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August 28, 2012 | By | Posted in General News

Court overrules city leaders, calls tax increase a necessity

The city of Harrisburg faces an operating deficit of $12.6 million in 2012. The Office of the Receiver pushed for an increase in the city’s earned income tax to help offset the deficit as part of the state-approved recovery plan.

By Melissa Daniels | PA Independent

HARRISBUG — A fresh court decision on a Harrisburg tax increase suggests the separation of power isn’t always a hard- and-fast rule.

In this case, a state judge can order a city to levy a tax despite the protests of some of its elected officials.

Monday, Pennsylvania Commonwealth Court Judge Bonnie Leadbetter ruled the Harrisburg City Council must enact a temporary 1 percent rate increase on the city’s earned income tax, levied upon wage-earning residents.

The new tax rate will equal 2 percent.

Maj. Gen. William Lynch

The tax increase was a state-approved part of the city’s financial recovery plan to help it manage its debts and structural deficit. When the City Council failed to pass the increase, the receiver, Air Force Maj. Gen. William Lynch — who is charged with implementing the plan — took the case to court.

The council’s failure to enact the tax rate led Leadbetter to side with the receiver, who argued the tax was necessary to help fix the city’s budget.

“Here the council has failed to act to alleviate an emergent fiscal threat to the health, safety and welfare of the citizens and threatened the ability of the City government to function,” she wrote.

The council’s inaction, Leadbetter wrote, “seriously threatens” the success of other portions of the plan, like the ability to bargain with union workers and creditors.

Leadbetter wrote that the court’s power to direct the enactment of a tax increase constitutes a degree of intrusion under separate of powers principles.

But, citing past case law, the case merits the intrusion, she said.

“However such intrusion is appropriate under compelling circumstances or where the action or failure to act imperils another branch’s ability to function,” Leadbetter wrote.

The court cannot directly impose a tax increase. But it can, Leadbetter said, require City Council action.

The increased tax, in a full year is estimated to bring in $6.8 million. The increase would have generated $1.7 million in 2012 if enacted in the summer as previously planned, according to court documents.

It’s unclear how much it will contribute to 2012, said Cory Angell spokesman for the Office of the Receiver.

Harrisburg faces a $12.6 million budget shortfall by the end of the year, if it pays all its debts, Angell said. The city is likely to run out of money to pay for its day-to-day operations in October, he said, which may have been avoided if the tax increase was approved as planned.

Angell said he hopes the ruling, confirming the tax’s necessity, will elicit more cooperation from City Council on the recovery plan in the future.

“We would still like to work with City Council and every time you go to court, it steals your time, it steals your energy, and if we had implemented this tax back when it was first conceived of we would probably not be looking at the shortfall we are here in October,” Angell said.

Per Leadbetter’s order, City Council has 15 days to enact the tax, to be in effect for one year. Any subsequent increases may be sought by court petition, according to Leadbetter’s order.

Neil Grover, attorney for City Council members, said he would not comment on the likelihood of an appeal, or how council would proceed, until after meeting with his clients.

Councilman Brad Koplinski

City Councilman Brad Koplinkski said he disagreed with the judge’s decision the situation required an intervention of the separation of powers.

“The fact remains, democracy in the city of Harrisburg has taken a very serious blow in that we were elected by the people to make decisions on behalf of the citizens of Harrisburg and not carry out the orders of the state,” Koplinkski said.

Koplinski said the state was wrong to push for the tax first, rather than pursuing other forms of revenue, such as the sale or lease of city assets.

That’s where “the real money” is, he said, and he disagreed that the several million dollars from the tax increase would prove a valuable bargaining chip.

A significant portion of Harrisburg’s fiscal woes stem from more than $300 million in debt related to the incinerator, a trash-to-energy facility that failed to produce anticipated revenues authorized by the Harrisburg Authority. The Office of the Receiver is pursuing the sale of the incinerator to help address its debts.

Leadbetter’s order says the new tax revenue is only to go to vital city services.

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Melissa Daniels is a reporter for PA Independent. She can be reached at 717-350-0962 or Melissa@PAIndependent.com

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