Mayor Rick Gray believes he has cut expenditures in Lancaster City's $46 million general fund budget close to the bone.

And because he believes the city is not spending too much money but receiving too little revenue, the mayor is organizing a march on Harrisburg to demand a more flexible revenue-collection system.

He discussed the subject with other mayors at last week's meeting of the Pennsylvania League of Cities.  He has talked with groups of residents. He says the city government's unions are on board.

"We'll get some taxpayers to go up to Harrisburg, too," he says, "and we'll say, 'You cannot fund police, fire, public works, schools and county government on property taxes. It's over.' "

Meanwhile, Gray has proposed a budget calling for a 25 percent property tax increase, substantial hikes in water and sewer rates and trash-collection fees, and job cuts.

He also proposes to remove another $1.3 million from once-hefty reserves that already have been cut in half — from over $16 million to about $8 million — since 2005.

The budget can't be balanced without raising taxes and raiding reserves, Gray says, because revenue is declining.

For example, building permit revenue this year is projected to be about $600,000, about the same as 2008, but down about $400,000 from 2007.

Revenues from real estate transfer taxes are projected to run 32 percent lower this year than in 2008.

The city expects earned income and local services taxes to continue falling because of high unemployment and underemployment.

Even a 5 percent property tax increase didn't provide much help.

The city lost $300,000 this year because of successful property tax assessment appeals. That money offset increased revenues from the tax hike.

For example, Boscov's Department Store in the Park City shopping center appealed its assessment in 2006. It won its case this year and is paying less tax retroactively to 2006.

The city's total taxable value is declining every year, Gray says.

This is in large part because many properties in the city are tax exempt, including newer construction such as the convention center, Clipper Magazine Stadium, the East King Street Garage, the Queen Street bus station and the Pennsylvania Academy of Music.

"We need parking lots and museums and bus stations," Gray notes, "but we need to focus more and more on economic development that's going to provide some tax base for us."

The city is encouraging new development, including the Lancaster Leaf Tobacco expansion and the Lowe's development on Hempstead Road. But Gray says they don't offset the loss of  revenue from tax-exempt properties.

Additions to the property tax have been discussed, including a 1 percent local-option sales tax.

Rep. Mike Sturla, the city's representative in the Legislature, has proposed HB 1682, permitting cities to adopt such a tax. Gray supports the measure and has said it would help him balance the budget without raising property taxes.

But the bill has not left the House's local government committee.

In the early 1950s, the city doubled its size and impressively improved its eroding tax base by annexing substantial chunks of richer neighboring municipalities.

But Pennsylvania called a halt to that process, and no one expects it to be revived.

E-mail: jbrubaker@lnpnews.com