State College

‘You wonder how these municipalities survive’: How could college towns fix financial woes?

A view of downtown State College and Penn State campus Wednesday, Sept. 19, 2018.
A view of downtown State College and Penn State campus Wednesday, Sept. 19, 2018. psheehan@centredaily.com

More from the series


Exploring the Cost of Alcohol

State College exists because of Penn State. But along with the many positives of living in a university town, there are negatives, too. A major one is the cost of alcohol use. “The Cost of Alcohol,” a multipart series from the Centre Daily Times, explores the financial and human burdens that come with it.


Alcohol creates a variety of issues in State College, as it does for college and university towns across the state. Limited by the Pennsylvania legislature in dealing with the financial strains, some municipalities have come together to try to figure out what to do and how to move forward.

State College spearheads the Pennsylvania Municipal Sustainable Revenue Sources Steering Committee, which has included representatives from Millersville, Lock Haven, Bloomsburg, Indiana borough, Kutztown, West Chester and the Pennsylvania Municipal League.

Its mission is to educate and advocate to the state legislature on local revenue, expenses and regulatory issues in college and university towns.

The expenses associated with alcohol, and out-of-town visitors, are compounded by the fact that university towns often have a lot of university-owned property that is tax exempt.

According to the State College borough’s website, based on the best available information, the total assessed value for Penn State property in the borough was $262.9 million in 2015. If those properties were taxable, the resulting real estate tax payment to the borough that year would’ve been about $3.8 million.

Penn State property is tax exempt due to its status as an instrumentality of the state.

However, the university does have payment-in-lieu-of-tax agreements with local municipalities, including State College, which means that property owned by the university, but used by a third party, is subject to an in-lieu property tax. The university also pays an annual impact fee pursuant to the agreement, according to Penn State.

According to State College’s 2018 budget, the proposed revenue from its PILOT agreement with the university was $605,000.

In Millersville borough, Lancaster County, 39 percent of the properties are tax-exempt (much of it university property).

“You wonder how these municipalities survive. And they certainly won’t survive into the future if the current system exists,” said Brad Gotshall, Millersville borough manager.

What college towns need

That’s where the sustainable revenue committee comes into the picture. These communities are striving to provide themselves some municipal self-determination, he said.

Pittsburgh and Philadelphia have been granted greater taxing authority by the state legislature, and that’s what college communities want, too, Gotshall said.

“Just give us the opportunity to craft a revenue package that works for us individually,” he said.

Right now, much of the burden of paying for services and alcohol-related issues falls squarely on the property owners’ shoulders.

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The committee has discussed a variety of potential solutions, such as a poured drink tax or retail tax on alcohol purchases, a local sales tax, a reworking of the hotel tax and a student impact fee.

The reworking of the hotel tax and student impact fee are really just at the idea stage.

The committee has struggled to make any real progress with the legislature on an alcohol tax or expanded sales tax.

“I think that, generally, legislators ... just as soon as they hear the word tax — I mean that’s such a bad word, it has such a bad notion that I think they’re worried that any new tax that they’re associated with will possibly hurt them at the next election. And even though many of these things are common sense — I call a lot of them user fees,” said Tom King, State College assistant borough manager.

King argued that most taxes apply to everyone, where these possible solutions are more user fees. He pointed to the tax on cigarettes — you only pay it if you smoke.

In 2006, the Pennsylvania Economy League prepared a study, “Impact on the Cost and Financing of Government Services in the Selected Host Municipalities of the Pennsylvania State System of Higher Education.” While the study focused on state schools (Penn State is state-related), State College faces the same issues when it comes to financial woes, and on an even larger scale.

Findings reported in the study “indicate that while institutions of higher education bring an undisputed economic boon to a region or state, they may also adversely affect a municipality’s fiscal resources.

“Higher learning institutions do not contribute property tax due to their tax-exempt status, but they typically own a significant amount of property in a municipality. Second, a student population generally does not own property or contribute significant earned income tax to the host municipality. These circumstances lead to less revenue for college town municipalities than municipalities that are comparable in median family income and percentage of renters.”

Although, the study did find that the student population didn’t significantly affect the expenditures of college town municipalities.

The added challenge for State College is the number of visitors who frequent the area due to large-scale events like Penn State home football games and Arts Fest.

King said one of the conversations the committee — which has stalled because the legislative session is ending soon and there have been some changes in personnel in the other communities — has had in the past year was looking at hiring a consultant and updating that study.

“It didn’t work then, but we might have a legislature that might be more amenable to some of these things now that alcohol is much more accessible,” he said.

Some local lawmakers told the Centre Daily Times they’re open to giving residents the opportunity to decide for themselves what taxes they want to implement.

Alcohol tax

The alternative revenue stream State College officials say they’ve pursued the most is a local tax on alcohol — either retail or poured drink — levied at the county level.

As between 70-75 percent of all State College crime in any given year is alcohol related, King said that an alcohol tax could be a way the people using the alcohol could directly pay for its costs, and take some of the burden off property taxpayers.

