President Ronald Reagan popularized (though it wasn't universally popular) the trickle-down theory of economics. Make the rich richer, and the money will "trickle down" to the less-rich. Higher employment, more money to lend and spend, a more robust economy.
A similar idea applies to our local financial situation today. As the nation's manufacturing and wholesale sectors slowly heat up, we await the trickle-down effect of that good news in Upper Bucks County. Hopefully soon. Maybe that light at the end of the tunnel is no longer another train about to run us over. Despite the problems in Europe, and surging food prices in the poorer nations of the world, various reports from our government, private industry, and the G20 conference in Toronto seem to say that the US, and world, economies are improving.
But what does that mean to us in Upper Bucks? How are the local communities in the Quakertown Community School District faring? Unfortunately not so well. Spending definitely isn't what is used to be. You can see the signs everywhere. There are no crowds at the shopping centers and malls. No waiting at popular restaurants. Store vacancies everywhere. And the hard numbers tell the same story....
Perhaps the best measure of family income is the local Earned Income Tax, collected by the various municipalities. Theoretically, EIT should increase each year, by no less than the cost of living, about 2-3 percent. But in Richland, EIT is down for four of the first five months of 2010 compared to 2009 - cumulatively about four percent. The five-month total for 2008 was $703,074. That rose to $777,437 last year, but plummeted to $731,161 this year. Layoffs, and a decline in wages, are definitely having an effect.
Same story in Quakertown. After a good year in 2008, when the borough projected income of $950,000, but ended up with just over $1.1 million, they upped their 2009 projection to $1 million, and took in only $810,000. 2010 has seen $414,621 so far.
The pattern is similar in Milford. EIT from January through May dropped slightly from $712,663 last year to $704,33 this year. Trumbauersville is down about one percent. Even Haycock, the most affluent municipality, isn't moving ahead as it would be in "normal" times, reporting no change.
The building industry has been one of the hardest hit by the recession, with banks hesitant to make both construction and home loans, and businesses leery of expansion until consumers show a proclivity toward spending. The feds had artificially propped up home sales for the first four months of 2010 with special tax incentives, which ended April 30. Then, in May, h ome construction in the US plunged to the lowest level since December, as builders scaled back. Building permits likewise fell. With a large number of local people making their living as tradesmen, Upper Bucks has suffered more than other areas. The Quakertown sewer moratorium has brought new construction to a standstill. In addition to lost family wages, our municipalities count on construction permit fees to help keep real estate taxes down.
Richland has seen building permit income freefall from $156,000 in 2007 to $109,000 in 2008, and $44,000 in 2009. Through May, it is only $14,000 this year. Qtown had an unexpected banner year in 2008, when they projected only $25,000, but received almost $100,000 because several large projects started. But that fell to $46,000 last year, and only $20,000 so far in 2010. Ditto in Milford; $21,000 in 2008 to $17,600 last year, to less than $5000 in 2010.
Not surprisingly, real estate transfer taxes have also declined. Richland has been the hardest hit, because it experienced the most growth in the early part of the decade. RT's transfer tax income, which had helped keep property taxes low, has fallen from $715,24 in 2005 to $281,874 in 2009 (which was actually better than the $264,026 in 2008 because of one very large sale). Signs point to only about $206,000 this year, especially with the federal tax credits now gone.
Qtown's transfer tax income has fallen even farther than expected. The 2008 budget anticipated $200,000, but yielded only $169,000. The borough lowered its expectations in 2009, planning for $175,000, but saw only $109,000. Projections were again lowered this year, hoping for a modest $100,000, but even with the credits, only $64,000 has materialized to date. Maybe on budget, but far less than even two years ago.
Milford totaled $44,689 from January through April in 2009, but only $42,879 for the same period this year. Sparsely populated Haycock typically sees little turnover, but sales for the first three months of the year have fallen from 3 homes in 2008 to 1 in 2010, resulting in a decline in revenue from $11,094 to $2,793. There are currently 26 properties listed for sale in Haycock, not much different than last year, with the majority priced at more than $400,000. But tiny Trumbauersville reports a 65 percent increase in transfer taxes, with even more closings on the way.
Bob Mansfield is a small business owner, and a supervisor in Milford. His story is typical of small business owners everywhere, and may hold promise for our economy. He and his wife started selling new and pre-owned storage equipment, like pallet racking, shelving, and mezzanines, in Southeastern PA and South Jersey in January, 2002. 2007 and 2008 were their best years, with sales of just over $2.5 million. He employed seven people. But 2009 sales plummeted to $1.3 million.
"We laid off one bookkeeper/receptionist last year to cut costs (first layoff ever), and added a warehouse employee this year. Like everyone, all of our fixed costs keep rising each year. Since 2003, our company contribution rate for unemployment has more than quadrupled, now almost 10 percent."
"In the end of 2008 our customers just stopped spending money. Many companies like ours were seeing their line of credit frozen, or reduced, and everyone was uncertain of what was coming, so holding on to cash on hand became a priority. Cash flow for many companies, including ours, was made even more difficult by payables stretching out."
"Historically, October and November are big sales months for us. Many of our customers find they have budget money they want to spend before the end of the year. This did not happen at all in 2008. We saw some return of this trend in 2009, but not as much as we were hoping for."
But sales have now picked up. January - May 2009 brought in $392,000. The same period in 2010 saw $752,000. Mansfield explained that it is a combination of factors. "A lot of the work we have been doing so far this year are projects that folks originally planned on doing last year, and their funding was not approved. As people need to buy the goods we sell, many are considering pre-owned for the first time ever. This is a big plus for us."
But an increase in Mansfield's business doesn't mean things are rosier all around. "Sadly some of the work we are doing is moving companies into smaller facilities as they downsize their operations."