The Harrisburg, Pa., City Council cried uncle Tuesday night, approving the doubling of the earned-income tax to 2% from 1% that state-appointed receiver William Lynch had sought and the Commonwealth Court had mandated.
The tax could take effect as early as next month, for Pennsylvania’s financially troubled capital city to help plug a budget gap that a state official said Wednesday could reach $15 million by year’s end.
Lynch, who sought the tax increase as part of his financial recovery plan, expects the levy to pump $5.1 million into the city over the last two months of the year.
Harrisburg is saddled with more than $340 million in bond debt that it cannot pay, mostly related to financing overruns to an incinerator retrofit project. The state Senate will hold its next hearings on the bond financings on Monday.
Fred Reddig, an administrator with the state Department of Community and Economic Development, said Wednesday that Harrisburg has only $1.4 million left in the bank, the Patriot-News in Harrisburg reported. That’s enough to last the city through November, according to Reddig.
Harrisburg, by state law, cannot file bankruptcy before Nov. 30.
Commonwealth Court Justice Bonnie Brigance Leadbetter, acting on a Lynch motion, had ordered the council in August to approve the tax, but a majority of council members had balked, saying taxpayers were forced to assume too great a burden for Harrisburg’s financial recovery.
The tax hike is expected to last for a year. Lynch must petition the court to renew it.
Tuesday night’s council vote was 5-to-2, culminating two months of discussions between Lynch and council members. “We worked out some good terms in the agreement that we have,” said council President Wanda Williams, who voted affirmatively.
Patty Kim, Kelly Summerford, Eugenia Smith and Sandra Reid joined Williams, while Susan Brown-Wilson and Brad Koplinski opposed it. “This EIT money we’re going to get is just a drop in the bucket,” Brown-Wilson said.
Mayor Linda Thompson urged council members to pass the tax and cited the need for municipal cooperation before pushing for concessions with major creditors.
“If we end up having to file for bankruptcy, we can say that we’ve leveraged everything we could possibly leverage, and now it’s time for the people on the other side of the fence to make the remaining sacrifices,” she said.
City Council attorney Neil Grover said the one-year-only increase strikes a balance. “Here we have put our skin in the game. Now it’s time for every other party to put their skin in the game.”