By Cliff Lewis
Beneath the recent article, “City budget hearing looks to Harrisburg,” one of NewsLanc‘s readers posted the following question: “How long has the current tax system been in place? What changed that this system is no longer workable?” The question touched on the current arrangement whereby local property taxes account for the bulk of Lancaster City’s annual budget revenue—an arrangement that Mayor Rick Gray and many other municipal leaders in Pennsylvania would like to change.
As Gray articulated his position at the Tuesday night meeting, “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.”
Thus our reader’s question: How long has the property tax held such a status, and why is it no longer working for cities like Lancaster?
Property taxation—having existed for about as long as human civilization—has served as the primary source of local government revenue for centuries in the State of Pennsylvania. And, throughout our State’s lengthy history, some things have never changed for small cities like Lancaster: They continue to serve as the public, business, and cultural heart of their surrounding counties; and they continue to foot the urban bill—particularly for public safety—required of such a center.
Unfortunately, however, some things have drastically changed for cities like Lancaster in the last half-century. As articulated in a 2009 study by the Pennsylvania Economy League:
“[Pennsylvania’s third class cities] have suffered from historical population stagnation or declines, although some have recently shown early signs of some rebound in population. The five cities [showcased in this study, including Lancaster] have also seen their tax bases, both as property values and as earned income, stagnate or decline as well. As a generalization, it is not inaccurate to say that the cities are older, smaller, and poorer than they were over the past several decades.”
The end result is that a city like Lancaster cannot support even its public safety operations on the basis of taxable revenue. “In other words,” the report continues, “All the taxes levied within the city do not generate sufficient revenue to pay for public safety, let alone the other basic functions of the government such as general administration, public works, and debt service.”
Additionally, some critics have considered the property tax to be considerably ‘regressive’—meaning that poorer citizens could actually pay a higher percentage of their total income than those of greater means. As argued in an article from the Institute on Taxation and Economic Policy, “The main reason property taxes are regressive is that home values are much higher as a share of income for low-income families than for the wealthy….A taxpayer who suddenly becomes unemployed will find that her property tax bill is unchanged, even though her ability to pay it has fallen.”
In “Pennsylvania and Local Taxes,” Franklin & Marshall scholar G. Terry Madonna called for swift action regarding the current Statewide dependency on local property taxes: “Things cannot long continue the way they are,” Madonna asserted, “A crisis looms. The challenge to our political leadership is clear and obvious. The time for delay and denial is just about over.” That article, incidentally, was written in March of 2001.
