Harrisburg will likely spend another three years in the Act 47 program for financially distressed cities, thanks to a decision by the state legislature today.
The House and Senate declined to consider a measure that would have granted the city special taxing authority, enabling it to exit Act 47 without sacrificing tax revenue.
Mayor Eric Papenfuse expressed confidence this morning that a provision embedded in the state’s fiscal code had enough support to pass before the legislature adjourns for recess tonight.
But that amendment never made it into the appropriations bill that the Senate passed this afternoon.
Papenfuse, who could not be reached for comment after the vote, described this outcome as a “financial catastrophe” in a press conference this morning. He said that the Act 47 extension would require a new financial recovery plan, which could jeopardize the city’s current earned income tax (EIT) and local services tax (LST) rates.
As part of Harrisburg’s financial recovery, the Commonwealth Court permitted the city to raise those taxes beyond what is allowed in the state tax code. The city doubled its EIT in 2012 and tripled its LST in 2016.
Those taxes bring in $12 million in annual revenue for the city. Papenfuse insisted today that Harrisburg could lose that revenue under a new recovery plan.
But City Council budget and finance chair Ben Allatt said that that gloomy forecast won’t necessarily come to pass.
The mayor’s statements this morning marked the first time any city official had raised concerns about the city’s future in Act 47, and Allatt said that the “alarmist” narrative was new to him.
He believes that the city will be allowed to maintain its status quo tax rates when it appears before the court with a new recovery plan in September.
Allatt was hopeful that the legislature would pass the special provision for Harrisburg today, but he does not think that its inaction will derail the city’s financial recovery.
For months, Harrisburg officials have insisted that they will not exit Act 47 without legislative action by the state. The administration entered a year-long, $60,000 contract with Harrisburg-based lobbying firm Maverick Strategies to coax special taxing conditions out of the statehouse.
Allatt said that many lawmakers do not understand the unique challenges of funding a capital city. Harrisburg is home to large swaths of tax-exempt property (occupied by the state or nonprofit groups) and a population with a 40-percent poverty rate. The city’s median home value is just $44,000.
Harrisburg cannot balance its budget and provide basic services with the tax rates currently authorized by state tax code, he explained.
“This city has always had a revenue problem,” Allatt said. “It’s a math equation, and, at the end of the day, the math doesn’t add up.”
Allatt said that one goal of the city’s lobbying effort is to convince legislators that state laws, and not political ineptitude, constrain Harrisburg’s finances. He singled out House Speaker Mike Turzai, R-Allegheny County, who clashed with the mayor yesterday over the city’s recovery status.
In a statement last week, Turzai blasted the idea that Harrisburg should retain its taxing authority after exiting Act 47. He called on the city to remain in the oversight program until it could cut its costs.
Papenfuse and Allatt said separately that Turzai did not comprehend the extent of Harrisburg’s financial recovery over the past five years. By reducing its personnel costs and privatizing its parking and trash assets, Harrisburg has passed balanced budgets and run surpluses every year Papenfuse has been in office.
Turzai did not respond to a request for comment today.
Allatt still believes that the city will need legislative action to exit Act 47, but he does not think that today’s failed lobbying effort portends intransigence for the next three years.
“Our legislature moves very slowly, but I do [think] they can help us,” Allatt said.
