Every time his car slams into a pothole, Jason Lord wonders where his taxes go.
Mr. Lord, his wife and three children moved last year from Hanover Twp. into a five-bedroom home on Stanley Street in Wilkes-Barre, which is proposing to increase property taxes by 26 percent next year. Mr. Lord said that increase is frustrating, considering all the other taxes and fees he already pays.
"Any increase is too much. We're already paying for garbage, recycling - you pay for everything here," said Mr. Lord, who works a part-time job delivering cars to dealerships. "Of course it (the proposed 26 percent hike) makes it more difficult, but what are you going to do?"
Mayors and councils in Wilkes-Barre, Scranton and Hazleton will likely hit residents with significant tax increases next year. All three cities are struggling to maintain basic municipal services, including police and fire protection, while facing a brutal economy and stagnant tax revenues that can't keep up with the rising costs of government.
Wilkes-Barre Mayor Tom Leighton wants to raise the average homeowner's property tax from $591 to $744, a $152 or 26 percent hike, and has increased the price of several city fees, including recycling service and city-issued garbage bags. Scranton will raise the average homeowner's property tax from $426.32 to $529.28, an increase of $102.96 or 24 percent, and raise several other fees and adopt a new amusement tax. Hazleton will raise the average homeowner's property tax from $286.12 to $523.12, an increase of $237 or 83 percent.
Hazleton also wants to increase wage taxes on residents from 1.25 percent to 1.35 percent. Wilkes-Barre and Scranton tax residents' wages by 2.5 percent and 2.4 percent, respectively, the state's highest only behind Philadelphia. Combined with the school district tax, residents pay a 3.4 percent wage tax in Scranton and 3 percent in Wilkes-Barre. If Hazleton's proposed increase is approved, residents will pay a total 2.25 percent wage tax.
Broadening burdens
As residents struggle, so do governments.
Over the last five years, salaries, pensions and benefits for city employees have spiraled upward as city leaders achieved only limited success negotiating union contracts favorable to taxpayers.
Worsening the problem are the lingering effects of a recession which has left Northeast Pennsylvania with crippling poverty and a 9.5 percent unemployment rate, the highest in the state. In Wilkes-Barre alone, more than one in four people live below the poverty line, which is a yearly income of $22,811 for a family of four with two children, according to the U.S. Census Bureau.
And when residents aren't making much money, they pay fewer taxes, a hard blow to the city governments that rely on tax dollars to pay municipal bills. These problems have haunted the 2013 budget-making process in Scranton, Wilkes-Barre and Hazleton. In all three cities, leaders have made attempts to cut spending - Wilkes-Barre laid off 11 firefighters in November - but for next year they are relying most heavily on significant tax increases.
Taxpayers often shoulder much of cities' financial burdens and are now paying more for less services, said Teri Ooms, executive director of the Institute for Public Policy, a local organization that researches the region's economic health.
In fact, as the cost of their services increase, taxpayers should reasonably expect taxes to go up, said Satyajit Ghosh, Ph.D., professor of economics and finance at the University of Scranton.
"Some increases in taxes are absolutely needed to pay for government services," Dr. Ghosh said. "We may not like to pay higher taxes, but it's just the flip side of government services. If we don't want to pay higher taxes, then we have to give up the level of government services we are used to."
Raising taxes is usually the easiest solution, Ms. Ooms said. Sure, they can reduce some spending, she said, but they risk jeopardizing public safety and other essential services if they trim too much.
Thomas Baldino, Ph.D., a professor of political science at Wilkes University, said "You can only cut so much government before you cut into the bone, so then you have to turn to the other options, which is raising revenue."
Blood from a stone
Raising the taxes of residents who are already struggling to pay their bills creates more problems, Ms. Ooms warns.
"I think it will put the hurts on people because people are already struggling," she said. "Given the poverty levels we have in our cities, it's going to be a challenge for some."
