Honesdale council tosses Earned Income Tax, will hike millage and cut costs instead

Honesdale's first Earned Income Tax (EIT), which would have taken 1% of the wages of everyone working in the borough, wherever they may live, was tossed out by borough council Nov. 27. This was only three weeks after the council passed it by a vote of 4-2, despite a chorus of public dissent in the packed meeting room.

Instead, at the recommendation of borough councilor William McAllister, the 2024 tax burden will be spread out among all borough taxpayers with an additional one mill of property tax. The council will also find ways to cut the budget and make a presentation of the revised budget at a special meeting scheduled for 6 p.m. Wednesday, Dec. 6, at City Hall.

The $6,003,286 draft budget that would have come up for a vote Nov. 27 called for the EIT and a half-mill property tax increase. After discussion, the council agreed to eliminate the EIT as a revenue source and double the property tax increase to one mill. That would raise the total millage from 5.58 mills to 6.58 mills.

McAllister, who is an accountant and chairs the borough Budget & Finance Committee, said that the EIT was anticipated to raise $360,000. He said they would have a comparable, balanced budget by the millage increase which would generate another $206,000 and trimming expenses by approximately $154,000.

Previously: Honesdale passes earned income tax, council says funds can help fix runoff issues

Although the council agreed by a vote of 5-2 to nix the EIT and instead raise property taxes by a full mill, this was not until after a lengthy debate. This time there was no public comment regarding taxes.

Public suggested it, Nov. 6

Spreading out the tax burden by a property tax increase was urged by Jeffrey Thol in the audience on Nov. 6, calling it fairer than targeting only wage earners, some of whom have unique financial struggles making ends meet, particularly many one-parent families. EIT was cited by several business owners as having a potentially negative effect on hiring and retaining employees. Robert Suhosky, who is in management of two Honesdale-based companies, said they would never have located within the borough if they knew the EIT was coming.

Councilor James Hamill on Nov. 6 asked how they could cut expenses instead, which was well-received by the audience. McAllister advised at that time, if council did not adopt the EIT, they would need a 1.5 mill increase to meet the budget.

Reconsideration

"Based on... citizens who expressed their concerns about the Earned Income Tax," McAllister said at the Nov. 27 session, he said he wished to re-evaluate the budget.

"I believe we can find another $154,000 in expenditures that may not be obligated in the 2024 year." McAlister said.  "So as a result of that, I am suggesting that the adoption by the borough be subject to a one mill increase rather than a half-mill increase and that the Earned Income Tax not be adopted."

"Rather than a mill and a half, I would prefer to say, one mill will be sufficient," McAllister said.

Jason Newbon, David Nilsen, Michael Augello, William McAllister and Eric Cooley voted for the one mill increase with no EIT. James Hamill and Tiffany Rogers voted against it.

On Nov. 6, Hamill, Rogers, Augello and McAllister had voted for the EIT. Nilsen and Newbon were against it and Cooley was absent.

Where are the cuts?

Before they voted, Hamill questioned how this modification would satisfy the budget rather than the EIT previously approved.

McAllister interjected that audience members requested the millage increase. Consequently, he said he reconsidered the situation and gave the example that instead of buying a vehicle for $150,000 outright, it may be better to borrow the money on a three-year term. He said this is an aspect he is looking at. Capital projects, such as storm water repairs and paving, are better handled by financing, he advised.

"I am looking for ways to reduce the amount of expenditures that we absolutely have to disperse in order to maintain the same level of taxes and keep it in balance," McAllister said.

Hamill rejoined, "But we don't see that reflected in any document in front of us. We cannot proceed in this manner… Put it down on paper, Mr. McAllister."

"It is on the paper," McAllister replied.

"Where?" Hamill shot back. "Where's the $154,000? Where?"

"Probably in streets," McAllister replied.

"Specifically, line item!" Hamill pressed. "Let's go!"

McAllister said that after much review of the past three budgetary years, there are plenty of ways to adjust the budget. He added, "I will in fact be able to provide you with the specifics of that $154,000, but I don't expect you to anticipate that I would be able to provide you with that this evening."

Hamill noted that McAllister had made the motion Nov. 6 to adopt the EIT. "Did you expect anyone prior to that meeting to be for the EIT? Did you expect anyone showing up and saying, 'Yes, please implement this tax?'" McAllister referenced one or two people who spoke to him supporting the EIT, but more people spoke against it.

"In general, many people have expressed their dissatisfaction with the EIT... I decided in spite of myself, trying to deal with this circumstance of raising the issue of saying, maybe I was wrong," McAllister said.

Hamill added the council has been "hemorrhaging the budget" for years on storm water issues. Hamill suggested that after the county-wide tax reassessment, most Honesdale taxpayers saw an increase in property taxes and will now be further burdened by one.

Hamill said he appreciates that McAllister wants the best policy for the citizens but advised that after having no tax increase in three or four years, property owners will suddenly face an increase. He asked if they had heard from the borough residents, adding that the borough should have done more to explain the budget to them.

"We don't have to be popular, but we have to do what is right, and I don't think this is right," Hamill stated, adding he has not heard any argument of why this is right.

President Augello reminded that the tax load is shared by all the taxpayers by having a millage increase. He reminded that the new council in January 2024 can choose to revisit the budget and millage.

The final 2024 budget must be adopted by Dec. 31.

Peter Becker has worked at the Tri-County Independent or its predecessor publications since 1994. Reach him at pbecker@tricountyindependent.com or 570-253-3055 ext. 1588.

This article originally appeared on Tri-County Independent: Honesdale council backtracks on 1% income tax, opts for millage hike