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As it stands, the 18 percent Johnstown Flood Tax on the sale of alcohol at state fine wines and liquor stores generates more than $300 million per year for Pennsylvania’s General Fund. Yet none of that money directly goes toward helping offset the cost of alcohol in municipalities.

“What I believe makes the drink tax even more of a front-burner issue is … we’ve changed the landscape of access to alcohol in Pennsylvania,” King said.

While Pennsylvania has taken steps over the past several years to increase access to alcohol by expanding liquor store hours and allowing it to be sold in grocery stores and gas stations, King says the state has done nothing to help local communities deal with the increased negative consequences that come with that increased access.

The first part of the Centre Daily Times series "The Cost of Alcohol," what a poured drink tax could do to benefit the borough.

However, King and State College borough Manager Tom Fountaine both said they have a strong relationship with the Pennsylvania Liquor Control Board, which they said has been “a good partner” over the years.

PLCB board member Mike Negra has lived in Centre County for 35 years, and says he’s maintained regular relationships and conversations with King, Fountaine and Penn State Vice President for Student Affairs Damon Sims to talk about alcohol-related issues and how the board can help.

At the height of student-created holiday State Patty’s Day, Negra sat down with the Campus Community Partnership United Against Dangerous Drinking and the PLCB voluntarily closed all State College-area liquor stores during that weekend for two years.

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“We don’t think we have any magic solutions for what’s going on in State College or Bloomsburg or Indiana, or any of the communities where alcohol is a problem. However, we’re certainly open to having those discussions and trying to come up with the reality-based solutions,” Negra said.

Separate from the tax-generated dollars alcohol sales bring into the state’s general fund, the PLCB gives out about $1 million in grants each year to local communities to help reduce and prevent underage drinking and over-service. State sales on wine and liquor also solely fund the state police’s liquor law enforcement efforts and help with treatment services through the Department of Drug and Alcohol Programs.

Each year since 2010, the State College Police Department has applied for and been awarded the PLCB’s Source Identification Project grant. State College most recently got $40,000 for its SIP program. The SIP grant helps the police department fund extra patrols during busy periods to help identify people who are furnishing alcohol to minors.

“It allows us to have officers sign up for overtime shifts to go out and focus solely on these alcohol-related calls,” said Community Relations Officer Adam Salyards. “Within the past year, this program has been extremely successful. We’ve generated a lot of arrests from that.”

Expanded sales tax

The Pennsylvania sales tax rate is 6 percent. By law, a 1 percent local tax is added to purchases made in Allegheny County, and a 2 percent local tax is added in Philadelphia.

The idea for a local sales tax, according to King, would be to lobby the state legislature to authorize that communities, by referendum, could vote to add an additional 1 percent sales tax that would come back to the municipality.

He said a local sales tax should be considered for all communities, but particularly college communities and communities that are impacted by a lot of tourists and visitors.

“How can we take that burden off of the property owners and mix it so that all of us — property owners, visitors, students, non-students — are paying?” he said.

In 2009, the County and Municipal Property Tax Relief and Collaborative Services Act was introduced in the state legislature, but it never became law. According to information provided by State College borough, the total projected yield within Centre County with a 1 percent optional county sales tax would have been about $12.4 million. The total projected allocation for State College borough would have been about $2.3 million.

King said an expanded sales tax would likely follow the current sales tax rules — meaning that it would only apply to things that are already subjected to the sales tax.

Reworked hotel tax

When visitors come to State College for large events, they bring in a lot of revenue to local businesses — hotels, bars, restaurants and retailers — but there’s no direct economic benefit to the municipality.

With more people comes an increased need for police and public safety services. Events like Arts Fest and home football games are considered “all hands on deck” for the State College and neighboring police departments.

“We know clearly that when all the hotels fill up for graduation, for Arts Festival, for football, we add a lot of extra staff and we have a much higher overtime budget that week than we do when it’s not happening,” King said. “So I think that it wouldn’t just be to throw money at a municipality, but it would be money that could be used to help offset extra costs as a result of the tourism event.”

Through Act 18, the Pennsylvania hotel tax is intended to be used by the county convention and visitors bureaus to assist funding for tourism and promotion.

King said that in looking at how to rework the hotel tax, they could consider going to the legislature and asking for an increase in the tax or to take a portion of what already exists to provide services strictly during tourism events.

From July 2016 to June 30, the tax generated $1,950,511 for the Central Pennsylvania Convention and Visitors Bureau.

A large portion of that money, according to interim Executive Director Lori Miller, is given away in grants to local organizations to help promote tourism and marketing initiatives.

In the most recent grant cycle, the Central Pennsylvania Convention and Visitors Bureau gave away $491,800 in grants to 35 local organizations.

If that revenue stream was cut, Miller said it would be felt directly by local organizations that utilize those grants — such as the Centre County Grange Fair, Bellefonte Art Museum and the Rowland Theater.

Any change to how the hotel tax is allocated would also need to be made through the state legislature.