Unemployment rates in the region are higher than state and national averages, and local workers often earn far less than other workers in Pennsylvania and the United States. The median household income in Wilkes-Barre, the lowest of all three cities, between 2007 and 2011 was $30,348, compared to $51,651 statewide and $52,762 nationally. Wilkes-Barre's 26 percent poverty rate was slightly higher than Scranton's 20.4 percent and Hazleton's 21.1 percent, but they all far exceed the 12.6 percent statewide rate and 14.3 percent rate nationwide.
The cities' proposed tax hikes will contribute to an already increasing cost of living caused by rising food and fuel prices, Ms. Ooms said, and people's wages are unlikely to grow. Ms. Ooms said lower-income residents may face the tough choice between buying essentials or paying their taxes. Discretionary spending, she said, will go out the window, which could hurt small businesses and other sectors of the economy.
"Where's the breaking point? At some point, it's like sucking blood out of a stone," Ms. Ooms said.
Scranton resident Anne Smith says she's not a "happy camper" about the 25 percent property tax her city proposed for next year.
A widow, Mrs. Smith lives on a fixed income and has been unable to sell her William Street house for over a year. She's taken it off the market until the spring when she hopes to renew her plan of selling and moving in with family in South Plainfield, N.J.
To get by, she has been cutting back expenses on her entertainment budget. She no longer goes to the movies and rarely goes out to dinner. Putting food on the table, oil in the house and gas in the car is more important.
"X comes in, Y comes out and Z has to stay in so I can live," Mrs. Smith said.
More than 16 percent of the population in the three cities are over 65, and many rely on social security or other fixed income sources.
Because their incomes will not grow, senior citizens are especially hurt by the tax increases, said Trula Hollywood, director of the Luzerne County Area Agency on Aging. She said a tax hike could force some elderly residents out of their homes, especially if they are juggling the costs of transportation and medical expenses.
"It doesn't sound like much, and it's probably not for the average person," Ms. Hollywood said. "But for people living on $500 to $600 a month, it's significant."
The proposed property tax increases won't just affect homeowners. Some landlords say they'll pass the costs of the tax hikes on to their tenants.
Hazleton landlord Jack Galvin, who owns 18 rental properties, already raised rents this year after the city increased sewer fees by $35 per unit. He said he'll do it again if the city increases taxes.
Betty Hodgson, who owns a four-unit rental property in Hazleton, also said she'll have to raise rents.
"These taxes are terrible. We don't want to pass the tax onto the tenants but that's what we're going to have to do. It's not fair to them," she said. "I would just like to know why City Hall got into a mess so fast. It didn't happen overnight."
Tax hikes not sustainable
If governments continue to tax their way out of their problems, residents will leave for areas with lower taxes, said Gerald Cross, executive director of the Pennsylvania Economic League Central Division, the agency that acts as the recovery coordinator for financially distressed Scranton and created a five-year management plan for Hazleton.
"Once you get in this cycle to tax to pay your bills, citizens leave and you have less wealth to tax," Mr. Cross said.
Moving is expensive, and Mr. Cross said those who leave the cities will be the ones who can afford a new house and other expenses required to relocate. This scenario removes wealthier residents, leaving cities with lower income residents to tax. The level of necessary services will remain the same, Mr. Cross said, but cities will have less tax money to pay for them.
Mr. Cross said cities need to develop long-term alternatives to continued tax increases. One solution, he said, is joining with neighboring municipalities to provide services, like regionalized fire and police departments. Ms. Ooms said cities can also change the structure of employee pensions and require workers to contribute toward health care costs. She stressed that governments need to consider solutions beyond cutting costs and raising taxes that help them operate more efficiently.
"To heck with party ideology. We have to make the best business decisions," she said. "We have to think outside the box to deal with the problem."
Staff writers Jill Whalen, Joseph Kohut, Sam Galski and Borys Krawczeniuk contributed to this story.
chong@citizensvoice.com, 570-821-2052, @CVChrisHong