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Discovering income: Can cities like Harrisburg survive? – PennLive.com

Dan Gleiter | dgleiter@pennlive.

A big issue facing the city of Harrisburg: Finding revenue

Property taxes represent about 28 percent of Harrisburg’s overall revenue stream but the future for real estate revenues appears dim. The city’s property tax revenue has fallen flat with property owners regularly challenging and lowering their assessments.

It’s a complicated issue facing the city and one that the city’s top leaders will have to confront: finding new revenue sources.

Meanwhile, the clock is ticking because the city is still under the oversight of the state.

Fred Reddig (at right,) the city’s state-appointed financial recovery coordinator tours the sinkhole-devastated block of South 14th Street with the state’s Department of Community and Economic Development Secretary Dennis Davin.

Christine Vendel | cvendel@pennlive.com

Getting out of Act 47

The city’s disastrous debt forced the state to take over control of Harrisburg’s finances in 2011. The city is now out of receivership, but still under the oversight of a coordinator who has warned that city officials must either cut costs, raise taxes or find new revenue sources to successfully exit the program.

If the city isn’t successful with its exit by the state-appointed deadline of December 2018, it could return to receivership. And that would likely mean a big hike to already-high property taxes in the city.

The city has achieved balanced budgets in the past three years through tight fiscal management, employee vacancies and the successful turnaround of the city’s sanitation services. An increase in the local services tax also added $4 million annually.

But the city would lose the increase in its LST and an increase in its earned income tax (that was doubled in 2012) once it leaves the Act 47 program. That means the city would potentially need to make up about $12 million in lost revenue at the same time it’s facing a dim outlook with property taxes.

Harrisburg’s revenue trend is flat

While some area suburbs have more than doubled their revenue over the past 13 years, Harrisburg’s growth was a scant 23 percent. (see blue line at top.)

An inflation calculator showed the $14 million Harrisburg collected in 2003 for property taxes would be worth $19 million today. But Harrisburg brought in $17 million in property tax revenue in 2016.

Susquehanna Township, meanwhile, saw growth of 113 percent and Lower Paxton Township saw 155 percent more revenue over the same time frame.

Christine Vendel | cvendel@pennlive.com

What the suburbs have going for them

Many suburban municipalities have land to develop and new construction projects that make up for revenue losses and prop up property values. Suburban municipalities also often have fewer tax-exempt properties that are often clustered in cities.

Dan Gleiter | dgleiter@pennlive.

What Harrisburg has going against it

Harrisburg is landlocked, serving half the population it once did and can’t collect taxes on nearly half of the city’s assessed value because the buildings are tax-exempt. State buildings alone take up 42 percent of the city’s land, but state payments for emergency services for those buildings represent just eight percent of the city’s budget, said City Councilman Ben Allatt.

That puts a lot of pressure on the remaining tax-generating properties, but the city has a poverty rate of 31 percent and a lot of lower-priced housing. The city’s high tax rate discourages additional investment and new construction.

The city also is home to many office buildings while the market for office space has dropped, leaving vacancies that prompt office owners to seek property tax assessment reductions, said Steven Howe, the county tax assessment director.

Christine Vendel | cvendel@pennlive.com

Property owners challenge assessments

Dauphin County’s last county-wide assessment went into effect in 2002. A lot can happen over those 14 years, leading to vastly uneven assessments among homes even on the same block.

The problem is widely acknowledged.

“One-third of the people are probably over-assessed, one-third are where they should be, and one-third are probably under assessed, in any given year,” said Jeff Engle, the solicitor for Dauphin County’s Board of Real Estate Tax Assessment Appeals.

Property owners who feel their properties are over-assessed often seek reductions through challenges. But property owners who are under-assessed in the city and other municipalities in the county simply enjoy the tax break.

“No one’s coming in to argue their taxes should be higher,” said Mayor Eric Papenfuse, who has been sounding the alarm about property taxes since he took office.

A county-wide reassessment would stop the downward trend, he said, and the area is long overdue.

“We need to establish an up-to-date timeline and eliminate this spot-appealing,” he said. “It has a ripple effect,” because it serves to further lower property tax valuations.

What you need to know about property taxes

To try to achieve uniformity despite the lack of recent county-wide tax assessment, county officials use a “common level ratio.” It is multiplied against a property’s current fair market value to establish the property’s value in 2002.

The ratio set by the state for Dauphin County assumes properties have increased in value by 37 percent since 2002. That might be true for many homes across the county, but the housing market is depressed in the city.

The lack of updated assessments in Pennsylvania can work in favor of suburban property owners, who see their actual home prices increase over time while their assessments remain low.

But it can have the reverse effect on city or rural properties, where home prices are likely to remain stagnant or decline while their assessment remains high.

Christine Vendel | cvendel@pennlive.com

Harrisburg’s unique two-tiered’ tax system

Harrisburg is unique in the county assessing land and buildings separately, with land taxed six times more than buildings. The system, established by city ordinance in 1974, was designed to encourage building upward and to discourage land speculators.

The current millage rates are .03097 for land and .00516 for buildings.

Christine Vendel | cvendel@pennlive.com

This property got reduced

This broadcast building at 3300 North Sixth Street was among 113 property tax assessment challenges filed last year. The land was formerly valued at $213,000 and the building, $110,500.

