Why is the City exploring Home Rule?
For years, Mayor Sorace, City and community leaders, have advocated for legislative change in Harrisburg to give more tools to cities like Lancaster to control expenses and provide for other ways to raise revenues besides property taxes. These advocacy efforts have not yielded any relief for Lancaster City residents who carry the largest tax burden in the County in contrast to other municipalities.
The same four taxes that have funded city operations for decades remain in place:
Property Taxes, the only tax that City Council has authority to control, have increased 9 times since 2006.
Earned Income Taxes, paid by city residents only, set at .6 percent, cannot be adjusted without either entering Act 47 (municipal bankruptcy) or changing our form of government to Home Rule.
Local Services Tax, at a rate of $47/year for those who work in the City, fixed by state law, could be under local control through Home Rule, but only for city residents. The City could not increase this tax on commuters.
Real Estate Transfer Tax, at .5 percent of sale price, currently fixed by state law, could be under local control through Home Rule.
The City of Lancaster is exploring home rule as a solution to address our structural deficit. Due to stagnant assessed property values, property tax revenue increases by less than 1% a year. This is not enough to meet year-to-year budget increases with the same staffing and service levels. In contrast, incomes are growing over time, meaning revenue from the earned income tax increases each year. In fact, the City is projecting a 5% increase in earned income taxes in 2023. Even slight increases in the earned income tax could help alleviate the City’s current dependence on property taxes.
And income tax is just one example. Through the home rule process, the City could potentially gain control over the real estate transfer tax as well. These changes would give the City of Lancaster more tools to raise revenue and reduce reliance on property taxes.
Another factor impacting City finances is that 28% of properties in the city are non-taxable. While some tax-exempt properties make a payment in lieu of taxes, the City of Lancaster loses out on an additional $13 million in property tax revenue annually.
What is a County Real Estate Reassessment?
While not on a fixed schedule, the County of Lancaster reassesses properties about every 8 years to determine what the owner will pay in property taxes based on the assessed value of the property. The most recent reassessment took effect in 2018. While Lancaster City’s assessed property values increased during the last reassessment by 36%, under state law the City had to lower its property tax rate to ensure no additional revenue was received due to the reassessment. After that adjustment, City Council was then able to raise property taxes again as they did in 2019 and just recently.
It is important to note that despite significant development taking place in Lancaster City in recent years, ‘assessed values’ have not increased more than 1% year-over-year — note that ‘assessed value’ is typically lower than the selling price you see listed on sites like Zillow. Thus, the recent development and strong real estate market in the City has not yielded a sharp increase in property tax revenue and solved the City’s structural deficit.
What Could Change?
Depending on the Commission’s recommendations, either nothing, very little, or a lot can change. And ultimately, the voters will decide. A key change could be for City of Lancaster to gain authority to modify the rate of the local earned income tax and the real estate transfer tax. Currently, the City can only control the rate of local property taxes to raise revenue.
Currently, the City of Lancaster operates under an Optional 3rd Class City Charter. It was adopted in 1953. Only eleven other communities operate with this form of government: Bethlehem, Erie, Harrisburg, Lock Haven, Meadville, New Castle, Oil City, Titusville City, Williamsport, and York. The vast majority of other municipalities have adopted Home Rule.