No tax hike in Allentown’s proposed 2021 budget
Property taxes would not increase for Allentown residents for the second year in a row if Mayor Ray O’Connell’s $119 million proposed 2021 spending plan is approved.
Instead, O’Connell plans to tap cash reserves to cover a $641,000 deficit, considerably smaller than the approximately $10 million shortfall that was initially anticipated as a result of the coronavirus pandemic.
O’Connell on Monday delivered the proposed budget to Allentown City Council, and will formally present it at Wednesday’s meeting. Budget hearings begin Oct. 26.
In his message to City Council, O’Connell stated he will hold the property tax rate stable, as well as the earned income tax rate, business privilege tax rate, trash and storm water fees and the $52 local services tax.
The city charges two separate property tax rates: one for land (23.5376 mills) and one for buildings and other improvements on that land (4.4528 mills). A home with $100,000 in building value and $7,000 in land value would pay $445 for the building and $165 for the land, totaling $610.
Despite the global pandemic causing economic shutdowns and soaring unemployment, Allentown expects to fall just $2 million, or 2.3%, short of projected 2020 tax revenue. Most residents and investors have still paid property taxes, and more surprisingly, earned income tax receipts only dropped 3%. Business privilege is expected to fall short 7%, or $600,000.
Through furloughs, a hiring freeze and significant reductions to nonpersonnel expenses, the administration was able to spend about 4.5% less than what was budgeted.
Allentown’s recent settlement deal with the Lehigh County Authority will also provide relief to the city’s general fund and risk management fund. Beginning next year, LCA will contribute $400,000 annually, adjusted for inflation, to mitigate water and sewer regulatory expenses. For the next four years, LCAwill also provide an additional $306,000 to health care costs of retired water department employees.
“This budget presents the most fiscally responsible position possible for the benefit of the residents and businesses of the city in line with our 2021 mission,” O’Connell said in a news release. “It enables the city to hold the line on taxes and continue to provide our expected scope of municipal services and public health and safety in the context of a global pandemic.”
The plan calls for about $5 million in capital project spending, including renovations to pools in Irving and Jordan parks, improvements to Valania Park and trail connections along the Martin Luther King Jr. Drive and Jordan Creek.
The city’s proposed budget will be posted on its website.
While the city’s short-term financial outlook is better than expected, there are considerable longer-term challenges. The latest five-year plan projects annual deficits of $2.2 million to $3.2 million through 2025, depleting cash reserves in the absence of tax hikes.
An independent audit completed last year offered a pessimistic outlook, predicting annual deficits of more than $10 million if the city doesn’t find new revenue sources and mitigate the growth of health care and pension costs.
This budget season will feature new rules following voter-approved changes to the city’s home rule charter.
Previously, the mayor’s proposed budget was adopted by default if council failed to pass a budget by Dec. 15, as occurred in 2018 when O’Connell raised taxes 27%. Now the default budget option has been eliminated, creating the possibility of a government shutdown if council can’t agree on a budget by Dec. 31.
Because of another charter amendment, the seven-member council only needs four votes instead of five to adopt a budget.
Amid a national debate over police funding and with a mayoral election on the horizon, budget hearings are expected to be lively. Freshmen council members Joshua Siegel and Ce-Ce Gerlach have vowed to propose significant cuts to the Allentown Police Department’s budget and reallocate the funds to social services and anti-poverty initiatives that they believe would more effectively address public safety issues.
O’Connell’s spending plan increases the police department’s budget by 1.5%, to $40.8 million.
It’s unclear whether Siegel and Gerlach will be able to garner the two additional votes necessary to pass budget amendments, but the negotiations will take place about six months before a competitive mayoral primary election.
Siegel has already said he’s running for mayor in 2021, and Gerlach is “strongly considering” a mayoral bid. Council Vice President Julio Guridy is also expected to run. They will likely be joined by at least seven other contenders for the Democratic nomination.
O’Connell has not yet decided if he will seek reelection. He was appointed interim mayor in March 2018 following former Mayor Ed Pawlowski’s conviction on 47 federal corruption charges, and then was elected in 2019 to serve the final two years of Pawlowski’s fourth term.
The city enters budget season without a managing director or permanent finance director. Managing Director Joe McMahon abruptly departed last month following an argument over the 2021 budget. Jessica Baraket has led the finance department as interim director since February, when Brent Hartzell took a job in Texas.