A measure that would continue extra taxing authority for the City of Harrisburg for more than a decade passed the state House and Senate Friday, and it is now headed to Gov. Tom Wolf for enactment. Harrisburg Mayor Eric Papenfuse and others said the moves could be transformational for the city’s finances.
The provision would extend Harrisburg’s ability to levy an enhanced Local Services Tax on all people who work in the city for 15 years: the first 10 years at $3-per-week, or $156; and for the next five years after that, not to exceed $2-per-week, or $104. After that, the services tax would revert to the same $1-per-week rate that generally applies statewide.
It would also permit the city to retain its existing 2 percent local wage tax on city residents.
Both rate enhancements were initially authorized for Harrisburg several years ago in an effort to help the city continue to pull away from the budget and debt issues that threatened to plunge it into bankruptcy. More recently, they were extended through 2023.
The enhanced taxing authority means about $12.4 million in revenue annually for the city.
But Mayor Eric Papenfuse noted Friday that the longer extension of both tax rates also carries additional dividends.
Papenfuse has been seeking a longer-term extension to allow the city to refinance existing debt at lower rates of interest, something that he has said could save the city millions of dollars annually. With a forecast drop in the tax revenues in the near-term horizon, his concern was, the city might miss out on historically low rates.
With that in mind, the mayor lauded the legislature’s action Friday evening.
“Today, the legislature helped to secure a sustainable financial future for its capital,” Papenfuse said in a statement released after the votes.
“By working together, we accomplished what was once thought to be impossible; we have paved the way for a fiscally sound and bright future for our residents and taxpayers… This is a monumental achievement that will positively impact the city and the region for generations to come.”
The new provision would allow the city to keep the local service tax at elevated rates through 2035, while the elevated income tax has no sunset date.
Many municipalities across the state levy the local services tax. But for the vast majority, it is capped at one dollar per week. Harrisburg got the authorization to go higher with its levy as part of the city’s financial recovery plan coming out of the incinerator-related debt crisis.
One aspect of the local services tax that municipal officials like is that it puts a share of the costs of city services on the tens of thousands of out-of-towners who work here during the week. At the time the enhanced local services tax was imposed, studies showed that it would apply to about 36,000 non-residents, and less than 7,000 city residents.
People who earn less than $24,500 annually are exempt from the tax in Harrisburg.
As part of the 2018 extensions, as long as the local services tax enhancement is in place, the city was barred from imposing any other tax on the earned income of non-residents. A tax like that could be even more costly for some state workers and others who commute to Harrisburg, potentially costing them up to 1 percent of their salary, depending on the current local wage tax rates they pay in their home municipality, which are typically capped at 1 percent.
That prohibition would also continue in the new extension.
The new Harrisburg tax provisions were added to the fiscal code bill in the Senate Appropriations Committee Friday afternoon.
Sen. John DiSanto, R-Dauphin County, took ownership of the amendment Friday evening, saying in a statement that he was pleased to be able to advance legislation that will eventually phase out the extra local services tax, prohibits any additional so-called commuter taxes and sets the city up for future debt refinancing.
“A financially stable Harrisburg is good not only for city residents but the entire region,” DiSanto said, “and I’ll continue to support policies that support this objective.”
The fiscal code passed the state Senate Friday afternoon on a 33-16 vote. It later passed in the state House 108-92.
David Black, president and CEO of the Harrisburg Regional Chamber, said the local services tax extension may irritate individual commuters, and he said he wished that he and other regional business leaders had been consulted on the proposed change before hearing that it had already been inserted in a bill.
But that aside, Black said the enhanced rate does seem to be necessary for city operations, especially in a city like Harrisburg where so much institutional property is exempt from local property taxes, and “I don’t think anybody finds it overly objectionable.”
Black he has not aware of any businesses making a siting decision because of this tax.
Senate Majority Leader Jake Corman’s new chief of staff, Krystjan Callahan, had been working until earlier this year as a lobbyist for the firm the Papenfuse Administration has hired to represent the city’s interests at the Capitol, Maverick Strategies. Callahan ended his association with the firm in September, when he joined Corman’s staff.