“I don’t know if it’s an appropriate channel for them (the State College borough),” Miller said. “Not because we wouldn’t want to share with them, but because we’re guided by the law in how we can use it.”

Student impact fee

While the hotel, sales or alcohol tax would require action from the legislature (and would likely be countywide to avoid giving some businesses an unfair advantage), King said he thinks a student impact fee could be worked out between the borough and Penn State.

It could potentially be a fee that’s assessed to each student per semester or year that would help “offset public safety and cleanliness of the community” costs, King said.

“$25 per semester per student would greatly solve the problem,” Millersville Mayor Richard Moriarty said. “Because right now, my police department is probably 30 percent larger than it needs to be because I’m in a college town.”

King stressed that a student impact fee is just one more potential solution on the table and it’s gone no further than that. If the borough were to ever pursue it, officials would not only talk to Penn State administration but also student organizations to make sure all the stakeholders affected were involved in the decision.

“It is just one of those ideas that might be a really wild idea that as soon as you spend a half hour on it, with all the stakeholders, it might be like, ‘Forget about that,’” King said.

Penn State students currently pay a student-initiated fee, which supports student-centered activities, services, facilities and recreation, according to the university.

Cody Heaton, president of Penn State’s University Park Undergraduate Association, said he would be “very against” the introduction of a student impact fee specifically for municipal services, saying, “I don’t think it’s very productive,” and it’s also “pretty discriminatory.”

Other solutions beyond taxes/fees

“We’re definitely open to ideas, but I think there are better solutions out there than creating an impact fee — [solutions] that would be beneficial for all parties,” Heaton said. “And I really believe that everyone involved wants to cut the problem at its source, not create a tax [or] fee, which really just cuts it off at a branch and not going all the way to where the problem arises.”

He sees education as the solution.

Negra agrees. It’s all about education when it comes down to it, he said.

A few years ago, the PLCB had a campaign aimed at college-aged students about the negative effects of drinking, according to Elizabeth Brassell, PLCB director of policy and communications. From that, the agency learned that when young adults arrive at college, they already have their perception of and approach to alcohol pretty well formed.

So the PLCB has launched a campaign to target the parents of children ages 8 to 12, called Know When. Know How. Brassell said the goal is to give parents the tools, information, confidence and comfort they need to start having conversations about alcohol earlier — before kids have had their first exposure to it.

In 2015-16, 16 percent of State College Area School District 10th-graders reported drinking in the past 30 days, compared to 22 percent nationally. But 40 percent of 12th-graders reported that, compared to 35 percent nationally, according to The Partnership - Campus and Community United Against Dangerous Drinking 2016-17 Annual Assessment Report.

Penn State works to mitigate harm of high-risk drinking by college students, but the university still routinely ends up on top party school lists.

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Despite efforts by Penn State to educate its students, including an online alcohol safety and education program, the amount of alcohol-related arrests and incidences has remained largely the same over the years.

King said he doesn’t know of any alternative revenue sources to deal with the costs of alcohol-related issues other than a tax or fee, saying he doesn’t know where the borough would get that money.

It’s tried to increase fines and fees on alcohol-related crimes, he said. The fine for a summary offense in Pennsylvania is $300, maximum. That was set in 1974, and the legislature hasn’t changed it since, not even to make adjustments for inflation.

“They won’t change that and that would only be for those who commit crimes,” he said.

Other college communities have tried to find alternative revenue streams that have ultimately gotten shut down.

At one point, Millersville had a $30 transaction tax on rental units that owners paid on top of their registration fee. After four years, the tax was contested and found unconstitutional by the state Superior Court, and the borough had to pay all that money back.

“That’s one of those items that falls under the category of, ‘That one would work,’ ” Moriarty said. “That tax would work for us. And yet, we’ve been stifled in that direction.”

Moriarty says the reason why he and other leaders in college towns continue to be passionate about finding an alternative revenue source is because they “owe it” to their residents to find a way to keep taxes low and provide the services they need.

Although the Pennsylvania Municipal Sustainable Revenue Sources Steering Committee is taking a break for the meantime, members hope to reconvene in 2019, King said.

A note from the editor

For several months, the CDT has been exploring “The Cost of Alcohol” through a series that has examined how alcohol affects crime, emergency medical services, revenue and student life. As in any university town, it’s an issue that affects many of us. Even if you don’t live in State College borough, where the bulk of the costs for increased police and public safety services is footed by property taxes, potential initiatives such as a poured drink tax could be felt countywide.

The purpose of the series was to create a dialogue around this issue. Throughout the monthslong reporting process, we’ve talked to dozens of people — elected officials, business owners, emergency responders — and now we want to hear from you. Is Penn State doing enough to curb risky drinking? Should local municipalities have greater taxing authority? Let us know what you think. Send us your letters to the editor — 250 words or fewer — to cdtletters@centredaily.com by Sept. 28. We’ll publish them on centredaily.com and in an upcoming edition of the paper.

Thank you for reading and participating in the conversation.

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