When City Administrator Patrick Hopkins began Lancaster City’s first official hearing for the proposed 2010 budget, he noted that each of these annual meetings has traditionally been marked by a specific theme. This year, Hopkins said, the theme is “Looking to Harrisburg.” As Mayor Rick Gray expressed in his introduction of the budget last week, the November 31 budget hearing sought to cast State-level intervention as the only ultimate solution to the budget woes of Pennsylvania cities.
(Hopkins’ entire PowerPoint presentation, including extensive graphs and figures, is available online.)
Through the evening meeting, Hopkins detailed a troubled budget that, in Gray’s words, “increases taxes, reduces personnel, and still takes money from our reserves.” The immediate cause of the budgeted $5.4 million deficit was clear: A sagging economy has brought revenues down to 2007 levels while ballooning benefit costs have presented the City with ever mounting expenses. The cost of employee health care, Hopkins explained, has nearly quadrupled since 2000 and has shown no signs of improvement. While the City’s 2010 salary expenses will decrease by 4.9%, benefit costs are still expected to increase by 6.3%.
City officials emphasized that, although Harrisburg may not have been in the position to decrease health care costs and reverse the recession, the State had many opportunities to lighten the impact of these forces.
Hopkins and Gray cited two fruitless reform efforts to demonstrate the State’s inaction: Firstly, Lancaster City, along with other PA municipalities, had at one time requested that the State allocate a portion of the 18% ‘Johnstown Flood’ alcohol tax to aid municipalities strained by an abundance of tax exempt properties. (Hopkins estimated that as much as 30% of the city’s property value is nontaxable.) Secondly, a coalition of local PA governments recently pushed for the State to allow Counties to introduce a 1% sales tax to alleviate property taxes and provide operational funding for struggling municipalities.
Both the Johnstown Flood Tax efforts and the proposed Local Option Sales Tax sought to move cities away their current dependency on property tax revenues. Neither proposal made it very far in the General Assembly.
Gray explained how the mayors of Pennsylvania are currently looking to expand their “united front” and send a strong message to the State Legislature:
“The unions have tentatively agreed that we’re going to go up as a united front and talk to the people in the General Assembly about the situation that municipalities in Pennsylvania find themselves in. We can no longer fund our schools, our county government, our police, our fire, and our public works off of property taxes….It discourages growth, it discourages improvement of properties.”
One of Lancaster’s State representatives, Gray said, has served as a valuable partner in the effort: Mike Sturla acted as cosponsor for the Johnstown Flood tax amendment and was the primary sponsor for the Local Option Sales Tax. Senator Mike Brubaker, though not representing the city, has also been an asset, Gray said. Regarding State Senator Lloyd Smucker, Gray said, “We’re working with him,” noting that the “relatively new” Smucker would like to be of help.
Other local representatives from outside the city have viewed these reform efforts as “the city’s problem,” Gray asserted.
I understand sagging revenues in the current economy, but what’s the reason for the “ballooning benefit costs”?
More questions: How long has the current tax system been in place? What changed that this system is no longer workable?
The reason for ballooning benefit costs is the always increasing cost of healthcare in the U.S. Remember that in 2003, the city paid just over $3,000 PER YEAR for healthcare for an employee AND their family. Now that cost is more than $20,000 and is increasing at an average of about 10% each year.
So the fault there lies with the insurance providers.
Now let’s talk about the property tax based revenue system in municipal government. Properties are assessed based on a value assigned by the county. That value is on average 20% lower than the actual market value of the property. Property tax assessments are done on (I believe) a 5 year interval. It may be 10 years. Either way, it is clear to see that when the financial obligations of the city increase each year, and property taxes remain stagnant (or decrease because of assessment appeals) the revenue stream is unsustainable.
Property taxes have been common in the United States since colonial times. The call for property tax reform began in the early 20th century. Unfortunately in Pennsylvania at least, our State system of government does not provide other options for municipalities to generate revenue. Call Sturla and Smucker and tell them to change it.
Editor’s note: Although in most counties assessments remain the same for a number of years, real estate tax rates can be increased.