Will Harrisburg Leave Distressed Status But Keep Distressed Taxes?

Will Harrisburg Leave Distressed Status But Keep Distressed Taxes?

Earlier this week the Act 47 recovery coordinator for Harrisburg recommended the three year exit plan option for the City of Harrisburg, which means the City will likely be released from distressed status sometime in 2021.  The changes to the Act 47 statute in 2014 puts a time limit on how long a distressed municipality can remain under state financial supervision and an exit plan is one course of action.

The plan has suggestions for the City over the next three years including ones related to regional service cooperation on police and fire and other workforce initiatives.  As pointed out in a previous blog, an issue of contention between the City and the state is the extra taxing authority Harrisburg has utilized while in Act 47.  Like many other distressed municipalities, Harrisburg petitioned the courts to increase its earned income tax (which occurred in 2013) and then to increase its local services tax (which occurred in 2016).  Once out of Act 47, the rates on these taxes have to decrease back to where they would be for a non-Act 47 municipality, meaning an $11 million decrease in revenue.

If the City just replaced the revenue with increased real estate taxes it would require boosts of 20%, 20%, and 43% over the next three years according to the plan’s baseline calculations.  That’s prompted a strong response from the City’s Mayor and a desire to get special taxing permission from the General Assembly to keep the Act 47 taxes past 2021 when the City should emerge from distressed status.

If the General Assembly agrees, there could be special language that would just apply to Harrisburg–but could permission for one municipality to keep the local services tax at $156 (the amount the tax can increase to while in Act 47) instead of $52 lead other municipalities, whether distressed or not, to put pressure on the General Assembly for ability to boost the tax, much like what occurred in 2005 when Pittsburgh was in Act 47?