A bill passed by the state Senate this evening will preserve Harrisburg’s current tax rates and let it exit Act 47, a state oversight program for financially distressed municipalities.
The Senate voted 48-1 with no discussion to pass House Bill 2557, which will allow Harrisburg to maintain its current local services tax (LST) and earned income tax (EIT) for five years after it exits state oversight. The bill also prohibits the city from enacting a commuter tax and convenes a five-member Intergovernmental Cooperation Authority (ICA) to monitor Harrisburg’s finances.
The legislation will take effect immediately after Gov. Tom Wolf signs the bill into law. The state House of Representatives passed it by a 185-5 vote on Monday.
After tonight’s vote took place, Harrisburg Mayor Eric Papenfuse thanked the lawmakers who supported its passage, including its sponsor, Rep. Greg Rothman, R-Cumberland County, and Harrisburg’s lawmakers in the House and Senate, Rep. Patty Kim and Sen. John DiSanto.
“While I wish we had been able to achieve a permanent solution for the city and the region, Harrisburg’s immediate fiscal crisis has lifted,” Papenfuse said. “I look forward to working with the new members of the Intergovernmental Cooperation Authority – as it’s time to roll up our sleeves and continue to work for the long-term success of Harrisburg and the capital region.”
The bill is the culmination of a 10-month lobbying effort by Harrisburg officials, who have long said the city needs stronger taxing powers to support the capital city. It will allow Harrisburg to preserve about $12 million in annual revenue that would be lost in a traditional Act 47 exit.
Act 47 allows Harrisburg to levy a 2 percent EIT on all residents and a $156 LST, even though state law caps EIT rates at 1 percent and LST at $56 per year. Without HB 2557, Harrisburg would be forced cut its EIT in half and slash its LST by two-thirds when it exits state oversight.
Local officials say those rates are untenable in Harrisburg, which supports large swaths of tax-exempt properties and a daily population of 50,000 commuters. Mayor Eric Papenfuse told lawmakers last month that the city’s emergency services and infrastructure would be in jeopardy if the city had to cut its taxes.
With HB 2557 in place, Harrisburg will also be spared high property tax increases that were prescribed in a three-year Act 47 exit plan.
The city did make one significant sacrifice in the final bill, which was amended last week to put a five-year time limit on the enhanced taxing power.
The original legislation only required Harrisburg to retire its tax rates once its surpluses partially funded a post-retirement benefit fund for its employees. Projections estimated that could take up to 20 years.
The amendment was made by the House Local Government Committee, and state Rep. Kim called it “the best we can do” in a Republican-controlled legislature. She hopes that the five-year timeframe will still give Harrisburg enough time to increase its tax base.
Local officials are cautiously optimistic that will be the case. City Councilman Ben Allatt said that a growing population and pipeline of development projects are already augmenting the city’s tax rolls, albeit slowly. He’s not sure if it will be enough to put the city the city in full financial stability in just five years.
“Any extension of our taxing authority is helpful, but it remains to be seen if this solves the structural deficit,” Allatt said. “My initial knee-jerk reaction is that it does not. It may close the gap, but only time will tell exactly how much.”
He hopes the city can renegotiate debt obligations over the next five years, which could significantly reduce its expenses in the future. Officials have also said that shedding its Act 47 designation will make Harrisburg more attractive to private investors.
Even though the bill passed by a wide margin in both bodies of the General Assembly, it encountered opposition from lawmakers who wanted Harrisburg to cut its tax rates. Others said the bill created a precedent of special treatment for distressed cities.
The Senate’s lone dissenting vote came from state Sen. Judy Schwank, D-Berks County. Schwank’s district includes the city of Reading, which has been in Act 47 since 2009.
Before the vote, Schwank said she couldn’t support a measure that assists one distressed city without addressing problems plaguing other municipalities across the state.
“I don’t begrudge Harrisburg anything. I think it’s a great city, but I object to piecemeal approach that we’re taking,” Schwank said. “If you have enough political capital to enact a process for your own city… it should be universal across the state.”
In a press conference held just after the vote took place, Kim said she sympathized with Schwank’s objection.
“This highlights the fact that we need uniform policy across the state to help third-class cities,” Kim said.
A 2017 report by the Pennsylvania Economy League found that municipal fiscal distress was accelerating across the state, and recommended offering more taxing flexibility to local governments.
This story was updated to include comments Patty Kim made at a Wednesday night press conference.