Early next year, the Pennsylvania state House will take up a proposal that could drastically change how people in 34 municipalities pay for their electric service and taxes. House Bill 1405 is well-intentioned, but it won’t solve the problems it seeks to fix. And it could lead to huge tax increases in several local towns.
These smaller boroughs have owned their electric-service companies for more than a century. The potential local property tax hikes in our area include Perkasie (488 percent), Quakertown (3,906 percent), Lansdale (154 percent), Hatfield (370 percent), Lehighton (184 percent), and Kutztown (400 percent).
House Bill 1405 blocks funds collected from electric ratepayers in these boroughs from being used for expenses other than distributing electric to customers. It also forces a regulation system similar to the Pennsylvania Public Utility Commission on these boroughs, to be paid for by local taxpayers.
In 1996, when Pennsylvania lawmakers deregulated most consumer electric rates, they exempted 35 local-electric municipalities and left intact a system that lets local officials run a non-profit utility 100 percent owned by local ratepayers. That system already allows consumer complaints to be addressed at public meetings, at the ballot box, or in court – and not at the PUC. But that move wasn’t without controversy. Local municipal electric companies don’t let consumers shop for out-of-town rates. And in some cases, electric rates are noticeably higher than those offered by for-profit electric utilities.
Rep. Aaron Bernstine wants to change that system. During his 2016 campaign, Bernstein called out Ellwood City, a borough in his district, for its seemingly high, unpredictable electric rates. Bernstein also said Ellwood City’s used about $1.5 million of electric-rate income for purposes other than running a town-owned electric company, which he felt was wrong and represented hidden taxes.
In May 2017, Bernstine introduced a state law that would affect 34 of the 35 towns that own local electric companies (Chambersburg was excluded). Bernstine’s motivation behind House Bill 1405 was also to reign in government spending. “We’re spending too much money on every level of government,” he said in May when he introduced House Bill 1405. “They would need to find another source, and that would be up to local government,” he said, in reference to the electric-fund transfer payments.
Rep. Bernstine should be commended for wanting to do the right thing, but the current House Bill 1405 is unworkable, and should be shelved until better options come along. Examples from Ellwood City in western Pennsylvania and Perkasie in eastern Pennsylvania, where I serve on council, show why.
Ellwood City and Perkasie have almost the same number of customers for their electric companies and charge almost the same residential rates. In March 2017, each town charged about $154 a month for 1,000 kWh hours of residential usage. In towns near Ellwood City, Penn Power’s comparable rate was about $124 per month; PPL, which provides service to Perkasie’s neighbors, was at about $146 a month.
While these rates are considerably different (especially in Ellwood City), as Paul Harvey would say, here is the rest of the story. If House Bill 1405 passes, the cost of living won’t go down in local municipal electric towns. In Ellwood City and Perkasie, for example, borough councils would be forced to raise local property taxes to compensate for lower electric rates. (Other taxes, such as earned income and transfer taxes, are set with other government agencies and can’t be easily changed).
In these towns, electric funds are also used for salaries, health insurance policies, and defined-benefit pensions. These can’t be cut easily without severe consequences, including the possibility of taking police off the streets. The reality is that local government officials manage all local revenue as a “pie.” House Bill 1405 doesn’t change the size of the pie, just the size of the slices that represent taxes and fees.
House Bill 1405 also can’t be applied equally to all 34 towns. In four municipal-electric towns, local property taxes have been eliminated entirely by the use of electric transfers; House Bill 1405 will bring them back. Three municipal-electric towns, including Mont Alto, don’t transfer electric funds at all, but they would have to pay new costs for a PUC-like regulatory system anyway. And it is very possible House Bill 1405 won’t pass in Harrisburg. It now has about 80 co-sponsors, but two prior attempts in 1976 and 2009 at laws putting the PUC in charge of local municipal-electric providers failed.
But what are the answers to Rep. Bernstine’s concerns about high electric rates in municipal-electric towns and consumer safeguards? Almost a decade ago in Perkasie, a purchasing decision led to a big, short-term electric rate hike. In due time, the key players in that decision weren’t in our government. In Ellwood City, local dissatisfaction this year with electric rates led to two council members, including the council President, losing office in November. Democracy does work in small towns, as the 1996 lawmakers anticipated.
To remedy the problems identified by Rep. Bernstine, there are better alternatives. Local electric ratepayers can take a more-active role in borough government. In other states, state lawmakers allow towns, through a local referendum or ordinance, to work with public utility commissions on setting rates. But only five states have approved the types of total control over boroughs with municipal electric sought by House Bill 1405. It’s just not seen as a good idea by a lot of people.
And for Rep. Bernstine’s point about local government spending, only state government can reduce government-worker pensions, health care fees and taxes that drive up local government costs. As the Pennsylvania Economy League recently found in analyzing 24 years of data, these costs will affect the “ability of all types of municipalities to provide even basic services that keep the communities where we live, work, shop and go to school safe, well-maintained, and free from crime and blight.”
The best choice for the House Local Government Committee is to let voters and elected officials in municipal-electric towns determine the practices that fit overall community goals. I respectfully call on the committee to take no action on the bill until better alternatives can address its concerns.
Scott Bomboy is a member of Perkasie Borough Council and the Perkasie Planning Commission.