Act 77: Revenue Sharing in Allegheny County.

• Author: Jensen, Brian K.
• Position: Statistical Data Included

For six years, local governments in Allegheny County, Pennsylvania, have been the recipients of one of the largest tax redistribution mechanisms in the country. The 1 percent local option sales tax generates more than $72 million for tax relief, spreading the wealth and enhancing the country's competitiveness.

Since the decline of the steel industry, Allegheny County, Pennsylvania, and the Greater Pittsburgh area have struggled to provide an attractive quality of life and a competitive tax environment to residents. To accomplish this goal, in 1994, Allegheny County implemented Act 77, one of the largest tax redistribution mechanisms in the country. As a result of that act, the Pennsylvania State Treasury will distribute more than $144 million in revenues collected through a 1 percent county-wide local option sales tax for the support of regional assets and tax relief to the county and its 128 [1] municipalities this year.

Act 77 had three essential goals: 1) to supplement funding sources to local assets; 2) to promote intergovernmental cooperation; and 3) to provide tax relief to local municipalities. Act 77 has successfully addressed these goals. First, sales tax proceeds support regional assets like libraries, stadiums, parks, museums, the zoo, conservatory and aviary, and a variety of cultural and performing arts groups. Second, Act 77 has promoted intergovernmental cooperation by helping to fund the county's eight councils of governments.

This article will focus on the third goal of Act 77-providing new revenues to local government for tax relief. Act 77 has successfully shifted burdens away from high property and "nuisance" taxes and onto the sales tax. The act's allocation formula tends to redistribute money from richer to poorer municipalities. Additionally, Act 77 provides tax relief for low-income senior citizens.

The benefits of the sales tax have been widespread and significant. A prominent civic leader has called Act 77 the single greatest change ever to Allegheny County's governance system. While implementation of the sales tax was a long and intricate process, requiring the efforts and active support of numerous experts and civic agency, stakeholder, and elected official leadership, its numerous and obvious benefits make the Act 77 model one well worth consideration by other jurisdictions.

Background

A number of factors contributed to the decision to seek a local option sales tax. First, in 1990, civic leaders in the Pittsburgh region came to the discouraging conclusion that the financial support mechanism for the region's most popular assets was on shaky ground. The City of Pittsburgh, suffering from economic decline, sharp population loss, and ever-tighter budgets, had historically been the sole underwriter for the zoo, conservatory, and aviary even though the majority of visitors came increasingly from outside the city. Likewise, the city provided the only public subsidy to Three Rivers Stadium (home of the city's professional baseball and football teams) even though city residents accounted for fewer than one-sixth of attendees of Pittsburgh Pirates games.

A report by the Pennsylvania Economy League, Inc., (PEL) a non-profit, nonpartisan local government research and policy analysis organization, found that the zoo, conservatory, and aviary had been unable to close the gap between their ongoing needs and available public financing. The report recommended the creation of a special county taxing district to support the zoo, conservatory, aviary, and other regional assets through a local option sales tax. [2] An earlier PEL report had come to the similar conclusion that those city facilities generated less than 25 percent of their total operating costs while city subsidies made up the bulk of the difference. The report recommended that Allegheny County help support the assets since non-city residents were their predominant users. [3]

Second, at the same time that local leaders were questioning the fairness and practicality of continued city funding for regional assets, the Pittsburgh region's economic base of heavy industry had severely eroded. A number of towns formerly dependent on the steel industry were suffering from economic dislocation and had begun to fail financially. The fiscal disparity between the county's wealthier and poorer municipalities had been growing since the early 1980s. Civic leaders wanted a local means of providing financial assistance to poorer municipalities.

Finally, local municipalities, and the City of Pittsburgh and Allegheny County in particular, had overly relied on...