As of this writing (July 23, 2012), the city of Scranton Pennsylvania has been making front-page news in the same company as Stockton and San Bernardino California. Scranton is nearly broke. To understand why, one would have to trace the history of the city from the end of the second world war until today' here is an attempt:
First, the coal left, then the railroads that carry the coal left and then the industries that powered America for the South and then overseas. The population slumped, and as the non-residential tax base disappeared, taxes – particularly school taxes – became onerous in the form of wage taxation, the poison pill of many Pennsylvania cities, like Philadelphia, Pittsburgh, Reading and Scranton. Wage taxation at the local level has been shown to be dangerous for cities in a mobile age, leading to lower wages and fewer jobs.
Once upon a time, in the 1920s to 1940s Scranton like other cities had only a property tax. It was a property tax different from the one understood (and hated) by most people. Scranton's property tax was a land value tax that tax land values at twice the rate of building values. The earliest evidence from Scranton's civic leaders were quite favorable to what was known as the "graded tax."
For quite some time, Scranton has fallen deeper into debt and the tax base shriveled with a sizable portion of land not on the tax rolls. Currently, debt Scranton is currently about 20% of the annual budget all of which is come to a head with national news stories reporting on seemingly intractable differences between the mayor and the city Council on how to plug budget holes, reduce debts and maintain services. To boil down the dispute, city Council believes issuing municipal bonds to provide operating revenue is the way to go, and the mayor believes that property taxes must be increased dramatically over the next several years to close the gaps. This is all in addition to the Scranton Parking Authority missing a bond payment that could jeopardize borrowing in the future. That bond was in the amount of $16 million issued in 2004, and will be hard to pay off
We would suggest that Scranton reach deep down into its bag of tools and pull out and tune up that rusty instrument known as the graded tax.
The rationale is clear:
1. The wage tax in Scranton is already pinned as high as it can go considering how low wages are in that city.
2. Most of the tax base is now residential. Taxpayers cannot afford a significant "right now"
across-the-board increase. There's plenty of taxable land however sitting empty and owned by dentists from New Jersey (or someone close to that).
3. Municipal bonds – if you can find a lender – are essentially a tax increase but one that comes due down the road. With Scranton's current debt, the terms would likely create a bottom line in 10 years or so that would exceed a tax increase now.
4. Business taxes can't be increased, and many new businesses in the city of Scranton are tax abated for years anyway.
At this point, there is no easy way out. Again,Scranton is tearing itself apart while the city suffers. The community ought to come together and close these deficits and secure the city by using community created land values. It may take some time, but with sensible tax policy (i.e. reducing business taxes, wage taxes and building taxes to nearly nothing), Scranton would have a revenue stream that is dependable but would create an environment attractive where it was not before.
There would be difficulties and switch entirely to a tax on land values for both city and school. Permissive legislation for the school district would be needed. The County of Lackawanna would have to finally complete and certify a full reassessment.
To reconcile and find common ground, the leaders and citizens of Scranton need only look under their feet.