Allentown, facing financial troubles, will ask voters to OK deed transfer tax hike

Allentown, facing financial troubles in next year’s budget, will ask voters to allow an increase in the city’s deed transfer tax to help bolster revenue.

The proposal comes as early 2025 financial projections indicate a budget deficit of up to $6 million , finance director Bina Patel said, because the city’s existing revenue sources cannot cover increasing expenses like contractual raises for employees and rising health care costs.

She stressed that the projections are “not definite” and that more precise figures will be available when the city presents its 2025 budget sometime in the fall.

According to Lehigh County’s website, any document transferring an interest in real estate —- known as a deed — is subject to a 1% state transfer tax and 1% local transfer tax, which is split between the city, township or borough, and the local school district, and based on the property’s value.

Allentown’s city charter specifically disallows the city from raising certain taxes beyond 1996 levels, including the earned income, business privilege, emergency municipal services and deed transfer taxes. In order to change the city charter, residents must approve a ballot referendum question to add, alter or delete any provisions of that legal document.

A bill, sponsored by the city’s finance department, would remove “deed transfer tax” from that provision of the city charter, thus allowing the city to raise the deed transfer tax.

“This Ordinance empowers Council the flexibility to examine more equitable revenue sources,” reads a memo from the city. “The revenue limitation measures in the Home Rule Charter places too much burden on the City residents to generate revenue from the City Real Estate Tax, Earned Income Tax, Business Privilege Tax, and Emergency Municipal Services Tax.”

Raising the deed transfer tax by 0.5% could bring in as much as $2.3 million in additional revenue for the city, according to council vice president Santo Napoli, who is advocating for the referendum.

In June, around 45% of real estate purchases in Allentown were by corporations, so Napoli argued that the impact on residents would be nominal.

“Buyers aren’t even getting to these places, because LLCs and corporations are getting to them faster,” Napoli said. “I can’t sit by and continue to do nothing because if we do nothing we’re going to get nothing.”

The proposal comes as City Council narrowly rejected a property tax increase last year that city officials said was necessary to keep up with increasing expenses. Because council declined to approve a tax increase, the 2024 budget left the city with a $762,000 deficit, but Mayor Matt Tuerk said officials would find ways to cut spending in order to balance the budget.

Although advocates said the deed transfer tax increase could be a needed lifeline for the city’s finances, not everyone is in favor.

Asher Schiavone, a spokesperson for the Greater Lehigh Valley Realtors Association, said increasing the tax would negatively impact prospective home owners. He also said that the proposed wording of the referendum was too unclear, so voters may not realize that they are voting either in favor of or against a possible tax increase.

“Given the current housing market, I don’t think this is the right time to do this,” Schiavone said.

The Greater Lehigh Valley Realtors Association will run a public campaign urging people to vote “no” on the referendum, Schiavone said.

The Lehigh County Board of Elections will meet before the November election to officially put the question on the ballot with a “plain English language” statement that explains the referendum.

At the same meeting Wednesday, City Council members tabled, with no discussion, a bill that would have re-organized several city jobs in departments including law, finance and parks and recreation.

Council member Ed Zucal said that members would prefer to wait until the city presents its 2025 budget to consider the changes.

But city department heads said that Council’s move would demoralize city staff, who they said are burned out and struggling to keep up with their workloads under their existing positions. The position upgrades, they said, could have helped re-distribute workloads and generate more revenue in the long run.

“This makes me feel like, as a city, we have become what’s going on in the nation, and you see what that’s done, that’s what this is doing here,” said Vicky Kistler, the city’s director of community and economic development.

Reporter Lindsay Weber can be reached at Liweber@mcall.com .