Lancaster’s Home Rule Study Commission dove into the details of local taxation on Thursday and discussed the government structure of three peer cities.
The roughly two-hour meeting was the last one scheduled before Wednesday, Jan. 24, when the commission will vote on whether to proceed with drafting a home rule charter. If members vote “yes,” they will have nine months to work: The goal is to finish in time to put the charter to voters in a referendum in the November general election.
If you go
At its next meeting, the Home Rule Study Commission plans to vote on whether to proceed with drafting a charter.
- When: 7 p.m. Wednesday, Jan. 24
- Where: City Hall, 120 N. Duke St., Lancaster
Among other things, a charter would allow City Council to raise the Earned Income Tax rate, or EIT, above the maximum of 1.1% allowed now. (Of that total, 0.6% goes to the city and 0.5% goes to the School District of Lancaster.)
On Thursday, Pennsylvania Economy League consultants Gerald Cross, Fred Reddig and Patricia Moorhead traced out some of the potential repercussions.
A higher EIT would give Lancaster a more balanced tax structure, the three contended. Earned incomes tend to grow as the economy does, so tax receipts rise over time, even when the tax rate stays the same. In 2020, if Lancaster had had a 1.5% EIT, it could have generated about half the revenue it needed from that tax alone, PEL calculated.
The other taxes available to the city don’t yield the same kind of organic revenue growth. Flat taxes lose their value with inflation. Real estate taxes are based on assessed value, which grows only minimally in a built-out older city. While real estate market values can rise and fall, assessed values remain unchanged between assessments. If an assessment does change, it’s usually due to a property owner’s appeal.
When an overall reassessment does take place, millage must be adjusted downward by law to keep the outcome revenue-neutral. Thus, rate hikes are the only way to secure significant additional property tax revenue, which potentially burdens lower-income and fixed-income property owners.
Hence, the EIT “is a way to balance the budget,” Cross said. With control over the rate granted by a home rule charter, future administrations and City Councils could adjust the mix of Lancaster’s revenue sources: “We call that tax flexibility.”
‘Guardrails’
A home rule charter would not establish tax rates, the PEL consultants said. However, it could stipulate “guardrails,” such as a percentage limit on annual revenue growth, or a requirement for a supermajority vote or even a public referendum to authorize rate hikes above a certain level.
The ultimate guardrails, Cross said, would be voters, who would have the power to turn profligate mayors and City Councils out of office.
State law allows non-home rule municipalities to refund EIT paid by taxpayers earning up to $12,000. PEL believes home rule municipalities are allowed to change that threshold, Reddig said, though he advised the commission to rely on Solicitor Barry Handwerger’s opinion if it chooses to move in that direction.
Commission members asked several times if home rule would allow Lancaster to raise the EIT on non-residents who work within city limits. There are some technicalities involved, PEL said, but the short answer is no.
Member Darlene Byrd asked if the charter could be used to prune the city’s roster of authorities, boards and commissions or address disparities between water rates paid by city and suburban residents.
The charter could set eligibility requirements, but eliminating a city-affiliated entity would require City Council action, Cross said. He noted that authorities are covered by the state’s authorities’ law.
As for water rates, rate-setting outside the city goes through the Public Utility Commission, Handwerger said. Typically, the city adjusts water rates within city limits to keep them roughly equal to the suburban ones.
While those matters are outside the charter’s purview, a charter could limit the city’s ability to sell the utility, he said; for example, by requiring a referendum.
Altoona, Hazleton, Williamsport
Commission subcommittees have interviewed three cities’ mayors so far, and are planning a fourth session next week with Allentown, which adopted home rule in 1997. Three other cities, Harrisburg, Reading and Easton, have not responded to the commission’s overtures.
Altoona
Altoona was designated a “financially distressed” city from 2012 to 2017. It adopted home rule in 2015, shifting from a council-manager form of government to a “weak mayor” charter. It is administered by a city manager overseen by a City Council, one of whose members is a full-time mayor, Matt Pacifico.
Apart from his vote on council, Mayor Pacifico has little in the way of explicitly granted powers, unlike a “strong mayor” system like Lancaster’s. Commission Chairman Brian Adams characterized the role as akin to a “Speaker of the House.”
Pacifico indicated he would prefer a strong-mayor arrangement, Adams said.
Hazleton
Hazleton is one of two Pennsylvania municipalities with a “Mayor-Council Plan B” government. (The other is Bensalem Township in Bucks County.) Among other things, it provides for an obligatory business administrator.
Mayor Jeff Cusat “runs the town,” Adams said, and appears convinced he’s the only person who could do so effectively. He has considerable power, including the right to approve and sign contracts unilaterally, without City Council approval. Cusat said he himself would not have given himself that right, Adams said.
Hazleton has gone three years without an audit, due to a lack of sufficient appropriations from City Council, Adams and PEL said. That is impeding its ability to borrow, and Cusat indicated it’s something that will have to be rectified, Adams said.
Williamsport
In Williamsport, home rule was proposed by a group of citizens angry over alleged misappropriations of funds under a previous administration. In 2017, voters rejected two proposed charters — one home rule, one optional Third Class City.
The battle was acrimonious, and Mayor Derek Slaughter said his administration is still working to rebuild trust, commission member Tony Dastra said. That aside, Slaughter remains open to the idea and thinks it has potential, Dastra said.
Next steps
The meeting at West Art was the last of four held at neighborhood venues to encourage public participation. Audience member Christopher Brooks asked the commission what conclusions they had drawn about government structure from the examples of Altoona, Hazleton and Williamsport.
Vice Chair Amy Ruffo said for her, at least, it’s too early to say, having heard the material for the first time only moments earlier. The takeaways will be hashed out before the vote on Jan. 24, she said, along with information from Allentown and any other cities if they respond in time.
It appears a charter would place more responsibility on City Council, audience member Candace Roper said. Possibly, Adams said, but they could also end up with less: It depends on how the charter is written.
What about the effect of tax changes on business development and people’s willingness to live in Lancaster, Brooks asked: Has that been analyzed? That’s more a matter for City Council and the administration, who are in charge of budgets and setting tax rates, Adams said.
“But the charter does open more possibilities,” Brooks conjectured.
“Yes,” Adams said.
