Wilkes-Barre’s financial distress not a surprise, analyst says

By Jennifer Learn-Andes - jandes@timesleader.com
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Months before Wilkes-Barre’s decision to seek Act 47 financially distressed status, representatives of the nonprofit Pennsylvania Economy League unveiled a study placing the city among the most distressed municipalities in Luzerne County.

The dozen municipalities in this group had falling revenues, shrinking real estate tax bases and a decline in households, according to the organization’s analysis of fiscal and population data from 1970, 1990 and 2014.

“It should come as no surprise based on our research,” PEL Executive Director Gerald Cross said of the city’s newly announced plans.

His team’s findings here and statewide, which were released last fall, revealed much of the wealth has shifted from urban centers to suburban areas over the last 50 to 60 years.

Wilkes-Barre and other cities that were once home to a range of income levels and wealth are increasingly composed of lower-cost housing and residents who make less, reducing both real estate and earned income tax revenue, he said.

Urban areas are still stuck with “legacy costs” to maintain police, fire and infrastructure still heavily utilized by non-residents who visit the city for services and employment, Cross said.

“The way we finance local government has been broken for decades, and Wilkes-Barre is just the latest example of the inability of some municipalities to balance the budget with the wealth contained within their borders,” he said.

Luzerne County’s three remaining cities — Hazleton, Nanticoke and Pittston — also were ranked in the most distressed categories by PEL along with Ashley, Edwardsville, Nescopeck, Plymouth, West Hazleton and three townships — Hanover, Newport, Plymouth.

The organization has urged state legislators to reward the sharing or regionalization of services and allow municipalities flexibility to customize a menu of taxes based on their demographics, rather than relying primarily on real estate taxes and an earned income levy that is capped and must be split with school districts.

Some of the more distressed municipalities have been forced to raise real estate taxes, sell assets and tap one-time revenues to maintain services and “survive in the system the state has created,” Cross has said.

Assessments

A sign of Wilkes-Barre’s tax base erosion came in 2016, when Hazle Township knocked the city from its historic top position with the highest taxable assessed value.

With a tax base of $1.49 billion, Hazle Township has ample space for continued industrial and residential expansion and no municipal police force.

In comparison, Wilkes-Barre has a taxable assessment of $1.407 billion, a police force and limited space for new construction.

“We have the former Hotel Sterling site, tracts on Wilkes-Barre Boulevard and some old factories that can be redeveloped, but we’re largely landlocked,” said city Administrator Ted Wampole, noting efforts to renovate older downtown structures for apartments, restaurants and other uses has helped.

It should be stressed that the city’s $1.49 billion tax base figure is based on the county’s assessments, which are used for county and school real estate taxes. While all 75 other municipalities use the county’s assessments, Wilkes-Barre officials decided to keep their own old assessments after the countywide reassessment that took effect in 2009.

As a result, the city had no mass revaluation of all real estate to alter inaccurate assessments that cause some to pay more or less than their fair share.

City officials have discussed switching over to the county values, but they backed away, at least for now, Wampole said.

The reason, according to Wampole: the assessment increases — and thus higher tax payments — would primarily fall on residential properties because more of those are under-assessed. Commercial properties would be the main beneficiaries.

“There was no appetite for that,” Wampole said of the hit on residential property owners. “We will look at it again in the Act 47 plan and see what they come up with.”

No taxes

Under the county assessments, more than a quarter of the city’s real estate, or 26.87 percent, is tax exempt.

As of June, the value of more than 1,000 properties owned by government agencies, non-profits and other tax-exempt entities totaled $517.14 million. This amount increased from $513.8 million in January, according to the county’s tax base readings.

Wampole said further research would be required to determine if this percentage also applies to the city assessments.

Wilkes-Barre’s tax-exempt percentage, the highest among county municipalities, is not a surprise because the city is the county seat and base for several county buildings, charitable organizations and both King’s College and Wilkes University, Wampole said.

He acknowledged tax-exempts take a “significant” bite out of the city’s tax base but said they also bring workers and residents into the city to shop, eat and support businesses. Building and grounds enhancements and upkeep by these entities boost the value of surrounding properties, he said.

“I don’t want to look at it as a complete negative,” Wampole said. “If we didn’t have these tax-exempt properties, would we be better off? I’d say no.”

City Mayor Tony George has said he asked the state for the distressed status because the city faces an estimated $3.5 million deficit next year, and his administration’s attempts to get out of that hole have been unsuccessful. The state’s review process to determine if the city qualifies for the status is expected to take months.

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By Jennifer Learn-Andes

jandes@timesleader.com

Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.

Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.