While a Pennsylvania judge weighs a proposal to force Harrisburg’s City Council to double its earned-income tax to 2% from 1%, some city officials still insist the tax will do little to rescue the state’s capital city from the financial abyss.

“Unfortunately, there’s no quick fix,” city Controller Dan Miller said at a Monday morning press conference. “The city of Harrisburg is massively in debt and on the brink of a fiscal cliff due to a devastating structural operating budget deficit.”

Miller said the city could run out of money by the end of the year, even if it skips two general obligation bond payments totaling $3.7 million. It missed $5.4 million of GO payments in March.

Last September, Harrisburg barely avoided GO default by agreeing to a 10-year lease agreement with the Harrisburg Parking Authority, which sold taxable debt at a 10.75% coupon to make the up-front lease payment to the city.

According to Miller, the city overpaid. “That was an astronomically idiotic move financially,” he said.

State-appointed receiver William Lynch petitioned the Commonwealth Court of Pennsylvania last week for the tax increase, which is projected to raise about $6 million annually. Miller said that’s less than half of what the city needs to fill a $13.6 hole in Harrisburg’s 2012 budget.

Miller and the majority of City Council members favor regional solutions to the city’s financial problems, including concessions from major creditors over Harrisburg’s estimated $320 million of debt stemming from cost overruns to an incinerator retrofit project.

Justice Bonnie Brigance Leadbetter has two weeks to rule on Lynch’s petition. “I think the judge will make her decision and we’ll live with it and do the best we can with whatever she comes up with,” Lynch said after Thursday’s day-long court session.

The council’s attorney, Neil Grover, said such a tax increase would excessively burden Harrisburg taxpayers. “Taxes would go up before there has been even one concession by anyone who has caused the problem,” Grover said.

Mayor Linda Thompson, whom Miller expects to challenge in next year's election, defended Lynch's initiative. "No elected official wants to raise taxes, but it's a necessary evil, if you will," she said.

Thompson disagreed with Miller's assertion that city taxpayers will suffer the most. "At the end of the day, all will have been called upon to share the pain: the unions, AGM, [Dauphin] County and the city's taxpayers."

Assured Guaranty Municipal Corp., or AGM, is the incinerator bond insurer.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.