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City Council hears first estimates of taxes with and without home rule

City Hall, 120 N. Duke St., Lancaster. Inset: Mayor Danene Sorace. (Source: OUL photos)

Lancaster residents can expect tax hikes next year, but they will be significantly different in scope depending on whether or not voters approve a home rule charter in November, Mayor Danene Sorace said this week.

The mayor made her comments Tuesday during a midyear budget update to City Council. The city is facing a multi-million dollar deficit for 2025, as well as a significant uncertainty: Namely, whether it will have a home rule charter; and if so, what tax provisions it will include.

Sorace has previously said her administration is preparing two 2025 budgets: One assuming that a home rule charter passes giving the city a free hand to raise the earned income tax rate; the other assuming no change. Both budgets have gone through a first draft, she said Tuesday, yielding the following preliminary projections:

  • Under the business-as-usual “regular” budget, the city anticipates needing to make $3.8 million in spending cuts and to raise property taxes by 1 mill, from 12.64 mills to 13.64 mills, an increase of 8%.
  • Under home rule, the city is projecting $1.7 million in spending cuts and an increase of 0.3 percentage points in the earned income tax. The EIT is now 1.1%, with 0.5% going to the School District of Lancaster; the city envisions raising its share by half, from 0.6% to 0.9%.

The city is refinancing a land purchase made in 2021 with American Rescue Plan Act funds. That will release $3.4 million in ARPA, which can be put toward closing the 2025 budget gap.

The full amount would be used in the “regular” scenario, but Sorace said only $2.4 million would be needed in the “home rule” scenario, allowing the remaining $1 million to go toward renovating a trio of parks and playgrounds in the city’s southeast: Ewell Gantz Playground, Joe Jackson Tot Lot and South End Park.

In either case, the ARPA funds would give the city more breathing room in 2025, but would not alleviate its challenges in 2026 and thereafter, when ARPA would no longer be available.

A 1-mill tax increase generates about $2.5 million in revenue, Sorace said; the proposed EIT increase would generate an estimated $4.8 million in its first year.

Sorace said she will introduce both budgets on Tuesday, Oct. 1; and hold a detailed budget “information session” on Saturday, Oct. 12.

The home rule commission is planning to put a referendum on home rule before city voters on Election Day, Tuesday Nov. 5. The city will then know whether it has passed or not, allowing for the unveiling of a single draft budget the following week on Thursday, Nov. 14.

After that, the administration will officially present the budget to City Council. Under current law, that must be done at council’s last meeting in November, which is Tuesday, Nov. 26.

Property taxes vs. EIT

From the start, Sorace has stressed the potential under home rule to shift some of the city’s tax burden by raising the earned income tax, rather than continually having to increase proprty taxes. Doing so would be more equitable, she says, and would be more sustainable in the long run, because incomes tend to rise over time, providing a mechanism for revenue growth without rate increases. Consulting firm PFM said much the same thing to the Home Rule Study Commission in a presentation earlier this year.

How would city households make out under each 2025 budget scenario? That would depend on their income and the assessed value of their residence. Households with low earned incomes and high property taxes could come out ahead; those with high incomes and low incomes could end up paying more.

Median household income in Lancaster is around $60,000. At that level, raising the EIT from 1.1% to 1.4% would increase taxes by $180, from $600 to $840. All $180 would go to the city, raising its take from $360 to $540.

Property taxes are based not on market values, but assessed values, as calculated in a countywide analysis last conducted in 2017. The median assessed value of residential property in Lancaster is around $100,000 (versus median market value of around $179,500 as of 2022). One mill equals $1 per $1,000 of assessed value, so a 1-mill hike on $100,000 would increase taxes by $100, from $1,260 to $1,360.

For most renters, the tradeoff would likely be somewhat unclear: They would see the earned income tax increase directly; but a property tax increase would only have an indirect effect, as a factor in the rent assessed by their landlord.

Fire bureau staffing

Sorace concluded her update to City Council with comments on a recent controversy regarding firefighter staffing.

On July 1, the city reduced manpower on firefighter shifts by two, from 13 individuals to 11. In a statement on Facebook, the president of the Lancaster Professional Firefighters Association union, Geoffrey Stone, said 11-person shifts don’t meet National Fire Protection Standards and are unsafe.

Firefighters have done their part to help the city with its financial challenges, he said. Until this year, the city and the union had a “side letter” allowing the city to maintain staffing levels by paying overtime hours at the regular rate, rather than time-and-a-half. Still, compared with the early 2000s, firefighter ranks are down from more than 90 to 69.

“The staffing issues must be addressed,” he said.

On Tuesday, Councilwoman Janet Diaz asked why, if the city can’t afford 13-person firefighter shifts, it has a three-person communications team.

The salaries for the city’s deputy chief of staff and two communications managers total just under $174,000 in the 2024 budget.

Sorace said the change had to be made because overtime increased sharply after the side letter expired. From January through June, the Bureau of Fire has spent 82% of its overtime allotment, she said. That works out to $369,000, based on the $450,000 overtime line item in the bureau’s 2024 budget.

There have been no reductions in budgeted firefighter staff during her tenure, she said, but between paid time off and contract rules guaranteeing off-duty shifts, maintaining 13-person complements would entail paying overtime to one-third or more of those individuals, she said: “It’s not sustainable.”

She said the union and city will be meeting to determine the “best path forward.”