Scranton’s commuter tax hearing on Tuesday promises two starkly contrasting versions of the city’s attempts to finally fix its long-standing financial problems.
For the city, solicitor Paul Kelly will try to make the argument through his witnesses that the city has done all it can to raise revenue and cut its budget, but it still won’t balance and the city has no choice but to impose a 1 percent earned-income tax on commuters next year.
Opponents will counter that a commuter tax should only be a last resort, the city has not done enough to correct problems, and it should not be allowed to tap commuters for revenue.
Mr. Kelly states in a legal brief filed in Lackawanna County Court that a commuter tax is necessary to balance the city’s 2013 budget by generating $2.5 million, to continue the city’s financial recovery under the state’s Act 47 distressed municipalities law, and restore fiscal integrity.
Under the city’s revised Act 47 recovery plan adopted in August and the proposed 2013 budget that will be up for adoption by City Council Thursday, the city has increased five of its six taxes and one of its fees and added three other sources of revenue. However, “Because these measures are unable to produce sufficient income to balance the municipal budget, the city is forced to seek additional revenue from an increase in non-resident earned income,” Mr. Kelly said.
Attorney Armand Olivetti, who represents the opponents, said, “Our position is the city has to demonstrate a need for a commuter tax to make its budget balance and that it has first exhausted all other remedies. Even with a commuter tax, we don’t think the budget is going to balance.”
The city instead could raise the earned-income tax on its own residents from the current 2.4 percent to 2.6 percent, which would raise the same amount as a commuter tax, Mr. Olivetti states in his legal brief. The city also could create a ‘downtown improvement district’ and assess an additional tax levy on real estate there, his brief states. Opponents also have noted that Scranton’s city council, against the wishes of the mayor, reduced property taxes by 10 percent in 2011 and this year increased property taxes by only 5 percent when the mayor sought a 29 percent hike.
A commuter tax is one of the key alternatives to property tax hikes in the recovery plan. It calls for a 1 percent earned income tax on people who work in the city but live elsewhere in each of the next three years. Along with $2.5 million next year, such a tax is estimated to raise $4 million in each of 2014 and 2015.
The city needs approval from Lackawanna County Court to impose a commuter tax each year that it may exist. A panel of three judges, including Lackawanna County Court Judges Terrence Nealon and Robert Mazzoni and visiting Pike County Judge Harold Thomson, will hear the city’s petition.
A continuation of Tuesday’s hearing, if necessary, has been scheduled for Wednesday.
Scranton previously received court approval for a commuter tax in 1993-94. However, in 1996 former state Rep. Frank Serafini legislated a more rigorous, three-pronged test for the city to be able to secure court approval for a commuter tax. Those hurdles include that the city has substantially implemented parts of a recovery plan, including raising taxes and fees on city residents, has taken steps to gain required approval from other groups such as courts, voters or unions, and that additional city tax revenue from such steps isn’t enough to balance the city’s budget.
The city argues that it has met the Serafini threshold, but opponents disagree.
The opponents include: Larissa Pawelski, a Throop resident who commutes to work in Scranton and would have to pay a commuter tax; the Lackawanna County Association of Boroughs, represented by Mayfield Mayor Alexander Chelik, who also formed a new civic group called Scranton Taxing Our People (STOP); and Scranton resident Marie Schumacher, who questions whether city officials have done enough to avoid a commuter tax.
Mr. Olivetti represents Ms. Pawelski, the association and Mr. Chelik.
Up to 10 witnesses may be called to testify in the hearing.
The city’s witnesses list includes: city Business Administrator Ryan McGowan; Councilman Frank Joyce; Gerald Cross, executive director of Pennsylvania Economy League, which is the city’s Act 47 recovery coordinator; John Foley, Deputy Director of Appraisals in the Lackawanna County Tax Assessor’s Office; city Treasurer Christopher Boland; and a representative of Northeast Revenue Service LLC of Wilkes-Barre, a firm that collects delinquent real estate taxes for the city.
Mr. Olivetti plans to call as witnesses Ms. Pawelski and three expert witnesses, including Mr. Chelik representing association of boroughs; Ron Koldjeski, Lackawanna County’s Deputy Director for Tax Claims; and Gary Lewis of Scranton, who owns a consulting firm specializing in distressed business debt analysis and solvency evaluation, and who has advocated for the city filing Chapter 9 bankruptcy.
Mr. Koldjeski, who also is a Newton Twp. supervisor and a member of STOP, has been subpoenaed by the opponents to testify about the potentially hundreds of city-owned properties with delinquent taxes that could be liquidated to produce revenue, and alternative property interests or rights that may be taxed by the city.
The opponents also will argue the city’s 2013 budget overstates revenues, and Mr. Koldjeski and Mr. Chelik may testify about municipal budgeting procedures regarding revenue line items, and about the impact a commuter tax would have on other municipalities in the county.
Mr. Lewis will testify that the city’s 2013 budget overstates revenue and cannot balance without a restructuring of longterm debt, and that a commuter tax would not balance the budget.
What’s at stake?
The city’s proposed budget carries a 12 percent property tax hike on city residents, as well as increases in the realty transfer, business privilege and mercantile taxes, and creation of an amusement tax. If there were no commuter tax to bring in $2.5 million from nonresidents, the city would have to raise real estate taxes on city residents by an additional 18 percent in 2013 to make up the difference, Councilman Frank Joyce has said.
Councilman Jack Loscombe said during council’s meeting Thursday, “We didn’t want to tax our own residents to death.”
Contact the writer: jlockwood@timesshamrock.com