After the challenge, those figures were adjusted downward to $140,200 for the land and $72,900 for the building. Overall, the changes meant $2,940 less going into the city’s coffers each year. The county and school district also saw drops in their taxes from the new assessment.

Christine Vendel | cvendel@pennlive.com

This mansion got reduced

This mansion at 2901 Front Street, one of the so-called “Mary K mansions,” sold for $395,000 at auction in 2014. Last year, the owner challenged the land assessment of $213,000 and the building assessment at $110,500.

The taxes were reduced to $140,200 for land at $72,900 for the building, resulting in a $2,452-savings for the owner. But a $2,452 loss for the city each year.

Christine Vendel | cvendel@pennlive.com

This home got reduced

The owner of this home in the 2900 block of North Second Street appealed his tax assessment last year. The value of the land was not changed, but the value for the building was reduced from $199,000 to $117,400, shaving off $425 annually in city taxes.

Christine Vendel | cvendel@pennlive.com

Large office towers seek reductions too

While residential reassessments chip away at the city’s revenue, large office towers can dig a little deeper. This 12-story tower at a prominent intersection in downtown Harrisburg sought a series of reassessments over the years gradually dropping its once $17.9 million assessment in 2001 to $11.6 million last year. The most recent challenge shaved about a million off the building assessment last year, which cut nearly $5,000 from its annual tax bill for the city.

Christine Vendel | cvendel@pennlive.com

Verizon Tower takes its tax fight to court

Harristown Redevelopment took Dauphin County to court after the appeals board denied its request to reduce a longtime $22 million assessment on the Verizon Tower. The assessment implies a current value of $29 million, which is “overstated,” according to court documents filed by the plaintiff’s attorney.

The outcome of the case could deliver a blow to the city finances as well as the school district. The tower currently pays about $152,546 annually to the city alone.

Newly exempt buildings pack a punch

This old PSECU building off Cameron Road was recently approved for tax-exempt status after the credit union moved its headquarters out of the city to Susquehanna Township. The educational exemption for the Commonwealth Charter Academy will divert nearly $76,000 annually in property taxes for the city starting this year.

Mayor Eric Papenfuse said it raises the question of whether charter schools should be required to try to adaptively reuse existing vacant school buildings before taking a commercial building off the tax rolls. The city of Harrisburg has several old school building sitting empty.

Christine Vendel | cvendel@pennlive.com

Harrisburg’s revenue picture

Total revenue in Harrisburg gets a boost each time the millage rate is increased. But the chart shows that overall assessments, both in land and buildings, have declined since 2003, illustrating the decline in property values.

Christine Vendel | cvendel@pennlive.com

By contrast, Lower Paxton’s revenue picture

While Lower Paxton is pulling in less overall revenue than Harrisburg, it’s trends are headed in the right directions. Total revenue has more than doubled and taxable assessments have increased from $2.7 billion in 2003 to $3.1 billion, displaying growth in property values.

Dan Gleiter | dgleiter@pennlive.

Solutions at the state level?

Harrisburg’s situation is not unlike other smaller cities across the country in its struggles but Pennsylvania’s tax code limits the solutions available to landlocked cities that have suffered population losses.

Each municipality can only raise taxes from within its borders, which results in tax-poor areas like Harrisburg and tax-rich areas like Silver Spring Township, said Harrisburg City Councilman Ben Allatt.

“It’s the luck of the zip code, basically,” said Allatt, who chairs the budget and finance committee and said he wants to push for changes on the state level that could help regions thrive.

“It’s time to raise the level of conversation about what the issues are,” he said. “We need to get beyond ideas being considered ‘partisan.'”

Republican rural areas are hurting just like Democratic cities under the state’s restrictive tax system, Allatt said.

The owner of this home in Shipoke (at right) appealed his 2016 tax assessment, shaving $164 off his annual tax bill to the city.

Property taxes a symptom, not the problem: city officials

Mayors from York, Harrisburg and Lancaster shared similar tales of woe at a local business chamber breakfast last year.

“The way we set up municipal government is perfectly set up to fail,” Lancaster Mayor Rick Gray said. “Lancaster has the same boundaries we had in the 1700s. We can’t annex anymore. We can’t expand.”
In discussions with mayors of thriving cities, they incorporate developments at the edge of the city, Gray said. But in Lancaster, stores like Wegman’s and Whole Foods are being constructed just across the city boundaries, where the city won’t get any tax revenue from the development.

“The city won’t get any other than a traffic jam trying to get in and out of the city,” Gray said.

There aren’t good solutions to help smaller cities outside of legislative action, said Bruce Weber, Harrisburg’s finance director.

“Without fundamental reform at the state level,” he said, “it’s going to be very difficult to find a way out.”

To that end, Mayor Eric Papenfuse included money in this year’s budget to hire a lobbyist to work with other cities and municipal groups to push for changes.

“These problems have built up over 50 years,” Weber said. “It’s not something that can be solved by municipalities alone.”

Read other recent tax-related stories from PennLive:

Harrisburg city treasurer helps residents fight for lower property taxes

Commonwealth Court sides with Harrisburg, approves increase in local services tax

Pennsylvania municipal governments ‘perfectly set up to fail:’ mayors tell business leaders

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