No Magic Bullets for Harrisburg

No Magic Bullets for Harrisburg

That’s the word from the team that is preparing the Act 47 recovery plan for the state’s capital city. Harrisburg was declared financially distressed in December of 2010, much of the City’s problem linked to its interrelationship with a trash incinerator and the massive amount of debt piled up from that facility.

Don’t forget, however, that the former Governor also said that there was no Santa Claus riding in to aid the City, and soon after did exactly that by delivering millions of dollars so the City would not miss a bond payment.

Ironically, one of the tools that usually comes with a financial distress plan-viewed as a magic bullet or perhaps a trump card by many-may be unavailable to Harrisburg. The statute allows an Act 47 municipality to petition the courts for an increase in its earned income tax so that non-residents that work in the municipality would pay a "commuter tax". However, the director of the Governor’s Center for Local Government Services noted "…the big problem with that for Harrisburg is that so many of the city’sneighboring municipalities raised their own wage taxes several years ago to eliminate the archaic occupation assessment tax".

Under state law a non-resident would only be subject for the difference between the earned income tax in his own home municipality and the place where the earned income tax is higher. It is a complication we pointed out in 2003 for Pittsburgh prior to its entrance into Act 47 given the presence of home rule communities that could raise their wage taxes.

According to the newspaper report there is even a suggestion of a countywide local option sales tax, which would presumably make Dauphin County the third such county in Pennsylvania to have a higher sales tax rate than the rest of the state. That would be quite a stretch if County officials had to approve the tax if the revenues were going to flow disproportionately to the City of Harrisburg. It would also require a separate state law since Act 47 only mentions property and wage taxes. In that case Harrisburg’s tax plan would be similar to Pittsburgh’s where separate state laws like Act 222 (which created the payroll tax and allowed the Local Services Tax to increase) and Act 187 (which reformed the wage tax sharing between the City and the Pittsburgh Schools) defined the tax structure.