Earned Income Tax Misallocations: The Issue Explained

If any of you who attended the Annual Chautauqua meeting this year still have some questions about the recently confirmed Earned Income Tax misallocation issue, I did a little research and have more details for us. I requested from the EIT Bureau Board, and promptly received, a rather detailed presentation of the issue, including its history and a breakdown of the "financials" from 2004 to 2006 and by municipalities involved. This included numbers for Mt. Gretna Borough, which, by the way only has 207 registered voters.

The short story on how this came to light is that certain recipients of Lebanon County's EIT revenues were receiving what they thought to be significantly smaller amounts of monies than they knew they were owed, so they started making complaints, which led to an investigation/audit.

According to the attendees at last night's EIT Board meeting, the formula for determing what amount of the total EIT Revenue that a municipality is allocated in a given year is directly proportional to its contribution to that pot. Here is an example: Say the total EIT revenue for the year 2020 was $100 and Mt. Gretna Borough residents contributed $10 to that total. So, the result of the formula applied here is that half of Mt. Gretna's residents' contributions are given to the school district, and half of that contribution is given to Mt. Gretna Borough. So, in my example, for the year 2020, Mt. Gretna Borough would receive $5 from the EIT revenue (give or take a little for nominal fees/adjustments charged to the $5).

Sticking to only the numbers as they pertain the Mount Gretna Borough, it was found that, for the years 2004 through 2007:

Total Earned Income reported to the Dept. of Revenue $ 6,349,685,057

Total Mt. Gretna Borough residents' earned income $ 18,005,380

Total EI Tax reported to the DOR $ 97,673,527

Total Mt. Gretna Borough residents' EI Tax contribution $ 123,370

Applying the formula for distribution of that revenue, for the years 2004 through 2006, Mt. Gretna Borough should have received about half of its EIT contribution, so about
$ 61,000

Instead, Mt. Gretna actually received $ 256,642

This is an overpayment of $ 195,642

Now, the auditing firm's research included more years than I have included here, which is why we are told that the amount we were overpaid was really around $244,000.

The EIT Bureau Board seems to be on the right track in pursuing a fair resolution to this problem. It has moved forward from Day 1 adhering to the principals of transparency and collaboration, rather than with paternalism and heavy-handedness. The Board seems to consider communicating with the taxpaying public as an essential that is preferred over just relying on city solicitors' participation negotiating municipal agreements for "re-direction" of overpayments, and encourages us to attend their monthly meetings, held every third Wednesday, at 6:30pm at the Lebanon School District Office (just go in the door and turn to the left).

However, the next two meetings will be held at the Municipal Building's auditorium, as we have some very important voting to participate in in Sept. and Oct. They will also be publishing a new website and designating a Right-to-Know officer soon. I will keep you posted on those accomplishments as they happen.

Before I hit the publish button on this post, I want to bring up two points for thought that this tax stuff generates.

First, via a phone conversation with our Borough Office, I learned this morning that Mt. Gretna Borough does not have an "official Municipal Representative" to the tax board. While we may "manage to get someone, including our solicitor (Kilgore) to attend the important stuff", we need to have an official municipal representative. Why? Well, because this is how a taxing body establishes its constitutionality for taxing us--remember that whole "taxation without representation" thing?

And, don't we, as Borough residents, get the opportunity to vote on the issue of the Borough aqcuiring long-term debt obligations? Again, the process pursued here is not settlement negotiations in some legal action--it is the development of a contractual financial obligation, the assumption of a debt obligation. So, why aren't we being informed and brought in on this whole process? Look, I have faith that my neighbors will do the right thing when presented with factual information, so I honestly don't think that returning overpayments is something that we would avoid.

However, the scenario presented to us at the annual meeting suggests that our solicitor is making all the decisions and entering the Borough into these long-term commitments. This situation is confirmed by the Board's statements last night that they do not know who our official Municipal Representative is, but that they pass on all such communications to Bill [Care] and by the Borough administration denying that we even have an "official Municipal representative."

So, who is committing the Borough taxpayers to this debt obligation? Because this isn't a legal action, Kilgore's real role here is to profer to his or her client a legal review of an agreement's terms--it is not to act as executive officer for a municipality.

While our Borough administrators may defer to him and think that Kilgore "is really one of us", he REALLY is not, and I would not, by a long shot, be the only Mt. Gretna resident to make that assertion. And, if the response to that fact is that he "has been here long enough" or longer than I have, so that justifies placing a restriction or qualification on my requests for proper representation, or for enforcement of Borough Ordinances or state laws, then I respectfully request a pro-rated reduction on my tax burdens and Chautauqua fees. The reality is that each of us is a full-fledged resident, with attendant rights and obligations. Period. Any other heirarchy or "classification" of residents is parternalistic, and unethical.

The second point of concern is that there doesn't seem to be a "zealous representation" by our solicitor of our interests in the resolution of this Over-Under EIT issue. Kilgore himself said at the annual meeting that he was negotiating a longer payment term for us, but he made no reference to or informed us as to our alternative of challenging the total amount, especially in terms of using new residents' tax payments to pay for another person's criminal misconduct, or of using any resident's Borough contributions to pay for another person's criminal misconduct.

Arguments like that are legitimate to make on behalf of your client, and do not need to be made or pursued in a way that is adversarial or that erodes your respect for the real issue at hand: that some municipalities or school districts were underpaid and need the money. At the end of the day, we all go home to each other as neighbors, so we all have a vested interest in the health and success of our neighboring municipalities and school districts. But just as the underpaid entities seek fairness in the resolution of this issue, the overpaid entities have a right to fairness as well, and to "zealous representation" by whatever legal representative they hire. And, for us, Kilgore has assumed that job.

One thing that I learned from growing up in a rural community is that these little nuanced failings, like the ones that I have described in these last few paragraphs, will be remembered--they get talked about over card tables, over tailgates, and on porches for years, if not generations, and they contribute to aging your legacy into either wine, or into vinegar.