Harrisburg is enacting an immediate hiring freeze and reevaluating all capital improvement projects as it braces for $12 million in spending cuts over the next three years, the mayor announced today.
The austerity comes as the city faces the expiration of its Act 47 status as a financially distressed municipality. That designation has granted Harrisburg special taxing authority for the past five years, which can continue until 2021 under a one-time, three-year extension.
But as Mayor Eric Papenfuse explained today, Harrisburg will lose its current taxing power in 2021 unless the state legislature intervenes. That would cost the city $12 million in annual revenue from its earned income tax (EIT) and local services tax (LST).
According to Papenfuse, the city must start preparing for that loss at the start of the new fiscal year in January 2019.
“The drawdown has to happen next year,” he said. “We cannot wait until the three-year extension expires.”
The city will develop new three-year budget projections starting this week, but has already implemented a hiring freeze and scrutinized its supplies and services expenditures. Papenfuse said all capital improvement spending from the city’s fund balance may be in jeopardy, but declined to name specific projects.
The mayor hopes the city can avoid layoffs by cutting jobs through attrition. The city will not replace anyone who retires, including police and fire personnel, or fill any of the 11 job vacancies currently posted on its website.
“These are perilous times for the city,” Papenfuse said on Monday, when he addressed reporters and a crowd of citizens in front of city hall. “Without legislative action, the city will suffer dire consequences.”
The announcement follows news last week that the state legislature would not pass a provision codifying Harrisburg’s current tax rates. Lawmakers have previously granted special taxing power to Act 47 cities, including Pittsburgh, which exited the oversight program this year.
Harrisburg officials have long said that the city cannot leave Act 47 without a change to state laws. Papenfuse explained that the Harrisburg Strong Plan, which was adopted in 2013, was written with the assumption that the state legislature would help the city with its financial recovery.
That plan addressed the city’s debt, but did not repair the conditions that created its structural deficit, Papenfuse said. Harrisburg cannot pass balanced budgets under the state’s current tax code, he said, since its small, highly impoverished tax base cannot support its large commuter population and tax-exempt state properties.
The only way to avoid a structural deficit is to expand the city’s taxing power, he said. Papenfuse’s administration entered a 12-month, $60,000 contract with a lobbying firm this year in hopes of securing a victory in the statehouse.
That moment appeared to be close on Friday, when Papenfuse announced that the legislature had secured the votes to pass a special tax provision for Harrisburg. But that provision, a proposed amendment to the state’s fiscal code, never came up for vote.
The defeat dealt a blow to the city’s leadership, which must adopt a new, state-sponsored recovery plan in September to secure an Act 47 extension. Since the state can only make recommendations based on current laws, the plan will likely assume the loss of $12 million of revenue in 2021.
Marita Kelley, the city’s Act 47 coordinator, could not be reached for comment on Monday.
The mayor hopes that the city can extend its lobbying efforts into September, after the legislature returns to session and before city adopts a new recovery plan.
According to Papenfuse, that’s the only way Harrisburg will avoid catastrophe.
“This does not have to be cataclysmic or fatal if we work on legislation together,” he said. “But make no mistake – the city cannot cut $12 million.”
Papenfuse reiterated today that the city has very few expenses it can cut. He said that personnel and associated costs, such as pensions and healthcare, make up 92 percent of the city’s budget. The remaining 8 percent of supplies and services spending covers utilities and other mandatory expenses, he said.
If the city must trim 20 percent of its expenses, it has no choice but to cut personnel, including police officers and firefighters.
The mayor is confident that most legislators understand Harrisburg’s plight and wish to help the capital city. He laid most blame with House Speaker Mike Turzai, R-Allegheny County, who recently called on the city to curb spending and surrender its taxing authority.
Papenfuse and Turzai reportedly clashed in talks last week, and the mayor said today that the Speaker bucked the will of his own party by blocking the Harrisburg provision on Friday.
“[Turzai] did not want to understand Harrisburg’s situation, and he stopped something with strong bipartisan support,” the mayor said.
Turzai has not responded to requests for comment.