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November 30, 2012 | By | Posted in General News, Investigations

Scranton commuter tax faces widespread opposition

By Eric Boehm | PA Independent

SCRANTON — Hard-up for cash to meet growing employee costs and swelling debt payments, the city of Scranton is hungrily eyeing the paychecks of workers who do not live in the city.

If a three-judge panel in Lackawanna County Court gives its consent, Scranton will move ahead with a plan to impose a – percent tax on the income of individuals who work in the city but live beyond its borders.

The so-called “commuter tax” could generate up to $4 million annually to help Scranton pay its debt and continue to fund city services, but the proposal is being loudly opposed by businesses in the city and residents from outside.

COMMUTERS BEWARE: Scranton wants to tax workers who live outside the city and drive into the city for work. Many pass over or under the historic Harrison Avenue bridge on daily commutes.

Alexander Chelik says the whole thing reminds him of that famous phrase from the American Revolution.

One of the principles that our country was founded upon was no taxation without representation,” said Chelik, the longtime mayor of Mayfield, a borough of 1,800 residents located about 15 miles north of Scranton.

Chelik is leading the opposition to the proposed tax, which he says is little more than a cash grab by a city that has eaten through its own revenue and is now scavenging for more tax dollars by going after commuters.

“They have no say in the running of the city government, and now the city wants to impose a tax on them to bail them out,” he said.

Scranton is operating under the state’s program for fiscally distressed municipalities, known as Act 47, and state officials agreed to include the new tax in a recovery plan for the city that was approved in August. The city also must win approval from Lackawanna County Court, where it will argue on Dec. 10 that the commuter tax is necessary because all existing tax revenue has been tapped out.

The 1-percent earned-income tax on people who work in the city but live elsewhere is expected to generate about $2.5 million in 2013 and $4 million in 2014 and 2015.  The city will have to go before the court each year to get permission to impose the tax.

The earned-income tax on city residents, meanwhile, will remain unchanged at 3.4 percent in the proposed 2013 budget, though the city’s real estate taxes are set to increase by 12 percent.

SCRANTON: Buried under $300 million of debt, Scranton is looking for outsiders to shoulder some of the burden.

Businesses in Scranton are understandably worried about the affect the new tax will have on their ability to attract employees.

A survey of more than 700 businesses conducted by the Greater Scranton Chamber of Commerce found 84 percent opposed the new tax.

“The imposition of the commuter tax will make it more difficult to recruit employees and more expensive to keep them,” Austin Burke, president of the chamber, said in a letter sent last month to Scranton Mayor Chris Doherty.

Doherty did not return calls for comment, though he told the Scranton Times-Tribune last week that “we’ve raised taxes everywhere” and defended the commuter tax as a “temporary tax.”

According to the public notice of the new tax, it is needed “to raise sufficient revenue for the city of Scranton to meet its general operating obligations pursuant to its revised recovery plan. It is within the city officials’ judgment that the increase in non-resident earned-income tax is necessary.”

The new tax is necessary, in part, because Scranton’s proposed budget for 2013 is $109 million, up from $85 million this year.  The increase is mostly the result of a $17 million court-ordered arbitration settlement to the city’s police and fire unions and a $4-million increase in contributions to the city’s pension fund.

The city has more than $300 million in debt, including a $113-million unfunded pension liability.

COMMUTER TAX: The tax will target residents of the gray areas on this map, while the revenues will fund the city government (Scranton neighborhoods colored).

Burke points out that businesses and workers in Scranton already are subject to a litany of taxes.

Businesses pay a mercantile tax and a business privilege tax, both of which are increasing in the new budget, while workers in the city pay a $52 annual fee known as a “local services tax” and pay between $70 and $120 monthly to park in the city.

Burke said the commuter tax will make it harder for businesses in the city to compete with their suburban counterparts.  Fewer businesses locating in the city has a ripple effect that will damage the restaurants, retailers and other service providers in the city core, making it counterproductive to enact the new tax.

“The ultimate effect will be the reduction of the city’s tax base and future revenue streams,” Burke said.

Steve Frates, director of research at the Davenport Institute at Pepperdine University, said the new tax would be “one more incentive for business to leave Scranton.”

In addition to that, it’s a clear message to other businesses not to locate in Scranton,” Frates said.

Scranton already has some experience with a temporary commuter tax.  The city instituted a 1-percent commuter tax in 1992 as part of its Act 47 recovery plan.  The tax was discontinued two years later.

“The commuter tax is seen as a bridge for the city to work through for the next three years — but there is no guarantee that the tax would be a part of any future recovery plan,” said Gerald Cross, executive director of the Pennsylvania Economy League, a nonprofit that contracts with the state to oversee recovery plans for a handful of municipalities in Act 47, including Scranton.

Under state law, a municipality must pass a three-pronged test before it can implement a commuter tax.  It must show that it has raised taxes and fees on its own residents, demonstrate that its revenue is insufficient to meet its obligations and take steps to win approval from voters and other groups for the new tax.

Frates said any supposed temporary tax proposals should be viewed with a degree of skepticism.  Once in place, so-called “temporary taxes” rarely get repealed, he said.

Nationally, commuter taxes are rarely implemented, Frates said, but there is an obvious political benefit to taxing commuters — they do not get to vote against the mayor or city council.

In opposition to the tax, 31 municipalities in Lackawanna County have banded together to form STOP (Scranton Taxing Our People) They are pooling resources in an attempt to have legal representation at the Dec. 10 hearing in Lackawanna County Court.

The ruling made by that court could affect other cities in the state as well. Some officials have suggested a commuter tax for Harrisburg, the state capital, which is struggling under its own pile of more than $400 million in debt.

If they cannot kill the tax proposal in court, Chelik said his group may threaten an organized boycott of the city by the external municipalities.

Contact Eric Boehm at Eric@PAIndependent.com and follow @PAIndependent on Twitter

— Edited by Kelly Carson, kcarson@watchdog.org

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Eric Boehm is a reporter for PA Independent. He can be reached at Eric@PAIndependent.com or at (717) 350-0963.

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