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Pennsylvania judge says Scranton can't tax commuters to fix pensions
October 1, 2014 / 8:08 PM / in 3 years

Pennsylvania judge says Scranton can't tax commuters to fix pensions

HARRISBURG, Penn., Oct 1 (Reuters) - A Pennsylvania judge on Tuesday rejected the cash-strapped city of Scranton’s bid to solve its municipal pension woes with a new commuter tax.

The 0.75 percent tax on commuters’ earned income was supposed to have gone into effect on Wednesday. It would have affected about 23,000 people and raised about $5 million annually, according to city officials.

Senior Judge John Braxton of Philadelphia, who heard the case in Lackawanna County Court of Common Pleas, said the city could not impose a commuter tax unless it levied the same tax on residents.

The lawsuit to stop the tax was brought by a group of aggrieved commuters who would have paid it. The city can appeal the ruling.

Scranton, a financially distressed city of 75,000 residents, has $98 million in its own debt, another $48 million in parking authority debt and owes $22 million in a court judgment won by its employee unions, according to 2014 budget documents.

The city’s public retirement system is less than five years away from collapse, according to an August report from State Auditor General Eugene DePasquale.

The funded level of its pension fund for firefighters sank to 16.7 percent as of Jan. 1, 2013, from 41.7 percent just four years earlier, the audit found. Scranton’s police pension fund is just 28.8 percent funded, and its municipal employees pension is at 23 percent. Above 80 percent is generally considered healthy.

Scranton’s pension and benefit costs have been growing by an average 15 percent annually since 2012, budget documents said.

The former steel and coal town has been under state oversight since 1992 through Pennsylvania’s Act 47 law, which aims to help distressed cities. Scranton first sought to levy a commuter tax under the provisions of that law in 2012 but was rebuffed by the courts.

The city then turned to Act 205, a state law enacted in 1987 to help municipalities with distressed pension plans. It argued that Act 205 contained sufficient authority to levy a commuter tax only on non-residents, but Braxton disagreed.

“It seems like every time we try something, somebody shoots it down,” City Council President Bob McGoff told Reuters.

There might be support for a new tax in 2015 that hit both residents and commuters, “depending on how it is structured,” he said.

The city is also pursuing a possible sale of its parking garages, which are in receivership. Mayor William Courtright must propose a fiscal 2015 budget by Nov. 15. (Reporting by David DeKok in Harrisburg; Editing by Hilary Russ and David Gregorio in New York)

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