A decade ago when real estate up-and-comer Charles Hibble looked for a headquarters for his business, Scranton was a natural choice.
He invested $1.2 million converting an aging building on Penn Avenue into modern offices and apartments. Mr. Hibble accepted real estate tax and parking cost increases and the mercantile tax as costs of doing business. When city leaders began talking about a commuter tax in 2012, the owner of Weichert Realty Hibble & Associates reached his breaking point and moved out.
“I was getting pressure from my employees, who could work from anywhere — their homes or cars,” he said. “They didn’t want to pay another tax.”
Mr. Hibble’s move prefaced an employer exodus from the city. After being kicked around and eventually shot down in court, the commuter tax came back in the proposal of consultant Henry Amoroso, who cited a state law that allows municipalities to impose a commuter tax to bolster distressed pension funds. Scranton City Council swiftly approved the local income tax on commuters, which would cost employees earning $50,000 as much as $375 a year. Combined with a proposed increase in the emergency service tax – yet another withdrawal from the wages of commuters — the cost of having a job in the city has mounted.
Inquiries from Scranton businesses looking to leave the Electric City are up, said John Cognetti of Scranton-based Hinerfeld Commercial Real Estate, just as they were when city leaders raised the issue of a commuter tax or other business taxes in the past.
Downtown medical practice Delta Medix had been considering new locations inside and outside the city. The 170-employee practice doesn’t want to leave, but the commuter tax approval made in-city options less attractive, said Delta Medix chief executive officer Margo Opsasnick. Most of their employees live outside the city.
“We have a responsibility first to our patients, then to our employees,” she said. “Our employees work very hard and we are conscious of how this tax will hurt them. We want to stay in Scranton and we are open to staying. But we have to be realistic.”
While the commuter tax was not specifically mentioned by Vaxserve, which recently moved its 70 employees to Moosic after 13 years in Scranton, the parent company, Swiftwater-based Sanofi-Pasteur, cited cost savings for the company and employees as the motivation for the move.
Slightly more than a decade ago, Kevin Tinkelman moved a handful of employees of what was predominantly a T-shirt silk-screening business from Throop to Scranton and grew it into Kevin’s Worldwide, a promotional product distributor employing about 70.
“Today, I would never even consider coming to Scranton,” Mr. Tinkelman said. “The commuter tax, the tax structure, the people making decisions who know nothing about business are not just irritating the businesses already here, but they are doing things that will actively keep other businesses away. It blows me away.”
Mr. Tinkelman’s employees are worried.
He bristles at the claim that the commuter tax is “only $375” per year. While not the end the world for the typical worker, that expense could be someone’s budget for holiday gifts, a weekend get-away, or a mobile phone plan.
He is uncomfortable with his choices: telling his employees to suck up the city-imposed pay cut or add to his expenses by increasing wages and lessening the blow.
“I love our location and our building, but it’s not as though I’ll never leave the city,” he said. “The combination of the mercantile tax, the commuter tax, a sense that the leadership doesn’t care, along with other factors, puts me in a place where I would consider leaving.”
Dunmore-based Fidelity D&D Bank has several bank branches and an administrative office in the city.
Fidelity chief executive officer Daniel J. Santaniello expects his employees will be clamoring to get out of the city and that the commuter tax will add to the company’s cost.
The commuter tax will make it difficult for companies to get talented people to work in Scranton. In Fidelity’s case, employees will ask for a lateral move to locations outside in order to have less money taken from their paychecks.
“This is another layer of costs for a business,” he said. “If I’m going to put employees in the city, I’m going to have to pay more to keep their wage competitive, or I’m going to lose them.”
With businesses leaving or wanting to leave, the question is raised of how economic developers or commercial real estate brokers will get businesses to select the city over other options.
Taxation wasn’t the reason David Price moved PDQ Print Center to Taylor, but he thinks it is the reason that a good portion of the plaza PDQ left behind remains vacant today. As a landlord, he sees the impact of the commuter tax from a new perspective. A 2,700-square-foot modern, professional office space with off-street parking on one of downtown Scranton’s busiest streets should be easy to rent.
“This is a prime location vacant for five to six months. Other than the commuter tax, why would that be?” he said. “My ability as a property owner is hindered. The real estate tax increase hasn’t helped, either.”
Even without the commuter tax, the city of Scranton faces a huge disadvantage when trying to attract business, said Robert Durkin, president of the Greater Scranton Chamber of Commerce. The voice of business and chief economic developer for the broader region, the chamber owns and operates business parks and office buildings in Scranton such as the W.W. Scranton Office Park, the Mount Pleasant Corporate Center and the Scranton Enterprise Center. For years, the chamber has found it increasingly difficult to market these properties.
“All things being equal, it is nearly impossible to attract businesses to the city when a business has other options,” he said. “City taxes, wage taxes, gross receipt taxes have already created a huge imbalance between the cost of doing business in the city compared to the cost in communities and cities around it. The commuter tax is gasoline on the fire.”
The chamber has urged city leaders to adopt the Amoroso plan in its entirety, including seeking concessions from city unions. Mr. Durkin said the burden of bailing out the city should be a shared — but temporary — pain.
Supporters of the commuter tax fail to see the long-term impacts of the city’s overall tax structure, Mr. Cognetti said. He describes how vacant storefronts and tax pressure leave property owners — both commercial and residential — with less money to improve their properties. With fewer buyers willing to look at city property, the value of the real estate declines. Property owners end up owing more than the real estate is worth. Buildings could end up blighted or abandoned.
“The commuter tax was passed like it was nothing, with no recognition of the impact on businesses and property owners or the downward spiral it could create,” Mr. Cognetti said. “You do not grow a city and grow a community by doing what Scranton is doing.”
Contact the writer: dfalchek@timesshamrock.com
