Pennsylvania’s small cities are strapped for cash. Can lawmakers help them make ends meet?

Fulton Theater in downtown Lancaster.

LANCASTER — Lancaster has seen its share of glowing press in the past few years.

In 2016, the New York Post dubbed this small city in the cradle of Amish country “the new Brooklyn.” 

New York Times columnist Thomas Friedman exalted Lancaster’s community leaders in a column last summer. He called the city with 60,000 residents a model for grassroots, urban revitalization across the country. 

In a joint hearing before the Senate’s Local Government and Majority Policy committees on Thursday, Lancaster Mayor Danene Sorace painted a different picture. 

While she’s grateful for all of the development that the city has seen in the past decade, she said, the new housing developments and restaurants haven’t made it any easier to pass a balanced budget.

“We have tons of development, but it doesn’t translate into income for the city,” she said during the panel’s Thursday hearing in downtown Lancaster.

Sorace was one of three small-city mayors who testified before the policy committee about the challenges facing Pennsylvania’s third-class cities — a municipal class under the state tax code that includes such cities as Lancaster, York, Harrisburg, and Reading.

For much of the 20th century, these small cities were regional economic engines that boasted downtown shopping districts, competitive school districts, and hot housing markets. 

Now, rising costs of public employee pensions and salaries, combined with long-deferred infrastructure projects, make it a herculean effort to draft an annual budget, the mayors said.

That’s due in part to the post-World War II “white flight” to the suburbs, which decimated the tax base and business environments in small cities like Harrisburg and Lancaster. Current leaders say they can’t squeeze enough revenue from taxpayers to fund government services.

Many small cities have already maximized the taxes and fees they’re allowed to levy under state law. Their residents, who are often more likely than their suburban neighbors to be poor and minority, pay the price.

“Our population is already overtaxed and over [burdened with fees],” Harrisburg Mayor Eric Papenfuse told the committees. “We couldn’t raise them even if we wanted to.”

Many of these hardships were detailed in a 2017 report by the Pennsylvania Economy League, which called for legislators to give municipalities more flexibility in levying fees and taxes to make ends meet. 

On Thursday, local leaders said they were still waiting on long-term legislative solutions. 

Just what that solution is, though, is a matter of debate. 

York Mayor Michael Helfrich said he isn’t interested in levying more taxes or fees on his residents. He thinks the answer lies in greater regionalization of government services, including fire and police departments.

But Papenfuse said that the Legislature should grant cities greater taxing authority. That’s what lawmakers did for Harrisburg city last year, when they passed a law granting it extraordinary taxing authority for five years. 

The law will allow Harrisburg to exit Act 47, Pennsylvania’s financial oversight program for distressed municipalities. For five years, the city can levy a Local Service Tax (LST) and Earned Income Tax (EITC) that are higher than what’s allowed under state law.

That authority should be extended to all third-class cities, indefinitely, Papenfuse told lawmakers Thursday.

Sorace and Lisa Riggs, president of the Lancaster Economic Development Company, agreed. Riggs said that some of the legislative fixes for small cities have barely benefitted their bottom lines. 

She pointed as an example to local investment zones, which are meant to stimulate job growth and economic development by reinvesting local and state tax revenue in circumscribed areas.

Investment zones have been immensely popular in Lancaster, Riggs said. But they haven’t put much money in the city’s coffers.

Instead of creating complex development programs, Riggs said, lawmakers should “think about giving local municipalities the flexibility they need” to balance their budget.

Her testimony came as a surprise to the policy committee’s chairman, Sen. David Argall, R-Schuylkill, who, along with other lawmakers in attendance, said he would use the testimony to inform legislative priorities in the fall. 

“To hear an economic development expert say economic development is not the answer is like taking a baseball bat to the head,” Argall said. 

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