A panel of judges hearing Scranton's request for a 1 percent commuter tax were surprised Friday by a new estimate submitted by the city showing the tax would actually generate more money than initially thought.
The judges - Lackawanna County Judges Terrence Nealon and Robert Mazzoni and visiting Pike County Judge Harold Thomson - at times also were confused by city witnesses' differing explanations of their revised estimates of how much revenue a commuter tax would generate next year. Judge Nealon also expressed dismay that the new figures show the city would go beyond merely balancing its 2013 budget with a commuter tax and generate a surplus.
The city initially estimated - based on a 2010 study - that a 1 percent nonresident earned-income tax on people who work in the city but live elsewhere would generate $2.5 million next year and a minimum of $4 million in each of 2014 and 2015, with the difference attributed to getting the tax up and running in the first year. That study was done by the Institute for Public Policy and Economic Development, for the city's Act 47 coordinator, Pennsylvania Economy League.
However, new, more comprehensive information was received Wednesday by the city from the firm that collects the city's earned-income taxes, Berkheimer Tax Administrator Inc. Its report listed the municipalities of taxpayers employed in Scranton during the second quarter of 2012, the total number of taxpayers and earnings by municipality, and total tax withheld by employers.
A PEL analysis of the data showed the city actually would stand to gain some $6.7 million a year with a 1 percent commuter tax, although it would probably only be around $4 million next year because of the first-year lag, PEL Executive Director Gerald Cross testified Friday.
Judge Nealon said, "If we approve 1 percent (commuter tax), we wouldn't be closing that (budget gap), we'd be closing that and piling on top of it."
"You'd be following the recovery plan under Act 47," Mr. Cross said. "The way you're defining the target is different than the way we were looking at it."
Mr. Cross said the city's revised Act 47 recovery plan, which was adopted in August and calls for a commuter tax, contemplates long-term stability and that building a "fund-balance" surplus if possible would be in the city's best interest. If the city generated more in a commuter tax than first anticipated, the surplus would be rolled over for use in the following year to help the city recover, he said. That's the point of a commuter tax - otherwise it wouldn't exist under state law, Mr. Cross said. Furthermore, if the city received $4 million next year instead of $2.5 million, that would be helpful in securing borrowing that the city will need next year, Mr. Cross added.
Judge Nealon was skeptical and said the "Serafini" requirements - a more rigorous three-pronged test legislated in 1996 to create more hurdles for the city to obtain court approval for a commuter tax - do not say to create a surplus.
Though the hearing and testimony began Tuesday and initially concluded Wednesday, the judges kept the record open until Friday to give the city time to submit additional information, including its 2013 budget, which was adopted by council Thursday and signed by the mayor Friday, and other budgetary items.
The judges also had asked on Wednesday for the city to supply the rationale and underlying figures of how it determined that a 1 percent commuter tax would generate $4 million. That resulted in the revised revenue estimate and more than two hours of additional testimony Friday by Mr. Cross and city Business Administrator Ryan McGowan.
At one point, Judge Nealon asked the other two judges if they understood the explanations.
"I'm not getting it," Judge Mazzoni said. "I don't understand these numbers."
Administration solicitor Paul Kelly also contradicted his own witness - Mr. McGowan - regarding one of his answers about earned-income tax, and told the judges that the issue is confusing and Mr. Cross would be able to better explain the matter.
Armand Olivetti, attorney for commuter-tax opponents, said after the hearing, "I think the testimony you heard today suggests just how confused everybody is about what the city is asking for."
Mr. Kelly also argued that the judges have discretion to allow a commuter tax of less than 1 percent, but the judges disagreed.
"We either grant the petition or we deny it," Judge Nealon said. "It's not our role to grant it for less."
Mr. Kelly declined to comment after the hearing, saying it would not be appropriate because a ruling is pending.
As for the judge's questioning of the new, higher revenue estimate, Mr. Olivetti said, "I think that has just cut the wrong way with the judges."
Judge Nealon said a ruling likely would be made before the end of next week.
Contact the writer: jlockwood@timesshamrock.com