Difficult as the situation may be in Lancaster, it could be worse.

City officials are still tallying figures from 2007, but in 2006, a total of 630 properties, assessed at $560 million, were exempt from city real estate taxes. They included churches and charities, state and local government property, colleges and hospitals, and represented a full 23 percent of the city's tax base.

But in Lebanon, according to figures from the Pennsylvania League of Cities, 24 percent of property is off the tax rolls; in York, the figure is 27 percent. In Reading and West Chester, 30 percent of the property is untaxable.

And in Harrisburg, the state capital, a full 49 percent of all property generates no tax revenue.

Amy Sturges, director of government affairs for the League of Cities, says virtually every one of the 56 cities in Pennsylvania — but also many of its older boroughs and older townships — are in the same leaky boats, though some are taking on water faster than others.

So as state legislators continue to hear testimony on a bill that would take revenue generated by the Johnstown Flood Tax and direct it to fiscally beleaguered municipalities (see related story), both the League of Cities and individual municipalities are "supporting it wholeheartedly," said Sturges.

But the reality is, it's only a Band-Aid for a patient in need of intensive care.

"We're increasingly concerned because more and more cities, older boroughs and townships are at the end of their rope," said Gerry Cross, an analyst with the Pennsylvania Economy League who recently completed an in-depth study of the situation in Williamsport, where nearly 31 percent of property in the city is untaxed, and some $4 million in potential revenues "lost" in the process.

Even as costs continue to rise, older municipalities are finding it impossible to generate additional revenue; so they're "reduced to chasing these people," the nonprofits, said Cross.

"It's a chronic condition, a failure of the system," he said. "They're just desperate."

In distress
And desperate they are.

In many respects, the conclusions of PEL's Williamsport study, funded by a grant from the First Community Foundation of Pennsylvania, could apply to any financially distressed community in the commonwealth.

As is the case here, tax-exempt nonprofits are concentrated in the city. Williamsport's percentage of tax-exempt property was nearly double that of Lycoming County as a whole, according to the report.

That mirrors the situation here, with one exception: Millersville, where Millersville University owns so much nontaxable property that a full 22 percent of properties in the borough are exempt.

Moreover, the study noted, Williamsport's challenges — as Lancaster's — "are intensified by the types of tax-exempt properties within its boundaries." Out in the county, there's a higher percentage of agricultural and utility properties that, while untaxed, don't require a significant amount of municipal services.

Inside the city, by comparison, is a concentration of tax-exempt properties such as schools and hospitals that "demand much more municipal services, from public works to police to firefighting," according to the report.

Exacerbating the situation is that when tax-exempt properties within a city "succeed" — as might be the case here with Lancaster General Hospital or Franklin & Marshall College, and some charities — they might acquire more property, taking it off the rolls, requiring even more services, further straining the host municipality's limited budget.

Most cities don't want to beg nonprofits for money, Cross said. But they have to. "In theory, you don't mind having nonprofits," he said. "They're occupying buildings, they're bringing people downtown to work.

"But a lot of municipalities in Pennsylvania are just at the end of their rope when it comes to revenue-generating capacity," he said. "They're not at the end of their rope for expenditures."

In testimony before the House Local Government Committee on House Bill 2018, a parade of officials from municipalities throughout Pennsylvania have detailed this. But while the bill may be a start, virtually no one thinks it's the answer.

If there is an answer, experts say, it likely involves a broader overhaul, a new focus on regionalization so that cities like Lancaster aren't left to fend for themselves.

"The law says [cities] must provide X services, and use Y revenue to pay for it," said Todd Vonderheid, a former Luzerne County commissioner who serves as director of strategy for the Campaign to Renew Pennsylvania, an organization that advocates solutions to "infrastructure, fiscal and governance issues that affect our economics and our communities."

Parks, churches, hospitals, government centers and other nontaxable land generate benefits not just for those in the municipalities where they're located but for entire regions. So while House Bill 2018 is a start, what Pennsylvania really needs to do is revamp its laws to boost inter-municipal cooperation — which might include fiscal cooperation.

"It's as if Pennsylvania was set up with this Teddy Roosevelt idea of rugged individualism," Vonderheid said. But cities that struggle amid suburban affluence can't be left to fend for themselves; "We're all connected," he said.

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Gil Smart is associate editor of the Sunday News. E-mail him at gsmart@lnpnews.com, or phone 291-8817.
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