The year is 1965. The Voting Rights Act is signed into law. The Rev. Martin Luther King Jr. marches from Selma, Alabama, to Montgomery. “The Sound of Music” is released. The average house price is $13,600, and a gallon of gas will cost you about 30 cents.
It was also the year the Pennsylvania General Assembly passed the Local Tax Enabling Act, providing a list of taxes that third-class cities such as Lancaster could utilize to generate revenue in addition to property taxes. They include the earned income tax, local services tax (new in 2005), real estate transfer tax, business gross receipts tax, and the amusement tax. There is also a mechanical device tax — jukeboxes anyone?
Of course, the city has a property tax (11.7 mills). Of the other available taxes, the City of Lancaster collects only three: the earned income tax (0.6%), the local services tax ($47 per year), and real estate transfer taxes (0.5% of sale price). All three rates are fixed by state law.
Taken together, these taxes represent 65% of revenues and the lion’s share is generated from property taxes (50%). Why? It is the only tax the city has the authority to increase.
Where does the remaining 35% come from? Various fees, grant revenues, and payments in lieu of taxes from nonprofits like Lancaster General Hospital. Altogether, the city collects about $62 million. Year over year with no change in the property tax rate, revenues grow by an average of 1%.
The 2020 City of Lancaster combined operating budget is $123 million; of this, $62 million is the general fund. The general fund is what pays for mandated services including police and fire, as well as streets, parks, snow removal, etc. Of the $62 million budget, 62% is earmarked for police and fire. Year over year, expenses grow an average of 3%.
Sixty-two million dollars in, 62 million dollars out. A balanced budget. Looks pretty good! But there is a problem with the math: A 3% increase in expenses minus a 1% increase in revenues equals a 2% gap year after year after year. This is a structural deficit.
This is not new. When Mayor Rick Gray came into office in 2006, the deficit he faced was $69.2 million. Over time, and during a tough economy, the Gray administration implemented several cost-saving measures that continue today — most notably, becoming self-insured for employee medical insurance, which has saved taxpayers millions of dollars.
Cost-saving measures have not been enough to eliminate the structural deficit, however. Taxes increased eight times over the last 14 years averaging about 3.5% annually, with the largest increase (25%) occurring in 2010 when the Great Recession hit hardest.
What happened in the years when taxes didn’t increase? Debt was refinanced to generate savings — about $4 million over the last 10 years. Unanticipated revenues came in the way of real estate tax transfers or the sale of other assets. Basically, Lancaster city has stayed solvent through hard work, tough choices and more than a little bit of luck.
What does this have to do with 1965?
To understand how the revenue-generating tools granted to us in 1965 relate to our budget today, I did a little experiment. What would it take to use these tools to address our structural deficit over the next five years?
— Property taxes would need to increase by 30%.
— Average household income would need to increase by $8,000 every year.
— 21,300 new jobs would have to be generated in the city every year.
— $200 million dollars of real estate — roughly equivalent to the value of Park City Center — would need to sell every year.
— 690,000 Barnstormer baseball tickets would have to be sold every year (if we had an amusement tax).
— And, of course, there is the mechanical device tax but I’m honestly not sure how many jukeboxes there are in the city. Are you?
Conversely, what would we have to cut to hold the line assuming current mileage rate and 3% average increase in expenses? To maintain an operating reserve and eliminate the projected deficit, we’d need to eliminate at least 10 positions from city government every year for the next five years. Given the majority of our staff work in public safety, 50 fewer staff members would damage our ability to protect the city and its residents.
These kinds of cuts are not realistic, nor is a 30% increase in property taxes. We need solutions that create a new, equitable and sustainable fiscal structure that will allow cities like Lancaster to keep thriving. And that’s why I’m beating a path to Harrisburg, making the case for change.
Danene Sorace, a Democrat, has been mayor of the City of Lancaster since January 2018.