Living with credit, Rewards

Card would cut your taxes while helping hometown

Fred Williams

People carry affinity credit cards emblazoned with all sorts of insignia — sports teams, charities, unions — so why not the seal of the city where you live?

OK, I didn’t think so — but what if you earned discounts on taxes as your reward?

A bankruptcy attorney in Pittsburgh has filed a patent application for a new type of credit card designed to help hard-pressed cities earn revenue while their residents earn tax breaks.

“It will not cost the taxpayer any additional money, and will put additional funds in the coffers of the municipality,” Kirk Burkley states in his September 2012 patent application.

How the idea works: The municipal government earns commissions for sponsoring the card in partnership with a card issuer, which handles the underwriting and other business aspects. The city — or borough, county, state, etc. — gets an upfront payment or a percentage of revenue, or both, to be negotiated with the card-issuing bank. The local government can apply rewards as tax incentives for users, based on the amount they charge.

Burkley, who serves on Pittsburgh’s zoning board, says his card idea is designed as an alternative to tax hikes and will encourage spending — not discourage it, the way higher tax rates do.

Here’s the key:  By pegging the rewards to in-city purchases, the municipality can encourage buy-local habits that support the urban business base and generate sales taxes. So in Pittsburgh, you might shave something off your property tax bill when you buy a plate of pierogi and an Iron City Beer at the Bloomfield Bridge Tavern, or admission to the old warehouse on Sandusky Street that houses the Andy Warhol Museum.

But won’t this set up a border spat with suburban jurisdictions, where so much shopping is located? Burkley doesn’t think so.

“A lot of people who live outside the city limits don’t want to pay more taxes to help the city, but they don’t want to see it crumble either,” Burkley says. “They want ways to help the city without being taxed more.”

Maybe it isn’t so farfetched to think of using a credit card as a civic duty.  Plenty of people already carry affinity cards that help their favorite charity.

And cities could sure use the helping hand. Some economists are pointing to spiraling municipal deficits as a pitfall that increases everyone’s vulnerability to the next financial crisis. Researchers estimate that local governments face a half-trillion bucks in pension payments in coming years that they don’t have the funds to pay.

“I think this is a really interesting idea,” said Te Revesz, principal of consulting and research firm GlobalReach-sbi, “because cities are trying to generate revenue, and they’re trying to help local businesses.”

The loyalty card space doesn’t seem to be the hotbed of activity it used to be, she said. But municipalities might see more value in city-based credit cards than the typical affinity card arrangement holds for groups that do not collect taxes on purchases.

The idea is relevant in Pittsburgh, which entered state receivership in 2004, and could also have implications for other municipalities — not just in the nation’s post-industrial bratwurst belt. Other areas are also looking at ways to connect shopping with tax breaks. In high-tax New Jersey, the Township of Marlboro has a kind of buyers’ club card that provides property tax rebates in return for shopping at local merchants.

Burkley says the city credit card idea is unique — at least, his patent attorney did not turn up anything similar. He’s had initially positive reactions from Pittsburgh officials and from unnamed card issuer, but is holding off on pushing the idea further until the patent is final. Actually, he says, the card issuer seemed more interested in starting in a larger city, but the Pennsylvanian had a different idea. Says Burkley, “I really wanted this (city) to be the first one.”

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