City officials express support for extending the commuter tax beyond its three-year exit from Act 47.
Reading, PA —
Reading remains ready to start on a three-year path out of the state’s Act 47 program for financially distressed cities but it faces deficit growth that could exceed 80 percent by 2022.
That was the good news-bad news report made to City Council this week by the financial administrator appointed by the state to guide Reading back to solvency.
Gordon Mann, a director of Public Financial Management Inc., told council members Monday night that not much had changed since he last met with them in January except the city’s projected deficit.
Mann said Reading’s deficit could grow from $2.3 million in 2019 to as much as $4.2 million in 2022.
He cited two major factors for the expected bulge in red ink the Reading Parking Authority’s reduced contribution to the city and projected rising health care costs.
The city projected a $1.8 million contribution from the parking authority “into eternity,” Mann said.
“What actually came through in 2017 was $1 million,” Mann said. “And what’s budgeted going forward is $800,000.”
The city’s former health care administrator expected costs to grow by 8 percent, Mann said, but the new administrator expects 11 percent growth.
Mann said his Philadelphia-based firm is trying to figure out two things if Reading is accurately projecting health care costs and if its estimate of the cost of that growth is correct.
“Traditionally you’ve spent around $2 million less per year on health insurance than you budget,” Mann said. “When we look at your actual expenditures in your general fund they’re pretty close to flat.”
Despite both those issues, Mann is confident the city can manage the deficit.
Council President Jeffrey S. Waltman Sr. was pleased with the report and agreed the city needs to solidify the parking authority’s contribution and nail down the health insurance costs.
Waltman also said he would like to see PFM have a role with the city after Act 47 for another five to seven years.
“So, we can have the added set of eyes and also do the deeper dives on these critical path items which cost us millions a year if we don’t manage them correctly,” Waltman said.
Last week at a strategic planning meeting, council and Mayor Wally Scott’s administration acknowledged they need to work together as the city prepares to exit Act 47.
The commuter tax
Acting City Manager Osmer S. Deming said council and the administration need to work together to find a way to replace the revenue generated from the commuter tax, which is being used to fund the capital projects budget.
“We’re eventually going to leave Act 47, whether we like it or not, and we’re going to lose a revenue stream and we need to work together to find a creative way to replace that revenue stream,” Deming said.
The commuter tax generates about $3 million.
When the city went into Act 47, it was allowed to levy a commuter tax. Once the city exits Act 47, the commuter tax will go away. Since January, the city has not had to rely on the commuter tax to fund daily operations, but that money was being directed to the capital fund.
“I think that’s one of the reason the mayor is hesitant to leave Act 47,” Deming said. ” I don’t know if we figured out as a city government a way to compensate for that lack of revenue.”
Deming said one way council and the administration could work together is to lobby state lawmakers to allow Reading to continue to impose the commuter tax for another five, 10 or 15 years.
Waltman agreed that the city needs to try and extend the commuter tax.
“I wish the state legislators would help us out with that,” Waltman said after Monday’s committee of the whole meeting.
“I think that’s a critical path item. That’s going into our capital fund.”
Waltman said he and other members of City Council have met with local lawmakers, urging them to approve an extension of Reading’s commuter tax.
“If it made sense in Act 47, it should make sense outside of Act 47,” Waltman said.
A public meeting is scheduled for April 11 at 5:30 p.m. to discuss PFM’s report on the city’s financial condition. The three-year exit plan will be released within 90 days of the public meeting.