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September 18, 2013 | By | Posted in Legislature

You’re buying: Can PA munis drink their way out of debt?

By Melissa Daniels | PA Independent

TAX: An up-to-10 percent tax on drinks could be coming for Act 47 municipalities.

HARRISBURG — A proposed tax on alcoholic drinks could give new meaning to the phrase “drinking away your problems” by funneling new revenue toward municipalities in financial distress.

The “Optional Distressed Municipality Alcohol Consumption Tax” is one of three new levies in the proposed legislation from the Local Government Commission Act 47 Task Force, which is working through an update to the state’s designation for fiscally distressed municipalities.

The task force’s recommended  legislation, which could be introduced in the General Assembly as early as this fall, aims to create an exit strategy. It creates a five-year limitation for Act 47 designees, followed by an optional three-year exit plan. In the meantime, the idea is local governments could fix their finances with new revenue options, such as a drink tax.

“Each municipality is really going to have to analyze what is best for them,” said co-chair Rep. Chris Ross, R-Chester. “We’re trying to apply this to a variety of different municipalities in very different circumstances, from very small boroughs to very large cities.”

Act 47 is something of a black hole. Since Pennsylvania enacted the program in 1987, 26 municipalities have received the designation. Six have emerged. But the situations that landed them on that list in the first place vary. Some may not be able to balance their annual budgets, some may have crushing debt obligations and still others may have seen their tax bases erode after years of economic stagnation.

Act 47 municipalities include the cities of Scranton, Harrisburg, Altoona and Reading.

Sen. John Eichelberger, R-Blair, a task force co-chair, said his group avoided crafting recommendations that would not create one-time windfalls or hamper future economic growth by driving away businesses.

“We didn’t want to say, ‘You can do this, this and this,’ without making sure that ties in with the broader perspectives of economic viability moving forward,” Eichelberger said. “You don’t want these people in a quick-fix situation, damaging themselves for their future economic growth.”

The proposed drink tax would be up to 10 percent of the sale price. Vendors who don’t collect or remit the tax could lose their liquor licenses. A similar consumption tax already exists in Philadelphia, where revenues go toward the school district. Allegheny County has a drink tax, too.

Another proposed option is a local services tax, at a maximum rate of $156 per year on residents and nonresidents who work in a municipality. This could be introduced instead of a “commuter tax,” which is on earned income.

The third option is a payroll preparation tax, paid by businesses based on number of employees. But the municipality could not simultaneously levy another mercantile or business privilege tax.

A court would have to sign off on the taxes before they were enacted, increased or renewed. And once the municipality is no longer in Act 47, it could not continue to be collected.

“We want to try to make the municipality and the municipal government make these decisions themselves,” Ross said. “Our preference is always for the local elected officials to resolve the problems.”

But keeping in mind that new revenues may not solve the problems, the task force update includes proposals on what municipalities could do if their recovery plans don’t work.

The proposal expands the concept of a receivership, a designation now reserved only for third-class cities such as Harrisburg. A receivership is state-appointed and helps create a fiscal recovery plan.

Multiple chapters in the update would allow municipalities to “unincorporate” if they cannot  get out of Act 47, essentially ending  the municipality altogether. Ross said this was a “very rare” option, but it  could be used for municipalities struggling with falling populations and stagnant revenue and, thus, deemed “nonviable” by a court.

The “unincorporated service districts” would only provide services deemed essential, such as emergency management, and would be managed by a four-person team — a state-appointed administrator and three community representatives. The district could merge with another municipality or could re-incorporate in the future.

Contact Melissa Daniels at melissa@paindependent.com

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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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