February 16 2010

February 16th, 2010

Ed WilsonPresident and CEO- 10,000 Friends of Pennsylvania

“We need statewide reform, and we need it now.” So wrote Pittsburgh city councilman Bill Peduto in a letter he distributed last month to officials in every other city of the state. “The future of your city will be contingent on tax reform, pension reform, and health care reform. … [W]e need to be unified to create a new agenda for older communities throughout Pennsylvania.”

Four central Pennsylvania mayors struck a similar chord when they addressed the House Majority Policy Committee in York on January 14. York’s Kim Bracey, Reading’s Thomas McMahon, Lancaster’s Rick Gray and Harrisburg’s Linda Thomson all entreated legislators to pass the reforms cities need to get their fiscal affairs in order.

These officials have good reason to sound an alarm. Last fall Reading became the latest city to enter Pennsylvania’s Act 47 program for fiscally distressed municipalities. Many others are teetering on the edge of crisis and risk following in Reading’s footsteps. The recession is contributing to the problem, of course, but the fiscal difficulties of cities have been mounting for years.

One of the most important reasons for municipal fiscal distress is the state-imposed reliance on property taxes. Cities throughout the commonwealth are caught in a squeeze between steeply rising costs (due mainly to dramatic increases in pension and health insurance payments) and static property tax revenues. Income from property taxes is limited by the many tax exempt properties in cities, and by the fact that cities must compete politically with school districts for millage increases. In any case, further millage increases would be counterproductive, since most cities have already raised their rates far above those of neighboring municipalities, and further hikes would serve only to discourage homeownership and revitalization.

Some argue that cities, like everyone else in this ailing economy, simply need to do more with less. But the reality is that most cities already have cut to the bone. To make ends meet, many have resorted to selling off assets or taking out loans. Such stop-gaps can help them get through a few lean years, but they can’t be sustained.

The fact is that cities need help from the state – not bailouts, but meaningful reforms that will free their hands to raise revenues in different ways. One promising proposal is HB 1858, which would allow counties to levy a 1% sales tax that would be shared with municipalities and used to offset property taxes. This would allow municipalities to shift the tax burden away from property taxes to another revenue source that is more likely to keep pace with rising costs. So far, however, the legislature’s response to HB 1858 and similar measures to help cities has been tepid, at best.

What will it take to convince lawmakers to get serious about the fiscal problems of cities? Maybe Bill Peduto has the right idea in calling on cities across the state to unite in a concerted campaign for state-level reform. To paraphrase one of Pennsylvania’s most famous reformers, our cities must all hang together or… Well, you know the rest.