Honesdale considers earned income tax

Residents unanimously oppose

By OWEN WALSH
Posted 10/5/21

HONESDALE, PA — Honesdale Borough is considering a new approach to tax collection that has residents less than enthused. Last Wednesday evening, September 28, borough councilors asked residents …

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Honesdale considers earned income tax

Residents unanimously oppose

Posted

HONESDALE, PA — Honesdale Borough is considering a new approach to tax collection that has residents less than enthused. Last Wednesday evening, September 28, borough councilors asked residents if they’d prefer to pay less in real estate taxes while giving away a percentage of their annual earnings to Honesdale. The community in attendance responded with a resounding “no.”

If enacted, the borough would collect one percent from the paychecks and other earnings of residents and non-residents working within the borough. Wayne County’s designated Earned Income Tax (EIT) collector, Berkheimer Tax Innovations, estimates that Honesdale would collect between $320,00 and $340,000 in the first year of implementation and up to $460,000 in the second year. To offset this additional revenue, Honesdale would reduce property taxes by a minimum of one mill. That represents an 11 percent decrease in real estate taxes, about $270,000 overall.

Councilor and finance committee chair Jared Newbon opened the meeting, explaining how the borough arrived at the idea.

“Lowering real estate taxes and enacting an earned income tax is a way that the borough can make living in Honesdale more affordable,” he said. “Of the nearly 2,600 municipalities in Pennsylvania, only 93 of them do not levy an earned income tax. Because of this, Honesdale’s residents [paid] nearly $110,000 in earned income taxes to other municipalities last year. Enacting our own EIT would bring all of those income dollars back to Honesdale.”

Bringing those dollars “back to Honesdale” refers to the fact that if an individual lives and works in two different municipalities that both levy an EIT, the individual only pays to their municipality of residence. Tom Shepstone, who lives and works in the borough, took issue with this point, saying that while it may seem like a boon at first, the benefits would likely decline after the initial year because other municipalities are sure to follow suit.

“This tax has a very insidious feature… once you adopt it, you get this flush of cash that comes in which is an incentive to adopt it. And then as soon as that happens… your neighboring communities… say, ‘Well, we ought to grab that; they’re taxing our people,’” Shepstone said. “So, this idea that this tax is going to increase [revenue] is purely a one-time event; it’s going to go down over time.”

The borough’s plan does account for the expectation that after the first year, only residents would pay an EIT to Honesdale. Newbon said the extra revenue generated by taxing out-of-towners in the first year would go toward one-time stormwater infrastructure repairs. The recurring income from residents would be used to fund the local police force and Wayne County Department of Public Works.

Responding to Shepstone’s point, Berkheimer Director of Governmental Relations Jim Hunt said that the estimates of how much the borough would collect were based only on borough residents and did not take non-resident workers into account. In other words, the borough should expect the number to grow from the initial estimate over time, not see a steep drop-off.

Suzie Frisch, a resident and business owner in Honesdale, said that enacting this tax would create an even tougher challenge for employers to keep workers on staff in a post-COVID world.

“Our businesses are trying to survive; it’s hard enough to retain employees, let alone now have to tell them that because they work in the borough, we’re going to take even more money from them,” she said.

Using an EIT approach would help the borough solve a problem that has dogged councilors for years. Thanks to Honesdale’s many government buildings, non-profits, churches and other exempt properties, 43 percent of real estate in the borough is non-taxable.

Earned income taxes apply to just that—anything that is earned: salaries, wages, commissions, bonuses, fees, incentives, and self-employment revenue. The tax would not apply to things like social security benefits, unemployment compensation, pensions, public assistance, insurance payments and annuities, gifts, interest, or dividends.

Brian Wilken, president of the Greater Honesdale Partnership—the “economic arm” of the borough, which is made up of hundreds of local businesses—said that while Honesdale may be in the minority of Pennsylvania municipalities not levying an EIT, this is a strength rather than a weakness.

“The fact that we don’t have earned income tax gives us an advantage over the rest of the area who do,” Wilken said. “If someone in [the Route 6 plaza] is offering you $17 an hour, and someone in Honesdale is offering you $17 an hour but you get a one percent wage tax here, labor knows no container; it’s going to flow down there.”

Some residents’ concerns were not centered around the cost of the tax, but on how that money would be spent. Resident Lisa Glover wondered how funding the police department with this money would effect real, tangible changes.

“I’d want to see my [taxes] used wisely by the police to reduce the incidence of crimes—before they happen—through community betterment,” Glover said. “If it’s used instead to hand out more fines to skateboarders and enforce nonexistent noise ordinances on downtown Honesdale Halloween parties, count me out. I’m happy to pay more in taxes if it has a noticeable, measurable, positive impact on the community; I believe we need to measure that impact.”

Citing similar reasons, resident and mayoral candidate Derek Williams said that while he may support a tax like this, he couldn’t support it in its current form, wishing to see more taxes directed toward stormwater issues and funding the fire department and public works crew.

“Around a third of our current budget goes to our police department. That’s a lot of money being spent on part-time services that are typically negotiated with lawyers and without much public review,” he said. “Seems to me that more planning would be helpful before spending additional revenue on this expenditure; that way more people can see where their tax dollars are going.”

The borough’s own chief of police Richard Southerton has responded negatively to this idea himself, telling the River Reporter that people should be “up in arms” about the proposed tax. Though a portion of it would supposedly go toward funding his own department, he remains skeptical.

“Every year they say we’re going to raise taxes because we want to increase the police department, then they do nothing for the police department and people sort of forget it and it moves on,” the chief said.

Council president Mike Augello closed the meeting acknowledging that taxes will always be a thorny issue, but that the borough needs to find money fast to deal with its immediate stormwater issues, and that he’d like to do it without putting all the burden on homeowners.

“There are many, many senior citizens in this area that may have a nice house, have limited income, and for them our property taxes are a major burden,” Augello said. “If we can shift some of that burden to the people who are working, again we can argue as to which is right or wrong, but most of Honesdale is senior citizens.”

The borough held another public hearing on this issue at the Honesdale High School auditorium on Wednesday, October 6, at 6 p.m.

For more about this issue, visit riverreporter.com/news.

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