Pennsylvania bill would clarify municipal tax-law limits
A bill that would exclude some taxes from Pennsylvania’s limit on how much tax revenue home-rule municipalities can raise is headed to Gov. Tom Wolf’s desk.
The Senate and House of Representatives both passed the measure unanimously. It applies to tax revenue derived from home-rule municipalities as well as certain tax rates beyond those allowed under the state Local Tax Enabling Act, known commonly as Act 511.
Sen. John Blake, D-Scranton, sponsored the bill.
He called the move a response to the December ruling by the Lackawanna Court of Common Pleas that Scranton exceeded the Act 511 limit from 2015 to 2017. The court ordered the city to set aside nearly $30 million in taxes collected during that time and to reduce its tax rates, including the local services tax and mercantile tax, to meet Act 511 parameters.
The city is appealing the ruling.
“Should an appellate court uphold the ruling, it will basically bankrupt the City of Scranton by requiring it to repay tens of millions of previously collected Act 511 taxes,” Blake said in a memorandum.
Clarifying Act 511 levies could also safeguard other municipalities with similar tax structures against legal challenges, “which could ultimately result in the bankruptcy of many municipalities around the state,” Blake said. He referenced 15 cities, including capital Harrisburg.
Eight Scranton residents, led by former mayoral candidate Gary St. Fleur, sued the city in 2017, alleging it overtaxed them. Common Pleas Judge James Gibbons rejected Scranton's arguments that some of its taxes were exempt from the LTEA cap because it was a home-rule city.
Gibbons also ordered Scranton to set aside $50 million.
Scranton, the 78,000-population seat of Lackawanna County, has labored under the state’s Act 47 workout program for distressed communities since 1992. The City Council is considering an ordinance to extend the timeline for its exit by 18 months, to January 2022.
Mayor Paige Cognetti, elected in November, is filling out the final two years of Bill Courtright’s term. Courtright resigned in July 2019 and pleaded guilty to three felony pay-to-play public corruption charges in a Pennsylvania federal court. He is awaiting sentencing.
S&P Global Ratings, the only agency that rates Scranton, assigns its BB-plus rating, one level into junk. S&P in August 2017 upgraded the city from BB after it sold its sewer system and earmarked a majority of sale proceeds to retire more than $40 million in high-coupon debt.
Scranton has long struggled with chronic budget imbalance and unfunded pension liability. Its credibility in capital markets plummeted in 2012 when it missed a bond payment to the local parking authority amid a political dispute.