Proposed Act 47 program's changes leave out Pittsburgh

HARRISBURG — Every distressed municipality in the state — except for Pittsburgh — would be permitted to increase its local services tax rate above the current $52-a-year cap, if proposed changes to the state program governing towns under Act 47 oversight become law.

City officials and Democratic lawmakers from southwestern Pennsylvania say that Pittsburgh, in being excluded from that proposed revenue-raising opportunity, is being unfairly singled out.

“The city’s position is that if the Legislature is affording other Act 47 cities the opportunity to pass a modest [tax] increase to handle critical issues like pension costs, and paying for upkeep of parks, bridges, playgrounds and other capital infrastructure, Pittsburgh should not be excluded,” said Tim McNulty, a spokesman for Mayor Bill Peduto.

Pittsburgh is the largest of 20 communities statewide under Act 47 supervision — a state designation that a city or town is “financially distressed.” In its current form, the Act 47 overhaul bill (HB No. 1773) would allow distressed cities to triple the local services tax — from the current maximum of $52 to up to $156 annually — paid by city residents and nonresidents working within the city, in lieu of an earned income tax increase.

However, Pittsburgh would not be allowed to do so.

“This option is limited to only those municipalities [that] are not restricted by law from levying an enhanced [earned income tax] on nonresidents,” according to a fiscal note from the Senate Appropriations Committee accompanying the most recent version of the bill.

Pittsburgh is prohibited by law from applying an earned income tax to nonresidents, and therefore would be ineligible to raise its local services tax.

“What I resent and obviously object to is the removal of Pittsburgh [from being permitted to increase the local services tax]. I don’t think that’s fair,” said Sen. Jim Ferlo, D-Highland Park, who represents a large portion of the city of Pittsburgh as well as parts of Allegheny, Armstrong and Westmoreland counties.

The Pittsburgh-specific language had been taken out of the House version of the bill before it passed in June in a bipartisan vote of 156-42, with the support of most members of the Pittsburgh House delegation.

However, the language was later reinserted into the bill in a Senate committee meeting. Republicans hold the majority in both the state House and Senate; all of Pittsburgh’s representatives and senators are Democrats.

Mr. Peduto’s office remains “in close discussions with members of the House and Senate delegation on the issue,” Mr. McNulty said.

In Pittsburgh, the local services tax is $1 per week charged to people who work within the city and who earn more than $12,000 annually.

Rep. Dan Frankel, D-Squirrel Hill, said it’s not clear to him why Pittsburgh would be uniquely singled out from every other Act 47 city but noted a number of suburban Republican representatives do not want to see their constituents who commute into the city taxed.

Mr. Frankel’s district is entirely within the city.

A spokesman for Rep. Mike Turzai, R-Marshall, the House majority leader, would say only that the bill’s author, Rep. Chris Ross, R-Chester, was trying to reach a resolution on the issue.

Rep. John Maher, R-Upper St. Clair, said he had not heard from city officials on the matter.

“If the city of Pittsburgh desires new taxing authority, the mayor needs to say so,” he said.

There are no immediate plans to raise the tax, Mr. McNulty said. But he also said that city officials don’t want Pittsburgh to be treated differently from any other city. At the $52-a-year rate, the local services tax collects about $14 million annually for Pittsburgh city coffers.

The Senate reconvenes Sept. 15 and is expected to take a final vote on the bill this fall. It would need to return to the House for another vote in the chamber as well.

The 100-plus-page bill would make major updates to the Act 47 program, which hasn’t been revised since it was enacted into law in 1987. The bill’s author, Mr. Ross, said the goal of the revision is to prod cities to exit the Act 47 program more quickly.

That’s not aimed at Pittsburgh, but at other municipalities that have lingered in the program for decades without making progress.

There are currently 20 municipalities in the program, including Clairton, Braddock, Rankin, Duquesne, Johnstown and Aliquippa, which entered the program in 1987. Seven have successfully exited the program, including Wilkinsburg, East Pittsburgh, North Braddock and Homestead.

Mr. Ross said Pittsburgh has taxing abilities not afforded to other cities, and if Pittsburgh wants the ability to increase its local services tax, the city must give up another tax, such as changing its earned income tax.

A “swap, not a unilateral increase,” is the goal, Mr. Ross said.

He said he has been in discussion with members of the Pittsburgh delegation about their concerns.

“We’re working to try to get a broadly acceptable version of this bill,” he said.

A city, borough or township under Act 47 watch can restructure its debt more easily, install new taxes, and some are eligible for grants and no-interest loans. Act 47 cities must adhere to a recovery plan crafted by the city and its Department of Community and Economic Development overseers.

Kate Giammarise: 1-717-787-4254 or or on Twitter @KateGiammarise.

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