Pa. Town Considering Tax to Address Pension Funding

November 8, 2011 ( – The town of York, Pennsylvania, is considering establishing a “distressed pension earned income tax,” according to local news reports. 
If approved, the tax would allow the city to collect a percentage of worker’s earnings. Business Administrator Michael O’Rourke said city officials are especially interested in taxing individuals who work in the city, but live elsewhere, as a way of spreading the cost of the city services among everyone who uses them. He added that the tax could also extend to residents, regardless of where they work.

The distressed pension earned income tax is one of several recommendations included in a recent report detailing the city’s financial challenges. Philadelphia-based consulting firm Public Financial Management (PFM) authored the 189-page report, which predicts York City will face a $50 million deficit by the end of 2016 if drastic measures are not taken. 

According to an article in The York Dispatch, despite rising property-tax rates, the report predicts that beginning next year the city will have accumulated a $4 million deficit—the cumulative difference between actual revenue and expenses.

The Municipal Pension Plan Funding Standard and Recovery Act of 1984— also known as Act 205—grants municipalities struggling to meet pension obligations the ability to tax workers. Act 205 prohibits municipalities from using the revenue for anything other than its pension obligations. York City has qualified for Act 205 since the 1980s, O’Rourke said.

The report’s authors estimated that York could generate $2.9 million next year by implementing this tax.

The new tax would be different from York's existing earned-income tax, which the city splits with the school district. Commuters are subject to the 1% tax, but it reverts to the person's home municipality if he or she lives in a Pennsylvania municipality that also collects the tax—as all 72 York County municipalities do, according to the PFM report.

The distressed pension earned income tax would also be in addition to the emergency municipal services/local services tax, which is levied at a flat rate of $52 on anyone who works within city limits. The tax is intended to supplement fire, police, and street maintenance budgets otherwise supported by residents.