In an op-ed for last Sunday’s LNP | LancasterOnline, Lancaster Mayor Danene Sorace detailed the basic framework of the city’s annual revenues and expenditures. Of the available taxes to fund the city, the only one Lancaster controls is the property tax. The others — earned income tax, the local services tax and the real estate transfer tax — are fixed by state law. So Sorace has been asking state legislators for help. “We need solutions that create a new, equitable and sustainable fiscal structure that will allow cities like Lancaster to keep thriving,” she wrote.
This is a complex yet vitally important topic. It involves Pennsylvania’s convoluted and unfair system of funding municipalities and public schools through property taxes.
That’s something all property owners can relate to.
And it involves the financial health and sustainability of Lancaster city. That should matter to everyone in our county, not just those who live in the city.
Consultant agrees: Lancaster city has a structural deficit (report)
Sorace explained the challenges faced by Lancaster in Sunday’s op-ed. These challenges are faced by most of Pennsylvania’s 50-plus third-class cities. (That technical designation, which gets tossed around a lot, applies to every incorporated city in our state but Philadelphia, Pittsburgh and Scranton.)
As Sorace explains, about 50% of the city’s revenue comes from the property tax (11.7 mills). An additional 15% of annual revenue comes from those three fixed taxes. More on them in a bit.
The remaining 35%? It’s from “various fees, grant revenues, and payments in lieu of taxes from nonprofits like Lancaster General Hospital.”
There is, however, a structural deficit within the city budget. As the mayor explains, annual expenses are generally increasing by 3%, while revenues are only increasing by 1%.
This is neither a new nor surprising dilemma.
“When Mayor Rick Gray came into office in 2006, the deficit he faced was $69.2 million,” Sorace wrote. “Over time, and during a tough economy, the Gray administration implemented several cost-saving measures that continue today. … (But) cost-saving measures have not been enough to eliminate the structural deficit.”
Lancaster city needs more revenue options to stay afloat (column by Danene Sorace)
The city has few tools to address that structural deficit. Certainly, we think there is always room for creativity and new ideas in City Hall — small ways to chip away at that 3% annual rise in expenses. But those ideas would only be bandages, not long-term solutions.
The financial and operational consulting firm hired by the city, PFM Group, agrees that Lancaster’s structural deficit cannot be fixed by local action alone, LNP | LancasterOnline’s Tim Stuhldreher reported this week.
“Mathematically, you need more revenue sources that grow on their own,” PFM Group Director Gordon Mann told City Council and administration members Tuesday. “You really do need help from Harrisburg.”
And so Sorace has made lobbying the state Legislature one of her priorities since taking office.
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We urge our county delegation — led by Republican House Majority Leader Bryan Cutler of Peach Bottom and Republican state Sens. Scott Martin of Martic Township and Ryan Aument of Mount Joy — to support Sorace’s push for substantive changes.
One modest change could give cities some crucial help. The earned income tax (0.6%) and local services tax have rates set in stone by Harrisburg. (The local services tax is charged to anyone who works in the city and earns more than $12,000 a year. It is a flat rate of $52 per person, with $47 going to the city and $5 to schools.)
In “Building a Strong Lancaster Block by Block,” a presentation from about a year ago, Sorace made the point that Pennsylvania cities that fall under the Financially Distressed Municipalities Act (Act 47) are allowed by law to approximately triple their local services and earned income taxes.
There’s a strong argument for giving that tax-levying flexibility to all cities, not just those under Act 47. In Lancaster, that flexibility could increase annual revenues by up to $13 million.
Why not give all cities that taxing discretion, rather than wait until they reach a state of financial distress? We believe this is a fair ask from our state lawmakers. As the “Block by Block” presentation additionally noted, Lancaster city serves much of the surrounding region — without being sufficiently supported by the region. Increasing the local services tax, in particular, would provide more revenue from nonresidents who work in the city but contribute only $47 annually toward city services, including police, fire and snow removal.
But even that change, while representing a good start, would not be enough. We hope this can be the year when our lawmakers truly focus on property tax reform.
Too many homeowners, especially seniors, are being crushed by the combined municipal, county and school taxes on their properties. And taxes rise consistently without accomplishing the goals of sufficiently funding our cities or fairly funding our schools.
Lancaster city Community Police Working Group schedules town halls to discuss vision, strategy
The system is broken.
We need a new one.
It’s not going to be easy. State income and sales taxes would have to rise, possibly creating different equity issues. Some lobbyists will strongly oppose change. Legislators will be wary of voting for seismic reforms that might endanger their political futures.
But it’s not supposed to be easy.
Tax reform is perhaps the most complex issue our Legislature must tackle. But that’s no excuse for maintaining the status quo.
The status quo is hurting our seniors. Our schools. And our cities. And the health of all those directly relates to the health and future of our state.
So we should join Lancaster’s mayor in pushing Harrisburg for reforms — small and large — that will allow the city at the heart of our county to continue thriving.
And we must also urge our lawmakers to revamp Pennsylvania’s antiquated and inequitable property tax infrastructure.