Proposed tax could net millions for distressed municipalities
By Stacy Brown | PA Independent
HARRISBURG — For many Pennsylvania municipalities that have fallen on difficult financial times, a flash of cash could be at the end of the long dark fiscal tunnel.
Officials, who attended a join House and Senate public hearing this week, proposed a 1 percent county-option sales tax for financially distressed municipalities, which could help reduce or eradicate their debt while relieving residents of property tax increases.
Pennsylvania declares a municipality distressed when it can no longer meet its financial obligations without state aid.
Because the tax is optional — even if it became law — county officials must agree to implement it.
"There is no way we can be prosperous, as a commonwealth, if our core urban areas are in trouble," said Reading Mayor Thomas McMahon.
The sales tax is necessary, McMahon said, because Pennsylvania cities have restricted municipal boundaries and an over-dependence on property taxes.
Reading officials projected the city's deficit to be $7.5 million in 2011. The city's 2012 operating budget is $74.4 million, an increase of 3.39 percent from the $72 million in expenditures a year ago.
Among Reading's taxes are its 3.6 percent earned income tax rate and 1.3 percent earned income nonresident tax.
State Sen. Lloyd Smucker, R-Lancaster, said his municipality, too, would welcome such a tax.
"Lancaster is living on borrowed time," said Smucker, who said he was "pinch-hitting" for Lancaster Mayor Richard Gray at the hearing.
"Absent meaningful and immediate action on the part of the General Assembly, it is only a matter of time before Lancaster falls back into a state of fiscal decline and uncertainty," Smucker said.
Ironically, Lancaster expects to end 2011 with a $2.2 million surplus as a result of an unexpected $1.5 million in state pension aid and a one-time change in the county tax bureau's schedule for disbursing earned-income tax receipts, Gray said.
The city's 2012 proposed budget is $46.2 million and its taxes include a 1.1 percent earned-income tax levied on its residents.
The current sales tax rate in Pennsylvania is 6 percent, according to the state Department of Revenue.
A 1 percent sales tax added to the 6 percent would allow municipalities to cut property taxes and fund municipal cooperation efforts with its neighbors, which include delivering public services, McMahon said.
Specifically, the tax would generate $8 million for Reading with $4.8 million used to reduce city property taxes, he said.
State Sen. John Blake, D-Lackawanna, said he would sponsor a county-option tax bill.
"It would take the pressure (off) taxpayers and would allow a broader base of revenue to be achieved," Blake said.
Only Allegheny County and Philadelphia have the option tax, which was made available to counties with first- and second-class municipalities. A first-class city has populations of 1 million or more; a second-class city has between 500,000 and 999,999 residents.
Philadelphia is the state's only first-class city, while Pittsburgh, in Allegheny County, is the only second-class city.
Allegheny County's local option sales tax generated $162 million last year, according to information provided by the Intergovernmental Cooperation Authority of Pittsburgh, an administrative body created by the state to oversee Pittsburgh's finances.
While exact revenue from the tax in Philadelphia was not available, it raked in $242 million in sales tax revenue last year, according to figures from its 2011 operating budget.
“This is where the Legislature has to stand up,” Scranton Mayor Chris Doherty said.
Scranton is trying to close a deficit of up to $12 million in its $84 million 2012 budget. City taxpayers are facing a 29 percent property tax hike, and Doherty has announced plans to layoff 29 firefighters and 19 other municipal workers.
Scranton levies a 3.4 percent wage tax on its residents, the highest in the state. It also has a 4.4 percent nonresident earned-income tax.
One obstacle to a county-option tax could be the reluctance of legislators to impose another tax on taxpayers.
"The taxpayer is tapped out, and we can't ask them for anything more," said state. Rep. Rick Saccone, R-Allegheny. "I have to look at the option tax. These are tough decisions we have to face."
