After Loss of Tax Break, Should the Pelhams Merge?

A detailed analysis of the Pelham and Pelham Manor tax bills and interviews with local officials suggest that consolidating services could cut costs and help offset the new federal cap on property-tax deductions. But the savings would probably be modest.

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By David S. Joachim | December 10, 2018Screen Shot 2018-12-11 at 8.53.49 PM.png

Pelham, N.Y., homeowners who have benefitted from huge federal tax breaks to go with their huge property-tax bills are about to feel a financial jolt.

That’s because under the new Trump tax law, applying to 2018 returns due next April, they can no longer deduct from their income the full amount they pay in property tax — typically more than $27,000 annually, among the highest in the country.

The approaching tax shock has renewed a decades-old debate among Pelhamites: Do the 12,000 residents living in these two square miles really need a town government plus two village governments? Would it be more efficient to merge them into one?

An analysis of tax and spending data and interviews with local officials and tax experts suggests that merging some or all of the services provided by the two villages — public safety, in particular — could produce meaningful operational savings.

But because the village governments represent only a quarter or less of the typical property-tax bill across both villages, such savings might not be enough to persuade skeptics of consolidation that any reduction in service or emergency response time would be worth the financial benefit.

‘Lightning Rod’

Consolidation of village services is a provocative subject for many residents of the Town of Pelham, which contains the villages of Pelham and Pelham Manor.

“Probably the hottest of hot button issues,” Silvestro Spagnuolo, a local tax preparer, wrote on a semi-private Facebook page for Pelham parents. “Lightning rod,” wrote Tom Fear, a real estate executive.

WhereTheTaxBillGoes.jpgThe emotions that drive the debate often obscure a larger truth, however: Roughly 60 percent of property-tax bills in both villages are devoted to the shared Pelham Public Schools, according to an analysis of data from the New York comptroller’s office. The schools operate independently.

“I don’t know how you can get to an assessment of tax burden without getting to that a majority is controlled by the school board,” said Jennifer Lapey, the mayor of Pelham Manor.

Sue Childs, the president of the school board, declined to comment.

The Pelham and Pelham Manor village governments receive 21 and 26 percent of the overall tax bill from their respective homeowners, an analysis of the data shows. Westchester County gets around 14 percent of the typical tax bill. The Town of Pelham government, which includes a recreation department and a court, receives about 2 percent.

Village Services

The services offered by the two villages are similar but not identical. Both provide police and fire protection and public works including road maintenance and wastewater management. Pelham Manor has its own sanitation department, with about six employees, whereas the Village of Pelham contracts with a private sanitation service.

Each spends more than 40 percent of its budget on police and fire protection. Because that figure doesn’t include employee health and retirement benefits, the actual financial impact of the public safety departments is probably much higher.

Local police officers and firefighters are paid handsomely, especially in Pelham Manor.

Of the village’s 43 public safety employees, 16 earn more than $150,000 and 23 others make more than $100,000, according to an analysis of state payroll data from the Empire Center for Public Policy, a research group in Albany. (The Village of Pelham has 42 police and fire employees, with four earning more than $150,000 and 33 exceeding $100,000.)

Pelham Manor’s fire chief, Joseph Ruggiero, earns $248,000, making him the highest-paid village employee of any kind in Westchester, according to the analysis. Reached by phone at his office, Ruggiero declined to comment.

Mayor Lapey says Ruggiero is more than worth his salary. “I won’t say he’s overpaid given his level of training and the results that we get,” she said.

Ruggiero’s decades of experience as an equipment purchaser allowed the village to buy a second-hand fire truck recently, saving money for taxpayers, she said. He has also taken on the role of village mechanic, which had been a $60,000 job, she said.

After Pelham Manor firefighters contained a November fire at the Schuyler Park Manor cooperative to just one apartment, Lapey credited the department’s rapid response and advanced training.

