Ending the Tax Referendum Legal Dispute

Member Group : Allegheny Institute

Who has the power to set tax rates in a home rule community? A definitive answer to that question will go a long way in determining who retains ultimate sovereignty in communities that have adopted home rule charters: the governing body or the people.

This question presents in starkest terms the dispute over the drink tax referendum—a referendum carried out under the provisions of the County’s Home Rule Charter in regard to the number of signatures and the nature of the question (it has to be germane to County government). Opponents of the citizen-led drink tax question cite language in the Home Rule Law that states "the governing body shall not be subject to any limitation on the rates of taxation imposed upon residents". As matters now stand, three judicial rulings have supported the opponents’ view. Only the Supreme Court remains as a possibility for overturning the earlier rulings.

Using that citation, they have reasoned that directing Council to cut the drink tax from 10 percent to 0.5 percent, as the referendum would do if passed, is a limitation unjustly placed on Council under the statutory language of the act. That’s what the County Solicitor argued in delivering his opinion to the Court of Common Pleas: "the [proposed drink tax referendum]…ties the hands of the governing body of the County by placing a limitation on the rate of taxation imposed on the sale of taxable beverages".

But, as we pointed out in previous Policy Briefs, there is a problem with this argument. Allegheny County’s Home Rule Charter was created under the Second Class County Charter Law (Act 12 of 1997) and that law contained language that placed tax limitations on the governing body. It is right there in plain language in Article II of the Charter titled "Tax Limitations" and restricts the Council’s ability to exceed limits on real estate, sales, and hotel taxes. Those tax limitations were made part of the Charter and were debated by and voted on by the public. How is it that Council—the governing body in home rule terminology—is limited on these three taxes in the founding document of the home rule government, yet a dispute over the electorate’s ability to place limitations on another tax has made it all the way to the state’s highest courts?

Moreover, Act 12 of 1997, which authorized the County to develop and adopt the Home Rule Charter, concludes, as all legislation does, by repealing any existing state law that is inconsistent with the Act. Specifically, the language granting the governing body complete and unchallengeable power over tax rates is clearly inconsistent with Act 12 and the Home Rule Charter and therefore by act of the General Assembly has been repealed. One of the courts that have to date ruled on the drink tax referendum should have also ruled on whether Act 12 has repealed the inconsistent language of the Home Rule Charter law but they have not done so, relying exclusively on precedent rulings.

So we return to our original question—who has the ultimate sovereignty to determine the taxes in a home rule community?

Telling voters they have a say over whether the coroner shall be elected or appointed is empowering to a degree; but not allowing voters the authority to have a say about the lifeblood of their government—the taxes levied upon them—is the same as saying that the people are not sovereign, the underlying principle of Home Rule. If voters can’t initiate a referendum calling for a reduction in taxes, what is the point of having home rule?

Here’s something the General Assembly can do to clear up the confusion and uncertainty and assign power to the people who choose to have a home rule government. It should amend the language of the state’s Home Rule Law cited by judges who have ruled on the Allegheny county case to read "IN HOME RULE COMMUNITIES WHEREIN THE POWER OF INITIATIVE AND REFERENDUM IS ADOPTED IN THE HOME RULE CHARTER, CHANGES IN RATES OF TAXATION MAY BE ENACTED BY THE GOVERNING BODY OR THROUGH VOTER INITIATIVE AND REFERENDUM. ANY TAX RATE CHANGE APPROVED BY A VOTER REFERENDUM SHALL NOT BE SUBJECT TO REVISION BY THE GOVERNING BODY FOR A PERIOD OF TWO YEARS".

The proposed language change unambiguously grants power over tax rates to the electorate, curtailing the ability of the governing body to do whatever it wants, and clears up the issue of which entities have power to set tax rates. Obviously, this cannot be done in time to help with the current drink tax referendum, but it will certainly make the state’s position clear for judges who must deal with the issue should it arise in the future.
Jake Haulk, Ph.D., President Eric Montarti, Senior Policy Analyst
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