A bill introduced Friday would prohibit a commuter tax in Harrisburg but allow the city to preserve most of its current taxing authority and exit the state's Act 47 program at the end of the year.
The legislation represents one of the city's last chances to avoid receivership and devastating property tax hikes-- or both-- as the city plans its exit from the state's program for financially distressed municipalities.
Legislators will have to act quickly, as there are only eight session days remaining this year and the city faces a deadline of Nov. 15 to adopt an exit plan from Act 47.
If the bill fails, city officials would have to scramble to come up with an alternative proposal to get out of Act 47 in three years while avoiding pending property tax increases of 100 percent that are included in the current revised exit plan.
Under the proposed legislation, the city would be allowed to keep its two-percent earned income tax and retain the majority of its tripled local services tax, which is levied on people who work in the city.
Those enhanced taxes are currently allowed because Harrisburg is in the Act 47 program. But the city would have to revert to a one-percent earned income tax and a $52 flat annual local service tax, losing $12 million annually, when it leaves Act 47, barring this legislation becoming law or a home rule charter.
City officials have long argued that pulling the taxing rug out from under Harrisburg as it tries to leave Act 47 would only put the city back in financial distress after five years of recovery.
The local services tax currently costs each worker $3 per week, or $156 per year, but that would be capped at $150 annually, under the bill proposed by Rep. Greg Rothman (R-Cumberland.)
The city would lose $270,000 annually from this small tax cut, but "we can live with that," said Mayor Eric Papenfuse.
Rothman's bill also specifically forbids the city from trying to enact a commuter tax, something Papenfuse proposed as part of a revised exit plan from Act 47.
If the city can't keep its current taxing authority after Act 47, Papenfuse argued, then the city should use its final three years in Act 47 to collect a commuter tax to pay down its debts and emerge in a stronger financial position. A commuter tax is available under the Act 47 program and could cost some commuters one-percent of their salaries, depending on the earned-income-tax rate of their hometown.
The way the tax would work: Commuters who live in municipalities with earned income tax rates below two percent would pay the difference to Harrisburg.
If a commuter tax were implemented, however, Rothman said many of his constituents would be dis-incentivized to keep their jobs in the capitol city, thus limiting the contributions to Harrisburg's local businesses.
"We need a healthy city," Rothman said in a news release posted on his website Friday. "However, we don't need a commuter tax levied on the workers in Harrisburg and its imposition would be devastating to attracting and maintaining private investment to the city."
Papenfuse previously has said the commuter tax would only be necessary if the city had to prepare to lose its current taxing authority.
The mayor said Friday the proposed bill was "fair and the "right thing for the region," and would provide the city a stable, sustainable future without being a burden to the state under Act 47.
The bill would not allow the city to keep its current taxing authority in perpetuity. Instead, the taxing authority would be tied in two ways to the city's Other Post-Employment Benefits Trust, which is a pot of money designed to help pay for retiree medical costs. The trust was recommended as part of the city's recovery plan and will be overseen by an independent board.
First, most of the extra taxes generated by the enhanced authority would go to pay for those medical costs and to build the trust. Secondly, the enhanced part of the taxes would expire when the city reaches 85-percent of its funded liability.
That addresses some concerns that had been aired by lawmakers that the city could go gangbusters with development and new residents, but then continue to tax city workers at the enhanced rates allowed for financially- struggling cities.
Many cities have problems keeping up with the enormous costs of Other Post-Employment Benefits. Those perks have since been reduced for Harrisburg employees, but the obligations remain and fluctuate annually based on the extent of medical emergencies. The post-employment benefits cost the city $5.86 million last year from the general fund and $2.75 million this year through June.
Financially-sound cities have financially-sound OPEB trusts, Papenfuse said.
The state set aside $3.2 million from the city's sale of its assets as seed money to start the OPEB trust, which should be set up by the end of the year.
The legislation by Rothman also would require annual reports detailing the amount of taxes generated and the state of the OPEB trust.
Rothman, Papenfuse, the city's Act 47 coordinator and others expect to testify at a joint public hearing with the House Finance, Local Government and Urban Affairs committees at 9 am. Tuesday, Sept. 25.