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What if the way most Pennsylvania public schools bring in cash just… went away?
Politicians on both sides of the aisle have been trying just that for years: Scrapping the state’s property tax and replacing the more-than-$13 billion it generates with higher tax rates on sales and personal income. Translation: You’d pay more in taxes out of your paycheck and when you buy things. But you’ll get a huge break if you own a home or a business.
The latest bill that would have made Pennsylvania the first state in the union to ditch a property tax completely was narrowly defeated on Nov. 23 in the state Senate. In a vote that literally couldn’t have been closer, Lt. Gov. Mike Stack stepped in to break a tie and voted “no” on the measure.
It’s the closest property tax elimination proponents have come in the Keystone State to achieving their decades-old goal: Only two taxes — sales and income — instead of three (even if it’s at the expense of local school districts losing tons of control).
Key sponsors of two separate but similar bills, one in the House and one in the Senate, say the fight isn’t over, and this issue is far from dead.
“People saw that the energy and the effort they put behind it over the last two years has resulted in coming up for a vote that’s as close as it’s ever gotten,” Rep. Jim Cox, R-Berks, said. “When you see something like that that is so popular and you see how close it gets, it whets their appetite.”
So where did this idea start? And what happens now?
Where things stand right now
Well, ICYMI: The state budget is running late. About five and a half months late.
In a budget framework that was agreed to in early November (you know, the one that fell through), state leaders proposed reducing property taxes and making up the difference with higher sales and personal income taxes. The total elimination proposals obviously go a step beyond that.
So last month, Sen. David Argall, R-Schuylkill, Berks, brought forth Senate Bill 76 which failed to pass thanks to a tie-breaker vote. It then would have moved to a vote in the House, but would have likely been vetoed by Gov. Tom Wolf, who said he wouldn’t have supported it. (A similar bill brought up two years ago in the House failed by a vote of 138 to 59.)
The bill would have made up funds to cover the $13 billion in property tax revenue through the following tax changes: the 6 percent state sales tax would raise to 7 percent, the 3.07 percent personal income tax would raise to 4.95 percent and gaming revenue would be used to cover the rest.
For those of you doing the math at home, that would be a 15 percent increase in sales taxes and a 61 percent increase in income taxes. It would also shift away some $4 billion in property taxes paid annually by businesses onto the backs of people who, well, buy things. And also people who have jobs.
Argall’s spokesman Jon Hopcraft said the senator has vowed to continue his efforts to pass a property tax elimination bill, an effort he first introduced in 2011 with about a dozen co-sponsors. Now nearly half the Senate is a co-sponsor with four prime Republicans and four prime Democrats, but look: It’s largely touted and backed by the right and those who represent districts with higher levels of senior citizens.
“It’s nowhere close to dead,” Hopcraft said, noting that they lost by one vote several weeks back — and two senators weren’t present.
How something like this would impact Philly
A little less than half of the School District of Philadelphia’s income comes from local property taxes, and that’s largely because average property taxes per student in the city are lower than elsewhere. Lower home values = lower property taxes.
The elimination of the property tax would take away funding control from local school districts, or in Philly’s case, the School Reform Commission. And it would stipulate that districts have to get voter approval through a referendum in order to raise personal income taxes if they want to bring in more money to cover costs. (It also allows them to levy taxes to cover debt service.)
Currently, school districts don’t have to go through a referendum process if their tax increases stay within the rate of inflation, or if they’re using revenue to cover things like the skyrocketing price of public pensions. Few districts made up of people who would vote in favor of paying higher taxes.
But the idea of eliminating property taxes is unpopular among some education advocates, especially in Philly. The bill would have replaced property taxes dollar-for-dollar for the first three years, but after that, any increases in state aid to school districts would have increased by the same percentage for every school district, regardless of need.
This flies in the face of the idea of a fair funding formula, and means that school districts like Philadelphia with higher rates of students in poverty would receive funding increases at the same rate as, say, the Lower Merion School District, which serves students living in homes that average 10 times the assessed value of homes in Philadelphia.
In addition to that, saving money on property taxes and raising sales taxes can be seen as a regressive tax: One that disproportionately impacts low-income residents and renters who aren’t guaranteed to reap any benefits, even if their landlords are saving big on property taxes.
Where property tax elimination has its roots
Berks County is often called the epicenter of the movement to eliminate property taxes, and it’s a topic that locals say dominates almost every policy conversation. And the reason why depends on who you ask.
Some people say it dates back to the county’s German heritage, and apparently hating property taxes came along with that. Regional politicians kicked around the idea in the 1980’s.
But it was largely popularized by former Rep. Sam Rohrer, a Berks County Republican who served in the House from 1993 to 2010. Rohrer is a conservative Christian who now runs the American Pastors Network and has taken hard right stances on almost every issue.
Cox was a staffer for Rohrer in the early aughts and helped draft the legislation that would have eliminated the school property tax at the time. Rohrer left the state House and Cox said continuing on with the effort was “a natural fit.”
Proponents say it gets rid of an archaic system
The idea of property taxes originated in the 1800’s when America was a primarily agrarian society and most people’s income was largely tied to their property. Thus, paying taxes on property was proportional.
Obviously things are different today. Income isn’t tied to the amount of land you own and assessed property values fluctuate more now than they did at the time.
Mark Hendrickson, an adjunct professor of economics at Grove City College in western Pennsylvania, has studied property taxes from an economic standpoint and says though other states haven’t gotten rid of them, property taxes remain “antiquated.”
“One of the oldest principles of taxation is the ability to pay,” Hendrickson said. “When we’re an agricultural society, your real property is a proxy for your income. Today, the property you live on is not a proper proxy. A much more rational tax would be an income tax.”
Why school districts hate the idea
The Pennsylvania State Educators’ Association, the largest teachers’ union in Pennsylvania, called the idea “fundamentally flawed.” The advocacy group Pennsylvanians for Children and Youth said it gives businesses “a blank check.” Even the Pennsylvania Chamber of Business and Industry voiced opposition over the concern of hugely rising income taxes.
The Harrisburg Patriot-News reported that local school district leaders from across the state lobbied lawmakers against total elimination of the property tax “arguing they need the latitude to be able to budget, especially in an era of rising pension and benefit costs.” There have been amendments proposed that would require school districts go through a referendum to raise taxes, but can override a negative vote by the people with a two-thirds school board vote.
Cox says though it’s true districts won’t be able to use property taxes to raise local revenue, but said “there’s a variation of other smaller taxes that remain.”
The fundamental issue though for schools is this: They’re now chained to budgets in a way they have never been before. District officials and many education advocates would never agree to the measure, especially as no other state has successfully pulled it off. But some lawmakers who think districts have spent irresponsibly think it’s what schools in Pennsylvania need to fix the grave education funding crisis.
“Above all,” Senate Majority Leader Jake Corman said on the Senate floor after the vote, “I just think there’s a large possibility that individuals will end up paying a lot more in taxes than they do now.”