NEW CASTLE — New Castle officials are exploring the possibility of reforming the city’s government under a home rule charter.

If New Castle were to become a home rule city, it would be one way for the city to exit Act 47.

A key reason is that home rule would give the city more control over its tax structure. And right now, state law places limits on tax rates, specifically the property and wage taxes, which are the highest revenue producers for the city.

Adoption of a home rule charter would ultimately be up to the voters to decide, but a committee made up of city officials will determine whether the idea is worth pursuing.

Formation of the committee is one of the directives in New Castle’s Act 47 financial recovery plan. The directive requires the committee to study the benefits of home rule and produce a report stating the reasons for its decision by the second quarter of this year.

Serving on the committee are the mayor, two council members, the business administrator and solicitor.

The committee has the option to decide that the city pursue or not pursue home rule, according to Gordon Mann, a member of the city’s Act 47 recovery team.

Michael S. Foreman of the Pennsylvania Department of Community and Economic Development discussed the home rule process at the committee’s first meeting Thursday.

The recovery plan specifically recommends the city explore the idea because it would give officials more control over its tax structure.

Mayor Anthony Mastrangelo said he has no preconceived notions on whether the city should have home rule.

“We should at least look at the options,” he said. “I’m open for discussion.”

But home rule would allow the city to make other government reforms as long as they aren’t prohibited by the Pennsylvania constitution or other laws.



PERMITTED REFORMS

Foreman said there are other possibilities the city could write into a home rule charter.

They include changing the form of government, changing the number of council members and eliminating the treasurer and controller and putting those functions under the supervision of the chief financial officer, he said.

The charter could also provide for initiatives and referendums, allowing residents to place questions regarding city matters on the ballot.

The main thrust for looking into home rule, though, is taxes.

New Castle, like all municipalities in Pennsylvania, can impose a 1 percent wage tax, but only on its residents. Half of the city’s revenue goes to the New Castle Area School District.

However, Act 47 gives the city the authority to impose a wage tax on non-residents who work in New Castle. So, beginning in 2008, the first year under Act 47 oversight, the city imposed a 2.1 percent wage tax on non-residents to help pay for pension costs. The tax on residents was increased to 2.2 percent at the same time.

Council reduced the tax on non-residents to 2.05 percent and on city residents to 2.15 percent beginning in 2012.

The tax on non-residents generates approximately $2.5 million a year. As a result, the city has ended with budget surpluses the last couple of years.

Without Act 47 oversight, the city would lose the $2.5 million and the ability to fund the services it currently provides. Thus, the city would have to find a way to make up that lost revenue.

Currently, if the city needs to collect more revenue through taxes, its only option is to increase the property tax. The problem with that, Mann noted, is that the tax “is borne by a specific portion of the population, including residents on a fixed income.”

Home rule could make it easier for the city to eventually exit Act 47 oversight, Mann said. He added that a municipality can have home rule and still be in Act 47.



MORE FLEXIBILITY

Home rule would give the city more flexibility, allowing it to distribute the tax burden more fairly among all of New Castle’s residents, Mann said. But even under home rule, the city could not impose the wage tax on non-residents.

What it would mean is that city residents would have to bear the entire burden of higher property or wage taxes, or both.

Even if the city adopted a home rule charter, it must meet other criteria to exit Act 47, Mann said.

Under the law governing Act 47, a public hearing must be conducted and then the secretary of the department of community and economic development may issue a decision that the conditions that led to the earlier determination for financial distress “are no longer applicable.”

Factors the secretary is to consider to make a determination is whether the city has eliminated all accrued deficits and retired all loans that were issued to finance all or part of the city’s deficit.

Plus, the city must show that it has operated one year with a positive fund balance, meaning spending less money than it collects without relying on the non-resident wage tax revenue, Mann said.

Nonetheless, Mann said that “without gaining the additional flexibility that home rule provides, it will be even more difficult for the city exit Act 47 oversight.”

(Email: jmanna@ncnewsonline.com)