Harrisburg’s mayor is seeking state permission to levy an augmented commuter tax for the next three years, he said on Thursday, as the city enters its final chapter of Act 47 and prepares for a future with smaller revenue streams.
Mayor Eric Papenfuse has vowed that he will not adopt the measures outlined in a July report from the city’s Act 47 coordinator, which recommended doubling property taxes to prepare for Harrisburg’s Act 47 exit in 2021.
He’s now asking the state-appointed coordinator to consider an alternative: a 2 percent non-resident Earned Income Tax (EIT) on everyone who works in the city.
The tax would replace the city’s augmented Local Services Tax (LST), which is $156 per year for all Harrisburg workers. But Papenfuse said it would generate millions of dollars in additional revenue during Harrisburg’s final three years in Act 47, a state oversight program for financially distressed municipalities.
“We know how many commuters work in the city, and while we don’t know exactly where they live, we can get that data,” Papenfuse told TheBurg. “But it would be much more.”
The proposal is bound to inflame Harrisburg’s 30,000 commuters. But Papenfuse hopes that exercising one of the last options available to Harrisburg under the Act 47 law will spur state lawmakers into action.
A bill expected to go before the house in September would allow Harrisburg to keep its current LST rate and exit Act 47 for good. If legislators are faced with a massive tax hike on their own income, through a higher EIT, Papenfuse hopes they’ll be more likely to support the legislation.
“My hope is that the region would see that it’s much more onerous than a local services tax,” he said. “I stand by what I’ve said before: I don’t see viable long-term future for Harrisburg without the legislature assisting us. We need the ability to have our revenues match our expenditures, and we’re not trying to spend on anything other than core government functions.”
Under the mayor’s proposal, the city’s LST would revert to its pre-Act 47 rate of $52 per year. Meanwhile, everyone who works in Harrisburg would start paying a 2 percent tax on their income.
Since Harrisburg residents already pay that rate, their EIT burden would not change. But commuters who work in Harrisburg would pay the difference between their hometown’s EIT rate and the city’s 2 percent rate, with the balance going into Harrisburg’s coffers.
For example, a commuter who lives in Susquehanna Township may earn a $50,000 salary working in Harrisburg. She currently pays the $156 local services tax in Harrisburg, as well as Susquehanna Township’s 1 percent EIT rate—$500 per year based on her income.
Under the new tax, her EIT bill would double to $1,000, with $500 going to the city of Harrisburg. She would pay $52 per year in local service taxes.
Papenfuse knows that the tax hike would sting. His goal isn’t to squeeze commuters, he said, but to spare Harrisburg the massive property tax hikes proposed in last month’s draft Act 47 exit plan.
“Do we really think legislators care that Harrisburg residents would have to pay double property taxes?” Papenfuse said, letting the question go unanswered. “Will they care if they themselves pay an increased EIT? Maybe.”
Harrisburg has one of the highest EIT rates in the region. Only a handful of municipalities—including Camp Hill, Swatara Township, Dauphin Township and Lower Paxton—levy the same 2 percent rate, according to a DCED database.
Excluding those municipalities, EIT rates range from 1.4 to 1.65 percent in Cumberland County and 1 to 1.7 percent in Dauphin.
The tax would expire when Harrisburg exits Act 47 in three years. But, with the revenue it would generate over that time, Harrisburg could pay down general obligation debt and trim its expenditures from 2021 onward, Papenfuse said.
In the meantime, the city would continue to lobby for its enhanced LST privileges. Papenfuse also hopes to initiate the proceedings for a Home Rule charter, which would preserve the city’s resident EIT rate.
If the state-appointed recovery coordinator Marita Kelley complies with his request, the commuter tax will be included in the final exit plan she presents to city council.
A DCED spokesperson declined to comment on the contents of the final exit plan today. She said that DCED was in the process of revising the plan based on the feedback received during the public comment period.
Papenfuse said Kelley’s team was “willing to consider” the proposal. City officials submitted the commuter tax proposal to DCED as part of a formal comment on the exit plan.
Council vice president Ben Allatt said he’d support any exit plan that doesn’t increase the tax burden on Harrisburg residents. But he’s not sure a hefty commuter tax would aid Harrisburg’s long-term lobbying efforts.
“As a negotiating tactic, it could backfire,” Allatt said. “I worry about any move that would alienate us from the legislature.”
DCED’s exit plan could land before city council as early as Wednesday, Aug. 8. If council does not approve it, the state DCED secretary will ask Pennsylvania’s governor to declare a fiscal emergency in Harrisburg, which could put the city back into receivership.