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Judge expected to decide Hbg. EIT increase by Monday

By - Last modified: August 23, 2012 at 6:51 PM

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Commonwealth Court Judge Bonnie Brigance Leadbetter said she could decide as early as tomorrow whether to force Harrisburg to increase its earned income tax on city residents by 1 percent.

The decision is expected by Monday, the judge said today, following more than five hours of testimony.

Harrisburg receiver William Lynch requested the hearing through a writ of mandamus petition after the City Council failed to act on the tax increase.

The 1 percent EIT hike is part of the court-approved recovery plan, along with the rehiring of city spokesman Robert Philbin.

The receiver has asked the judge to compel the council to take action on both items.

The city's fiscal overseer – the only one in the commonwealth – and his attorneys argued that the EIT increase is "critically necessary" to address the city's structural deficits and help control future costs.

"You can't continue to operate on the edge of your seat every day," said Mark Kaufman, one of the receiver's attorneys.

The increase would have generated a projected $1.7 million more in city revenue this year had it been implemented by July 1, according to the state. The projection pegged next year's EIT total at more than $5.1 million and nearly $6.9 million each year from 2014 to 2016.

If the city paid all of its bills this year, the projected operating deficit for 2012 would be about $9.6 million. However, the city is expected to skip a general obligation payment next month and it has a carryover deficit from 2011, which pushes the projected deficit to about $16.3 million.

And that number could be low if coordinated parking funds projected to be $1.4 million come up short. Lynch said he expected just $200,000 from the Harrisburg Parking Authority.

If the city paid the $3.9 million bond payment, it would be out of cash and running a deficit in September, said Gerald Cross, executive director of the Pennsylvania Economy League of Central PA. Even if the bond is not paid, the city is projected to run out of cash in November, he said.

The negative cash balance by year's end is expected to be about $1.7 million when skipping the bond payment, meaning the EIT increase would have wiped out the deficit, Cross said.

Attorneys for the receiver argued the EIT increase is just part of the overall debt solution. They said it helps address a substantial shortfall and would help in negotiations with creditors.

"This is a necessity. Simple," Kaufman said.

The council and its attorneys have said the tax hike puts an unfair burden on city taxpayers already paying higher taxes.

The receiver doesn't have the authority to impose the tax hike and the current rate is already at the legal limit, attorneys Neil Grover and Lee Morrison argued.

The judge said she was "reluctant" to force the increase. She said she needs assurance that other pieces of the recovery plan, including asset deals and negotiations with creditors as well as union workers, have a prospect of falling into place.

"This is real money to real people," she said. "I am not willing to put the burden on taxpayers if it's the only thing that happens."

Lynch said his office is "very close" to a deal on the incinerator. He is negotiating a deal with the Lancaster County Solid Waste Management Authority to buy the trash-burning plant. The incinerator debt is more than $326 million.

The plan also calls for the sale or lease of the city's parking system and working out a management agreement with a third party on the water and wastewater assets. Those efforts are not as far along, Lynch said.

Background

Harrisburg's EIT rate is currently 1 percent. The school district receives half a percent and the city receives half a percent.

Under the court-approved recovery plan, the tax would jump to 2 percent. The city would receive 1.5 percent and the school district's share would remain unchanged.

Jason Scott

Jason Scott

Jason Scott covers state government, real estate and construction, media and marketing, and Dauphin County. Have a tip or question for him? Email him at jasons@cpbj.com. Follow him on Twitter, @JScottJournal. Circle Jason Scott on .

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