HONESDALE BOROUGH, PA — The Honesdale Borough Council will consider adopting an earned income tax (EIT) as part of the borough's 2026 budget, a budget which—in its current configuration—does not include a property tax increase. 

Separately, the council recently received a presentation from the Pennsylvania Economy League (PEL) discussing the borough's finances and operations. While PEL consultants characterized the borough as being in good financial health overall, they identified several major expenses on the borough's horizons, and identified the EIT as a resource the borough could use to meet them. 

Strategic Management Planning

PEL analyzed Honesdale as part of the Strategic Management Planning Program (STMP). The STMP is offered by the Pennsylvania Department of Community and Economic Development. It supports municipalities that are experiencing financial difficulties, allowing them to develop short- and long-term financial plans. 

During the presentation of the STMP study results, PEL consultants highlighted the borough's overall healthy financial situation. 

In the five years from 2020 to 2024, the borough ran a surplus in all years except 2023, and that was due to one-time capital expenses. The borough has another anticipated deficit in 2025—but again, as the result of one-time capital expenses. 

PEL projects these surpluses to continue, said Lynne Shedlock, PEL director of operations. 

"I will tell you that that is not something that we usually see," said Shedlock. "Very often we see deficits the whole way out. So you are actually operationally (your day to day operational expenses, based on what you have right now) doing OK."

"However," Shedlock added, "the projection does not account for some significant expenses that are on the horizon."

The borough faces a $2.6 million judgement in a lawsuit regarding business dealings from over a decade ago, the Smith-Morris case. While the borough is appealing that judgement, that is a potential factor weighing on its financial future. 

Additionally, the borough will need to absorb the costs of major stormwater upgrades in the next few years, with grant funding "uncertain," according to the PEL presentation. Additionally, PEL identified major safety repairs that will need to be made to borough-owned buildings. 

These pending expenses mean the borough will need to consider its options to pay for them. Even if the borough borrows money, it will then need to consider what the debt servicing for that money will be. 

"However, again, you have those financial resources to take care of these sorts of issues," said Shedlock. 

Earned Income Tax

An earned income tax (EIT) would tax employees who either live or work or both in Honesdale Borough. Many other municipalities in Pennsylvania already impose an EIT; if someone lives in Honesdale and works in a municipality that collects the EIT, they're already paying the EIT to that municipality, money that would come back to Honesdale were it to enact an EIT of its own. 

The PEL consultants pushed for Honesdale to look at adopting an EIT, saying it would add flexibility to an income stream that's currently based primarily around property taxes. 

"I would really encourage you to take a look at the EIT," said Shedlock. "You have all of these capital needs, you obviously are not going to be able to just fund them out of your pocket, you're going to need to get grants, to get loans, and probably will have to pay debt service, and that EIT money would give you a way to do that."

The EIT has another couple of benefits as well, according to PEL. EIT revenues tend to grow year over year as people get raises, whereas property taxes remain comparatively stagnant. People on fixed incomes don't pay EIT, but they do pay property taxes; with an EIT, the borough has another lever to shift its tax burden off of its seniors and onto its working population. 

The downside? It's a new tax, one which Honesdale historically has been reluctant to adopt. 

The council voted to enact an EIT in 2023, only to reverse course following public outcry. A revised proposal for an EIT in 2024 got scrapped before it could be advertised to the public, though it briefly appeared on a later draft of the budget before again going away. Earlier, a 2021 discussion of the EIT ended with the public strongly opposed to the idea. 

Councilor William McAllister moved for the advertisement of a 1% EIT at the council's October 28 meeting. The motion passed, allowing the council to consider adoption of the EIT at its November meeting. The council will also hear a presentation on the EIT at its November meeting. 

McAllister said that there's around $106,000 in EIT revenue that's already paid to other communities that would come back to Honesdale. He projected around $370,000 total in additional revenue for Honesdale from the EIT. 

"I know we've talked about this a few times before over the past several years," said Mayor Derek Williams. "Something I'm always trying to wrap my head around is that when we have a proposed tax increase, what group of people might be most negatively affected?"

Around 70% of Honesdale's households qualify as Asset Limited Income Constrained and Employed, said Williams, characterizing them as "working families struggling to pay the bills." This group of people would be most negatively affected by an EIT, he said. 

Editor's note: This article as initially published misstated Earned Income Tax as property tax increase in the final paragraph. This has been corrected as of 2:30 p.m. on October 31.