“There are real-life consequences and benefits to having a truly local service department,” she said. One person was injured in the fire.

Lots of Police

Lapey’s counterpart, Mayor Michael Volpe of the Village of Pelham, sees combining police forces as common sense.

“There are small neighborhoods in New York City that are served by one police force,” he says. “We don’t need two police forces.”

Both village police departments are large relative to the populations they serve.

ForYourProtection.jpgPelham Manor has one sworn officer for every 209 residents, while the Village of Pelham has one for every 280 residents, according to an analysis of regional village data. That’s a higher density of law enforcement than virtually any other incorporated village in the region and more density than the national average for municipalities with under 10,000 population, according to FBI data.

For any municipality, the only way to save significant money is to cut personnel costs, which represent as much as 80 percent of all expenses, Volpe said.

“We’re a fairly small, contiguous land mass,” he says. “It should be easy to save some money” by looking for ways to reduce duplication, particularly in higher-paying jobs, he added.

Incentive Programs

Gov. Andrew Cuomo has said that property taxes are high in much of the state because there are too many layers of government. Programs in place at the state and county levels encourage consolidation and shared services, often with grants that amplify savings.

The villages of Pelham and Pelham Manor do already collaborate with each other and with other nearby municipalities to issue collective bids for services like road paving and sewer maintenance, officials said.

Of course, any discussion of increasing that commitment to the level of a merger of village governments would involve factors beyond operating budgets.

Those factors include the value of the villages’ assets and long-term liabilities; the difference in their effective property-tax rates (Pelham Manor’s is slightly lower than Pelham’s); and their prospects for commercial tax revenue to offset residential taxes.

The villages’ debt levels would also be a subject of interest.

Pelham Manor has no debt. The Village of Pelham, by contrast, has borrowed a few million dollars in recent years, amounting to about $350 per household, according to the Empire Center for Public Policy. The village used the proceeds to buy a new fire truck and to pave roads, Volpe said.

Roughly three-quarters of all villages in the state have more debt than the Village of Pelham does. One of them, Mount Kisco, had debt equal to $4,610 per household in 2016 and recently replaced its village police with county police [see related article].

Michael Treanor, a lifelong Pelham resident, contends that a full consolidation of village governments could produce benefits beyond cost savings.

A review he conducted in 1984, a decade after Pelham Heights merged with North Pelham to create the Village of Pelham, showed that property values grew faster in the newly formed village than they did in Pelham Manor because of the decline in the Village of Pelham property-tax rate, he said.

Modest Savings

To Volpe, who was a Town of Pelham board member before he was mayor of the Village of Pelham, it’s time once again for the town — among the smallest in the state — to consider consolidating large categories of services to hold down costs.

The question is whether any savings would be significant enough to justify what many residents would see as a radical change.

For example, because village government represents a minority of tax revenue, even a steep cut of, say, 20 percent to the Pelham Manor budget would mean a savings of only about $125 a month for the typical household paying the median property tax.

That comes to $1,500 a year, far short of the $6,000 tax benefit that payers of the median property tax rate are about to lose [see related article].

Volpe says he thinks even those savings could be worthwhile, if they’re achievable, especially for Pelham residents on the edge of affordability.

“Should villages like the Village of Pelham and Pelham Manor look to shared-services opportunities to blunt the impact of the changes to federal tax law? The answer is simple: Yes,” Volpe said.

The sticking point, he says, is Pelham Manor: “To dance, you need a dance partner.”

Copyright David S. Joachim, 2018

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David S. Joachim is a Pelham Manor homeowner and an investigations editor at Bloomberg News, where he primarily covers the special counsel investigation of Russian interference in the 2016 presidential election. Before that, he was an editor and reporter in New York and Washington for The New York Times.

More information about him is available at davidjoachim.com. He can be reached at david@davidjoachim.com.

This report was produced independently, for a graduate-school project at Syracuse University. It has no affiliation with Bloomberg News or Bloomberg LP.