Mayor, study commission members host first education session on home rule

Toward the end of her presentation on home rule, Mayor Danene Sorace admitted she hadn’t been a fan of the idea when she took office back in 2018.

“What changed your mind?” an audience member asked. The mayor paused for a second.

“I just am tired of raising property taxes,” she answered. “I don’t want to do it anymore.”

Sorace joined Home Rule Study Commission members John McGrann and Amy Ruffo at West Art on Thursday evening for the first of five neighborhood education sessions on home rule, one in each city quadrant and a final one at City Hall.

The events are part of a publicity campaign to educate Lancaster voters about the home rule charter that they will be voting on in a referendum on Election Day —Tuesday, Nov. 5. Sorace said she is encouraging a “yes,” vote, but she made it clear that home rule is far from a cure-all. Rather, its “the best of a limited set of options.”

The core argument Sorace made Thursday is essentially the one she has made since the start: Implementing home rule would give Lancaster much-needed financial flexibility by allowing it to raise its earned income tax, or EIT, above the current state-mandated cap of 0.6%.

Taxes provide a little over 60% of the revenues for the city’s general fund budget, which totals $73.5 million this year. Separately, the city has budgets for its sewer, water, stormwater and trash services. Because they are funded through fees, those accounts are not pertinent to the home rule discussion, Sorace said.

Individual incomes tend to rise over time, so EIT revenues typically grow naturally without rate increases — historically, about 5% a year on average, Sorace said. Hence, by making the EIT a larger slice of the revenue pie, the city can close its structural deficit without the regular property tax increases it has relied on for years.

That would be more equitable, Sorace said. The EIT isn’t applied to retirement income, and if your earnings happen to fall in a particular year, your EIT tax does, too. That’s in sharp contrast to property taxes, which are imposed based on assessed property value regardless of household income, the mayor said.

To illustrate the tradeoffs, she presented three scenarios, and their projected implications over the next decade:

1. Home rule doesn’t pass, and the EIT stays at 0.6%: Property taxes would increase five times and would be 45% higher by 2034. The city’s reserves would shrink from $11.1 million to $3 million.
2. The EIT is increased to 0.9%: The average taxpayer’s taxes would rise by $180, from $360 to $540. This would reduce but not eliminate the need for property tax increases: Without them, the city would have a negative fund balance by 2028, which would increase to $32 million by 2035.
3. The EIT is increased to 1.1%: The average taxpayer’s taxes would increase by an additional $120 over the 0.9% scenario, to $660. City revenue would initially rise by $6.6 million, a number that would grow about 5% annually thereafter. At that rate, it appears the city could potentially avoid property taxes for a decade, Sorace said. At the 2035 mark, the projection shows the city with a yearly surplus of $149,000 and a fund balance of $7 million — not ideal, but still in the black.

Sorace cautioned that the scenarios are illustrative only. The future is uncertain, budgets are enacted yearly, not for a decade, and events could certainly occur that would render the projections moot.

EIT: Budget impact projections

The goal is to raise the EIT once, then leave the rate unchanged, she said. The track record of other home rule municipalities suggests that’s feasible, she said: Among jurisdictions that implemented home rule since 1999, 90% kept their EIT flat or reduced it after an initial rate hike and 63% were able keep from raising their property tax rates, and in some cases to reduce them.

Audience members’ questions were straightforward and to the point. Has the city done all it can to cut expenses, asked Mary Hundt. Henry Tober asked what would keep City Council from treating home rule as a “blank check” to raise taxes. While there’s a provision limiting annual revenue increases to 6%, it doesn’t kick in for two years, and it can be overridden by a supermajority vote.

Regarding expenses, the answer is an unqualified “yes,” Sorace said. Her team monitors expenses closely and has actually brought operating costs down from year to year; what’s driving budget increases are health care costs and legacy pension costs.

Public safety — police and fire — accounts for 60% of the budget and public works — streets and parks — accounts for another 10%. The city is not pursuing home rule to expand government, but to “maintain our existing level of services,” Sorace said.

As for tax increases, she said, “I get the fear.” That said, the city’s power to raise taxes is more unconstrained now than it would be under home rule, yet it has exercised that power with due care, she said. Ultimately, she said, it’s the electorate who hold their government to account, and by and large, elected officials understand that and act accordingly.

“I hate raising taxes,” she said. “It’s not what anyone wants to do.”

Besides the 6% limit, home rule would start the budgeting process earlier and would require a capital budget and multi-year planning — all factors promoting prudence and transparency.

What would change, what wouldn’t

Before Sorace’s presentation, McGrann and Ruffo gave an overview of the home rule process and the main changes the draft charter would implement. Among them:

• Expanded initiative and referendum provisions, expanding residents’ ability to have ordinances adopted or repealed
• Creation of an ethics commission
• A longer budget process with more opportunity for public engagement
• A requirement for five-year capital budgeting and quarterly annual budget reviews
• Expansion the elected controller’s powers and elimination of the elected treasurer position
• Elimination of pension and benefits for City Council members

“It’s not just about taxes,” Ruffo said.

The charter also leaves many existing provisions in place. Lancaster would still be governed by a mayor and a seven-member City Council, elected at large for four-year terms. The city administration would still be organized into departments, and there would still be an array of authorities, boards and commissions staffed by community volunteers approved by City Council.

Tober asked what the downsides of home rule might be, noting that Reading and Newark, both home rule jurisdictions, have struggled. Ruffo and McGrann said the study commission tried to craft a framework that improved governance, and both said they think it would. It’s still incumbent on elected officials to make good decisions, McGrann said: Reading, for example, chose to implement an unusually high real estate transfer tax, but there’s no reason for Lancaster to follow suit.

“Ultimately it’s up to the voters” whether the charter is adopted, Ruffo said.

If ratified on Nov. 5, home rule would take effect in January 2025. There would be an 18 month transition period, during which City Council would be tasked with drafting and approving an ethics code and an ethics code — the latter being a detailed manual governing all aspects of city administration and operations.