State College faces financial challenges in the coming years
State College is a vibrant, award-winning community and a great place to live, play and work. An efficient and corruption-free government, supported by community volunteers, provides excellent public services. We are a leader in walking, cycling infrastructure, safety and regional cooperation. In these ways and more, we are the envy of other towns and small towns in Pennsylvania. Credit goes to the leadership the borough has enjoyed over the years. But there are challenges on the horizon.
For those interested in future prospects, the first thing to keep in mind is that the area of the borough is approximately 4 square miles. The second is that within those 4 square miles is one of the largest universities in the United States, making State College the fourth most densely populated municipality in Pennsylvania. Of the borough’s approximately 40,000 residents, more than two-thirds are Penn State students, almost all of whom live in rental properties. That leaves about 12,000 non-student residents, including children and pensioners. Another way of looking at it is that there are around 3,000 family households in the borough. This number has been steadily declining for several years as families continue to leave the borough. They were largely replaced by Penn State students.
Why is this important? The borough levies four major taxes: land, labor income, public services and property transfer taxes. Keep in mind that students need all public services required by non-student citizens. But the vast majority of students only pay property tax through their rents. Few pay taxes on labor income and few pay the $52 utility tax, which requires an annual income threshold of $12,000. Thus, the vast majority of revenue used to finance the borough’s general budget, not including water, sewers and garbage collection, comes from property taxes and labor income. With the steady decline in the number of families, labor income tax is stable and falling in constant dollars. There remains the property tax. But consider that nearly 50% of the assessed value of properties in the borough are tax-exempt, including most of the university.
What about large commercial owners? Don’t they make a difference? No, they don’t, even though large commercial and residential properties make up the top tier of property tax payers. But high-density residential properties generate the highest ratio of service demand to property tax revenue. Few citizens are aware that residential rental property owners (a relatively small number of individuals and corporations who own large numbers of properties, including large student complexes and converted homes) pay no tax on income earned at home. rounding on rental income. This is the law in Pennsylvania – one of many Pennsylvania laws that handicap municipalities in the state. It is true that commercial property owners pay local school property taxes. Since few of their tenants send children to school, their payments are a substantial bonus for the school district. But none of that money goes back to the borough.
Faced with this reality, it is not surprising that the budgets of the boroughs are increasingly unbalanced, leading to periodic increases in property taxes, which are already the highest in the Center region. In recent years, a reckoning has been avoided by two temporary factors: a one-time windfall in real estate transfer taxes due to the construction of large student apartment complexes downtown, and federal funds from pandemic relief. These provided respite, but are unlikely to be repeated.
What are the options? Consolidation of regional municipalities should be considered. Changes to state law, such as a beverage tax, that give municipalities more revenue options, are needed. Finally, Penn State needs to play a much bigger role in helping the borough, including, but not limited to, increasing its annual contribution to the borough in lieu of property taxes.
Ron Filippelli served two terms on State College Borough Council and two years as acting mayor.