People across Pennsylvania see Lancaster as a city where great things are happening, and rightly so, state Sen. Scott Martin said.

Yet even Lancaster is sounding warnings about the financial struggles it’s facing due to the state’s antiquated local government system, the Lancaster County  Republican said. 

Except for Philadelphia, Pittsburgh and Scranton, all Pennsylvania cities are governed by the state’s Third Class City Code, which mandates the services they provide and the types of rates of taxes they can collect.

"There’s a real structural problem with how they’re allowed to govern themselves," Martin said.

What’s the solution? On Thursday, Martin and state Sen. David Argall convened a workshop at Lancaster City Hall.

Along with Republican state Sens. Ryan Aument, Mike Folmer and Kristin Phillips-Hill, they heard ideas from three mayors, a city council president, the Lancaster Chamber, the Economic Development Company of Lancaster County and the Pennsylvania Municipal League.

Here are 5 takeaways:

1. The structural problem is real and acute.

Lancaster’s expenses grow about 3% a year, while its revenues grow about 1%, Mayor Danene Sorace said. That 2% gap works out to an annual deficit about $1 million a year.

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Lancaster Mayor Danene Sorace speaks at a workshop discussion on the financial health of Pennsylvania's third class cities at Lancaster City Hall on Thursday, July 11, 2019.

To make up the difference, property taxes would have to rise 30% over the next five years, she said. They have gone up eight times in the past 14 years.

Increased taxes threaten to push out longtime residents, people who have contributed to Lancaster’s vitality. That’s not acceptable, and she won’t stand for it, the mayor said to applause.

Sorace’s litany sounded all too familiar, Harrisburg Mayor Eric Papenfuse said: "You could pretty much give the exact same presentation for Harrisburg."

York Mayor Michael Helfrich and Reading City Council President Jeffrey Waltman Sr. agreed the state’s system puts cities in a bind.

"It’s a mess," Helfrich said.

2. Cutting expenses isn’t the answer.

Cut costs? "We have done those things," Sorace said, from self-financing health insurance to refinancing bonds to reducing employees’ future retirement benefits.

The city has implemented around 180 cost-saving recommendations in the past 12 years, and is hiring a consultant to see if more can be found. 

Martin and Rick Schuettler, executive director of the Pennsylvania Municipal League, brought up a slew of proposed expense-side reforms involving municipal pensions, prevailing wage mandates, collective bargaining and arbitration rules.

All have been debated for years, all have potential to reduce municipalities’ costs — and all face formidable opposition in Harrisburg.

Yes, Sorace said, those changes would help to some extent, if and when they’re enacted. But it’s going to take years, and cost-cutting alone won’t do the trick. Municipalities need more revenue options, and they need them now, not down the road, she said.

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The audience listens during a workshop discussion on the financial health of Pennsylvania's third class cities at Lancaster City Hall on Thursday, July 11, 2019.

3. ‘Economic development isn’t the answer.’

To Argall’s amazement, that comment came from Lisa Riggs, president of the Economic Development Company of Lancaster County.

Lisa Riggs

Lisa Riggs

If it were the answer, Lancaster would be doing great, Riggs said. It’s home to the headquarters of a large regional bank, an acute-care hospital and a liberal arts college, and has attracted hundreds of millions of dollars in private development.

"We’re the test case," she said. "We’ve done it right."

Argall asked about tax incentives such as the City Revitalization & Improvement Zone program, and the new opportunity zones the federal government is rolling out. While the growth they engender is welcome, they’re not swelling the city’s coffers, Riggs and Sorace said.

4. Structural problems need long-term solutions.

As part of its program for exiting "distressed city" status, Harrisburg is being allowed to maintain higher rates on two taxes for five years: The local services tax ($156 on people who work in the city, rather than the normal maximum of $52) and earned income tax (2% rather than 1%).

The added revenue has fixed Harrisburg’s deficit, but it’s temporary. Papenfuse suggested the higher rates be made available to all third-class cities on a permanent basis.

Especially the local services tax, he said. It’s tied to empoyment, and at $3 a week, it’s around the cost of a cup of coffee.

Because commuters pay it, it addresses the perennially sore issue of people outside the city coming in and taking advantage of services that their property taxes don’t support.

In Lancaster, it’s estimated that raising the local services tax to Harrisburg’s rate would generate an additional $3.4 million a year. That would be "hugely beneficial," Sorace said.

Helfrich suggested a county tax, part of which could be remitted to the county seat.

Waltman advocated a "workout plan" for each city, tailored to its circumstances. For example, State College, the home of Penn State, might want to enact a local alcohol tax, he said.

5. Will the political equation add up?

Crafting legislation that can get majorities in the House and Senate and a governor’s signature isn’t easy, Schuettler said.

That’s why raising awareness is important, Martin said after the workshop.

Asked about specific proposals made Thursday, Martin said: "I think you have to say, every single thing’s on the table."

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