $218,172 $219,803 $217,380 In 2017, the Borough s two public works employees left, leaving no one to perform public works services. The Borough consulted with the Pennsylvania Economy League (PEL) about options for public works services as part of the Early Intervention Program review, specifically entering into a joint municipal agreement with the City of Hermitage. PEL reviewed the historical public works cost information, the Borough s financial projections (See Chapter 3), the level of public works services that the Borough provides to residents, and the terms of the proposed joint agreement with Hermitage. In addition, PEL considered the legislative guidelines for the EIP, which includes promoting multimunicipal and regional planning, cooperation strategies and cost sharing opportunities between two or more municipalities. PEL concluded that the joint agreement with Hermitage was consistent with EIP goals concerning seeking multi-municipal and regional solutions. In addition, PEL believes that the agreement strengthens the Borough s ability to provide necessary and vital services while supporting the Borough s long-term fiscal stability. PEL recommends that the state Department of Community and Economic Development provide EIP Phase II funding to the Borough for the total annual cost of the agreement as follows: 75 percent, November 1, 2017 through December 31, 2018; 50 percent, January 1, 2019 through December 31, 2019; and 25 percent, January 1, 2020 through December 31, 2020.