Is Harrisburg all that different from other mid-sized cities in Pennsylvania?
Members of the state House of Representatives have eight more session days to say “yes” or “no” by voting on a bill that would let Harrisburg exit Act 47, a state-run oversight program for cash-strapped municipalities.
House bill 2557, which is co-sponsored by state Reps. Greg Rothman and Patty Kim, would let Harrisburg keep the extraordinary taxing privileges it gained under Act 47 and prohibit it from enacting a commuter tax.
The bill would essentially carve out special taxing provisions for the capital city, granting it immunity from the tax limits set out in the Pennsylvania’s Third Class City code.
“Today, you can ensure the future success of the Harrisburg region, if the legislature will continue to work together with the city, our workers, our residents, the business community and state leaders to advance reasonable, common-sense solutions like those offered by HB 2557,” Harrisburg Mayor Eric Papenfuse told a joint hearing of the House finance, local government and urban affairs committees, which convened a hearing on the bill in the state Capitol this morning.
Papenfuse told members that the bill would help restore the city to financial health by allowing it to retain its current local services and earned income taxes, which bring in some $12 million annually.
“House bill 2557 works because it doesn’t ask for anything that the city doesn’t already have,” Papenfuse said.
However, some members were skeptical that Harrisburg deserved unique taxing power.
“When we look at treating one city differently, it brings up concerns, especially since we have had cities leave Act 47 successfully,” said finance committee member Frank Keller, R-Union County.
Some of Keller’s colleagues echoed that sentiment during the two-hour hearing, as they questioned Harrisburg officials about the city’s financial progress since it entered Act 47 in 2010, about $400 million in debt.
The city erased some of that debt by selling the Harrisburg incinerator, leasing its parking assets and transferring control of its water and sewage systems to Capital Region Water. But debt service still siphons off 15 percent of Harrisburg’s revenues every year.
City officials say they can’t balance their budget without the extraordinary taxing power granted by Act 47. Almost half of the city’s land is owned by tax-exempt entities, and some 50,000 commuters enter the city for work each day.
To pay for roads, emergency services and other public goods, the city is forced to squeeze revenue from its 49,000 residents, half of whom live below the poverty line.
That dynamic creates a structural deficit that has plagued Harrisburg for decades, Papenfuse testified this morning.
Given the city’s debt obligations, Rep. William Keller wanted to know why the city’s expenses have grown since Papenfuse took office in 2014.
“We weren’t paying our bills in 2012 and 2013,” Papenfuse said. “When you start paying bills, you increase your spending.”
Papenfuse said he inherited millions of dollars’ worth of unpaid invoices when he started his first term in January 2014. The city’s public works and emergency services departments were also woefully understaffed.
The mayor said the city started filling vacancies when he took office. But as payroll costs grew, bills for outsourced and overtime labor shrank, he said.
Papenfuse was also asked to defend the consecutive years of surpluses that Harrisburg generated under his leadership.
The mayor explained that the city underspent its budget so it could save cash for capital improvements, such as road paving and building repairs.
Harrisburg can’t borrow money to fund those projects because it does not currently have a credit rating, he said.
The city has entered talks with Ambac Insurance Corp., the primary holder of its general obligation debt, about restructuring payments and interest rates. But Papenfuse said those discussions are currently on hold.
“Ambac is looking at the state and wondering if Harrisburg will have long-term financial stability,” Papenfuse said. “We’re essentially stuck in these negotiations until we act on House bill 2557.”
Despite the mayor’s testimony, some lawmakers remained skeptical of Harrisburg’s growing expenses. Rep. Martina White argued that Harrisburg had a higher personnel headcount than larger townships in her Philadelphia-area district.
“I’d urge Harrisburg to take a look around,” White said.
Other committee members encouraged Harrisburg to adopt a Home Rule charter or pursue more PILOT payments from tax-exempt entities. Papenfuse said city officials were exploring both options.
When one lawmaker asked Marita Kelley, Harrisburg’s Act 47 coordinator, if the city’s spending was on the right path, she confirmed that the local officials have taken a “tough approach to manage expenses and keep expenses in check.”
If the legislature does not pass the bill before their session ends next week, Harrisburg must remain in Act 47 under a three-year extension plan. That plan, which will be authored by Kelley and approved by City Council, will likely call for property tax increases beginning in 2020.
Rothman said that property tax increases would drive businesses and homeowners out of the city. He testified that his bill would create a more hospitable environment for economic development while giving taxpayers a break.
In addition to prohibiting a commuter tax, HB 2557 would cut Harrisburg’s local services tax rate by $6 a year, from $156 to $150.
The new LST rate is still far beyond the $52 annual rate allowed under the state tax code. But Rothman’s bill would let Harrisburg keep the $150 rate indefinitely, along with its 2 percent earned income tax (EIT) rate.
Under Rothman’s proposal, Harrisburg would have to submit annual financial reports to the state and undergo a full budget review in five years. The bill also contains a provision to phase out the LST and EIT rates as Harrisburg’s revenue base grows.
Rothman hopes that his bill will encourage more businesses and residents to move into the capital city. As they do, and Harrisburg’s tax revenues increases, any surplus funds will be put into the city’s pension trust.
Once that trust meets 85 percent of its actuarial value, the LST and EIT rates would decrease.
That could take at least 20 years, according estimates provided by Christine Goldbeck, executive director of the House urban affairs committee.
After the hearing, Kim, Rothman’s co-sponsor, said that the bill’s fate was in the hands of House Speaker Mike Turzai. He will decide what legislation comes up for a vote during the House’s eight remaining session days in September and October.
Turzai blocked a similar provision for Harrisburg from coming up for a vote in June. Kim reported today that he has warmed to the idea since then, thanks to pressure from colleagues, city officials and city-funded lobbyists.
If the House approves the bill, it will go on to the Senate, where Kim expects easy passage.