The city of Reading and its outside consultants have come up with a new tax plan using a complex and untested state law to pay for the 49 percent hike in pension contributions the state is requiring it to make in 2013.
Essentially, Act 205 says cities facing sudden dramatic pension-cost increases can levy a so-called distressed pension tax, either as a separate property tax or a separate earned income tax. But every nickel collected has to be used to pay off that obligation, not spent anywhere else.
At City Council’s Wednesday night budget session, the consultants recommended applying it to the earned-income tax – using the same rate for both residents and commuters – since the administration and council don’t like the 15 percent property tax hike that’s already in the budget.
Gordon Mann, a consultant for Public Financial Management who is leading the team, said the tax cap is based on a complex formula comparing pension contributions and city payroll for three years.