Modest tax levied on workers' wages important revenue tool, some experts say

Apr. 2—If you work in Northeast Pennsylvania, there's a good chance you pay a local services tax — a modest levy deducted from workers' wages that delivers key funding for emergency services and other uses.

If you never noticed, that's probably because of just how modest the tax is. For the majority of nonexempt workers it amounts to $1 a week or less, or up to $52 annually. Workers in Scranton, the only municipality in the region to levy a tripled LST, pay $156 annually.

The tax is an important tool for local revenue throughout the state, Pennsylvania Municipal League Executive Director John Brenner said. Municipalities must use at least 25% of the revenue the tax generates for emergency services under state law.

"I think what it shows is an honest attempt by core communities to help pay for costs related to public safety, and that was the purpose," Brenner said. "All these folks that come into your community, whether it's a city, borough or township, to work, ought to contribute at least something toward the cost of public services, and that's the whole concept."

LST landscape

People who work in 30 of Lackawanna County's 40 municipalities pay a LST, with the tax funding either a municipality, school district or both, a state Department of Community and Economic Development database shows.

That's true of workers in 73 of 76 municipalities in Luzerne County; 65 of 67 in Schuylkill County; 15 of 20 in Monroe County; four of 13 in Pike County; five of 28 in Wayne County; and 17 of 23 in Wyoming County.

Forest City is the only Susquehanna County municipality to levy an LST; the annual rate there is just $10 per worker.

Among other exemptions, workers earning less than $12,000 annually are exempt from the LST in political subdivisions levying it at a rate above $10. The standard rate in most local cases is $52 per worker, with the taxing municipality usually receiving $47 and the taxing school district receiving $5.

That's the case with Wilkes-Barre and the Wilkes-Barre Area School District, Carbondale and Carbondale Area, Nanticoke and Greater Nanticoke Area, Tunkhannock and Tunkhannock Area and many other examples.

There are also cases, including Union Twp. in Schuylkill County and Glenburn Twp. in Lackawanna, where workers there only pay LST to schools. Workers in those two municipalities pay $10 annually, with all the LST revenue supporting the North Schuylkill and Abington Heights school districts, respectively.

All of the $52 LST that about 6,000 workers in Hazleton pay goes to the city, because the Hazleton Area School District doesn't levy the tax. Hazleton's 2023 city budget includes $300,000 LST revenue, which city Administrator Dan Lynch said defrays the cost of professional police, fire and Department of Public Works services.

"If you're talking about the municipal government level the name of the game is health, welfare, safety," Lynch said, noting the LST supports services residents rely on. "I think there's something to be said about any time you can take a little bit of pressure off the real estate tax."

The LST is rarely a source of complaint, he noted.

Scranton's LST unique

Scranton is the only municipality in Northeast Pennsylvania and one of only three statewide to levy a tripled LST of $156, allowed under a 2014 revision to the state's Act 47 distressed municipalities law. Tripling the rate was a plank of Scranton's financial recovery plan.

The city secured court approval to triple the LST each year from 2015 through 2021, with Scranton exiting Act 47 and shedding its financially distressed designation in January 2022. It maintained the tripled rate each of the past two years, which it's able to do so as long as its pension funds are rated moderately or severely distressed.

Scranton must use all LST revenue generated above the $52 base rate to defray its annual required contribution to its three pension plans, known as the minimum municipal obligation.

For workers like Nadine Lascoskie, a physical therapy assistant at Geisinger Community Medical Center, the tripled tax breaks down to $3 a week.

"It's not a burden to me," she said. "But I would always rather money that I earned to be in my paycheck."

The city has budgeted more than $44.8 million in LST revenue since 2015, when it became the first in Pennsylvania to triple the rate. The tax generated about $5 million in revenue for the city last year. Scranton workers earning under $15,600 annually are exempt.

Of the $156 per worker, Scranton receives $151 and the Scranton School District $5. The city's 2023 budget includes $5 million in LST revenue; the district's includes $165,000.

"The revenue generated from the LST ... has proven to be reliable," district Business Manager Patrick Laffey said in an email. "This is one of a few local tax effort revenue sources that are utilized to support the SSD programs."

City officials describe the tripled rate as an important revenue-generating tool to help fund pensions. Scranton's required 2023 contribution to the pension funds is $15.2 million; it is estimated the city will receive $3.9 million in state aid to defray that cost.

Harrisburg and Johnstown, both in Act 47, are the only other municipalities in Pennsylvania with a $156 LST, the DCED database shows.

Hazleton, declared distressed in 2017, expects to exit the Act 47 program in early May. That city's recovery plan called for modest resident and nonresident earned income tax increases and the restructuring of EIT revenue, not tripling the LST.

Fair and reasonable?

LST revenues in smaller municipalities capped at the $52 standard rate pale in comparison to Scranton's, but still represent valuable funding.

Pottsville's LST, for example, generated $336,832.27 for the city last year, City Clerk Lisa Shuman said.

Wilkes-Barre's tax brought in nearly $926,000 in 2022.

"It helps us in several ways," Wilkes-Barre Mayor George Brown said. "It helps make the numbers work for making a balanced budget."

Clarks Summit budgeted $123,000 in LST revenue this year, which is in range with what the tax generates there annually. Along with state Liquid Fuels dollars, the revenue helps the borough fund road maintenance, plowing and related expenses, Borough Manager Virginia Kehoe said.

"So I think it's a minimal investment, a dollar a week, to make sure that you've got the roads to drive on," she said.

As a Clarks Summit employee, Kehoe also pays the LST.

"That dollar a week is so insignificant compared to the other taxes that I pay," she said. "It doesn't make a difference to me."

Teri Ooms, president and CEO of the Northeast Pennsylvania-based Institute for Public Policy and Economic Development, agreed the LST doesn't represent a significant burden for most people. She also noted the low-income exemptions available to those who qualify.

"Certainly any tax that (municipalities) can get to deliver services that's not tied to property taxes is really very helpful," Ooms said. "I think everybody is frustrated having to pay taxes, but yet we need services."

Brenner compared the $1 a week LST many pay to other common expenses.

"Think about what we spend on coffee on a daily basis ... compared to what you're contributing toward police, fire, EMS and other core services," he said. "I think the average person would say 'yeah, it's not only fair, it's more than reasonable.' "

A 2022 report by the Pennsylvania Economy League with support from the Pennsylvania Municipal League contends the state's local taxation structure is largely outdated, lacks flexibility, fails to meet municipal revenue needs and hasn't kept pace with modern realities. It includes several recommendations for modernizing the tax system, including changes that would adjust the LST to account for inflation.

But with inflation and rising costs also hitting households and personal pocketbooks, Edward Jenkins, a Penn State professor of practice in accounting, noted any tax, even small ones like the LST, can affect those facing financial pressures.

Jenkins, who specializes in taxation, runs a Volunteer Income Tax Assistance program at Penn State, where he often interacts with people struggling with rent, grocery bills and other expenses.

"To people that are struggling, every dollar is a blessing that they can have, and every dollar you take away from them is painful," Jenkins said. "For somebody that's got nothing in their wallet ... every dollar hurts."

Contact the writer:

jhorvath@timesshamrock.com; 570-348-9141; @jhorvathTT on Twitter.