During her 2025 budget address to City Council on Tuesday, Mayor Danene Sorace noted that it marked a milestone in city financial history.
It may be the earliest a Lancaster administration has delivered a full draft budget, she said. Moreover, it is likely the first time an administration has offered not one budget, but two.
The departure from past practice stems was prompted by Lancaster’s potential shift to home rule. A referendum on the charter drafted by the Home Rule Study Commission is on the ballot for Nov. 5: If city voters approve it, it will take effect at the start of next year.
Among other things, it would allow City Council to raise the earned income tax, or EIT, above 0.6%, the maximum allowed under the Third Class City Code under which Lancaster currently operates. (The School District of Lancaster collects another 0.5%, for a total EIT of 1.1%.)
Obviously, it won’t be known until after Nov. 5 whether home rule has passed or not. Accordingly, Sorace’s director of administrative services, Tina Campbell, presented Council a “home rule” budget that is premised on it passing, and a “regular” budget in case it is rejected.
For more information
Lancaster’s 2025 draft budget is here, along with the slides that Director of Administrative Services Tina Campbell presented to City Council on Tuesday. The budget sets out a full set of line items for both the “home rule” and “regular” scenarios.
City Council will hold a budget hearing beginning at 9 a.m. on Saturday, Oct. 12, in Polite Council Chambers at City Hall. Council will hear from each city department head in turn about their work this year and their budget requests for 2025.
At 6:30 p.m. Thursday, Nov. 14, City Council’s finance committee will hold a follow-up meeting on the budget, Campbell said. At that point, the outcome of the home rule referendum should be known, allowing her to present a single budget for consideration.
That budget will be introduced formally at City Council’s Nov. 26 meeting, in line with the Third Class City Code, allowing a vote to adopt it at Council’s meeting on Tuesday, Dec. 17.
Regular vs. home rule
The “regular” budget calls for a property tax hike of 1 mill, from 12.64 mills to 13.64 mills, an 8% increase. One mill equals $1 per $1,000 of assessed property value, so the owner of a house assessed at $101,000, the median value in the city, would pay an additional $101.
Under that scenario, real estate taxes would yield $35.5 million in revenue, or 46% of total revenues of $76.4 million.
The “home rule” budget, on the other hand, calls for raising the earned income tax by 0.3 percentage points, from 0.6% to 0.9%. Taxes on a city resident earning a median salary, $60,000, would rise by $180. Property taxes would remain unchanged.
Under that scenario, earned income tax revenues would jump by 39%, from $9.61 million to $13.34 million. (They would not jump by 50%, as one might expect based on the rate change, due to lags in tax collection, Campbell said: In early 2025, the city would still be receiving a certain amount of revenue from late 2024, assessed at the 0.6% rate.) Total projected revenue would be $77.5 million, or $1.1 million more than the “regular” budget.
That would give the city just slightly more breathing room, Campbell said. In the 2024 budget, there are 413 funded fulltime-equivalent staff positions: That would drop to 387 (26 fewer) under the regular budget but only to 393.5 (19.5 fewer) under the home rule proposal.
The regular budget also cuts a couple of IT purchases, including a report management system for the Bureau of Police, and zeroes out the annual contributions that the city has historically made to Lancaster EMS and Lancaster Public Library. Under the home rule budget, they would receive $75,000 and $55,000, respectively, down from $150,000 and $110,000 in 2024.
As Sorace has emphasized, the majority of city expenditures support core public services. Police, fire and public works alone account for two-thirds of outlays. As for year-over-year budget increases, Sorace and Campbell said, they are being driven not by operating costs, which actually are budgeted to decrease, but by healthcare and pension costs.
Two EIT scenarios
An important advantage of the EIT, its proponents argue, is its potential, thanks to increasing incomes, to generate more revenue over time without rate hikes. If it is a large enough portion of the city’s revenue mix, its growth (historically around 5% a year) should be enough to cover the city’s structural deficit, which has averaged around 2% a year.
In other words, if the initial increase is sufficient, the city would not need to raise it again. It might occasionally need to raise property taxes, but those hikes would be much smaller and less frequent.
Most of Pennsylvania’s home rule municipalities have been able to leave their EIT rates untouched after an initial hike, according to a Pennsylvania Economy League analysis (PDF). In 90% of their budget years, they have been able to keep it unchanged and 4% of the time, they were able to reduce it, PEL found. Since 1999, they have been able to keep property taxes unchanged 63% of the time and decrease them 14% of the time, increasing them in just 23% of their annual budgets.
In Lancaster’s case, would an EIT of 0.9% allow the city to dispense with further increases? Not according to the city’s projections. Without a further EIT or property tax increase, they show Lancaster’s fund balance running dry by 2029 and plunging $32 million into the red by 2035.
Raising it by another 0.2 percentage points, to 1.1%, is a different story, Campbell said. Under that scenario, with no further tax increases, the city projects annual deficits after 2028, but the fund balance stays in the black, with $7 million remaining by 2035.
Sorace and Campbell cautioned that the projections are illustrative, and actual budgets over the coming decade will likely differ as unforeseen circumstances arise. Still, they illustrate the differences that would accrue from compounding a different initial rate over time.
So, are Sorace and Campbell proposing an EIT of 0.9% or 1.1%? The latter “is a second option for council to consider,” Campbell said. With an EIT of 1.1%, a long-term outlook of no further tax hikes is “feasible,” she said; at 0.9%, it isn’t.
Enterprise funds
Besides the general fund budget, Lancaster has four “enterprise funds” supported by fees: Water, sewer, stormwater, and solid waste & recycling.
For 2025, the administration is proposing a 10% increase in trash fees and a 12% increase in sewer fees. For most households, those would amount to an additional $8 per quarter and $5.25 a month, respectively.
No increases are proposed for water or stormwater rates. However, the city is planning to apply to the Public Utility Commission in early 2025 for a rate increase on its suburban customers.
The increases are driven by external costs, Sorace said: Higher landfill tipping fees, and water and sewer capital investments necessitated in large part by unfunded federal mandates. The latter are an increasing cause for concern, she said.
The cost to implement what federal regulators are demanding is “breathtaking,” she said: I am deeply concerned about water affordability for our customers, most especially in the city, in the future.”
