Eliminating school property taxes in Pennsylvania will require raising more than $14.4 billion from other taxes, but huge numbers have never discouraged the idea’s supporters.
If anything, they think they’re closer than ever to accomplishing what seemed impossible and ridiculous to most state legislators a decade ago.
They see a state Senate on the verge of passing a bill to eliminate school property taxes for the first time in state history and increasing pressure on the House and Gov. Tom Wolf to act.
State Sen. David Argall (R-29) fell a vote short of winning passage of his Property Tax Independence Act three Novembers ago, but aims to try again soon. Argall still needs one vote, and Republican leaders have promised him a chance to argue the point soon in a dedicated caucus meeting.
“It’s easily the number one issue in the district that I represent,” Argall said. “I can’t go to a Cub Scout meeting or get a flat tire fixed without someone asking me about this issue.”
The $14.4 billion represents all the money the state’s 500 school districts will collect in property taxes this school year, according to the state Independent Fiscal Office’s January estimate. The amount equates to almost half the current state budget, more than three times the Major League Baseball player payroll last year and about the yearly cost of treating Parkinson’s disease.
Proponents have seen their push to vanquish school property taxes steadily gain momentum since Gov. Ed Rendell and others dismissed former Rep. Sam Rohrer’s initial proposal in 2005. They say property taxes force elderly citizens on fixed incomes out of their homes, hurt businesses and are expensive to collect. They’re also tricky to calculate, since they are based on arcane factors like millage and assessed property values.
“Basically, I believe that the current system is rotten at the core,” Argall said. “Maybe property taxes made sense in the 1600s and the 1700s, but there has to be a better way to fund our public schools than how many acres do you own, when did you build your house, did you fix the hole in your roof, what kind of front door did you add? That to me is just outmoded, archaic thinking.”
Opponents say eliminating property taxes amounts to swinging an axe at a problem that requires a scalpel.
“We can focus property tax relief on the people who are feeling the brunt of it, the worst, which is fixed-income seniors because they want to stay in their home,” said state Sen. John Blake (D-22). “Do I think that there’s a broken system? Yeah. ... Do I think we can solve it? Yes, but Senate Bill 76 (Argall’s bill) is not the solution.”
Property tax reform has perplexed state leaders for at least three decades. Govs. Robert Casey and Ed Rendell, both Democrats, and Gov. Tom Ridge, a Republican, all proposed reforms that either failed or fell short of their desired intent.
As a result, the clamor for reform has only steadily increased.
Argall almost got an earlier version of his bill through the Senate in November 2015.
The bill would have raised the state’s personal income tax from 3.07 percent to 4.95 percent and the sales tax from 6 percent to 7 percent. The vote finished in a 24-24 tie with Lt. Gov. Mike Stack, a Democrat, casting the deciding no vote. The bill had 19 Republicans and five Democrats in favor with 12 Republicans and 12 Democrats against.
Blake and Sen. John Gordner (R-27) voted no. Sens. John Yudichak (D-14) and Lisa Baker (R-20) voted yes.
Argall is back with basically the same bill. Besides the sales and income tax hikes, the bill would subject a wide variety of goods and services to the sales tax for the first time. That includes taxing all but essential foods (milk, bread, fruit, cheese, eggs and certain cereals), clothing or shoes that cost more than $50, many medical services, cable television, some lawyer bills, day care costs and funeral services.
The bill allows school districts to keep enough property tax in place to pay off loans and bonds, which commit property taxes to payments. That tax goes away as the borrowing gets paid off. About a dozen districts had no debt as of the 2014-15 school year, according to the most recent readily available data. Only Delaware Valley School District was debt-free among Northeast Pennsylvania districts.
Argall acknowledged voters’ approval in November to allowing local governments to exempt 100 percent of an owner-occupied home’s assessed value from property taxes could influence the way the bill turns out. The vote amended the state constitution to allow different treatment of homesteads versus rental, commercial and industrial properties. Eliminating property taxes only for owner-occupied homes would cost about $8.1 billion this year, according to the Independent Fiscal Office.
Blake thinks proponents oversell the idea while ignoring risks. Chief among them: In tough economic times, property taxes remain stable and predictable, but sales and income taxes decline or grow more slowly than necessary to properly fund schools, he said. That’s because people spend less and get fewer raises in downturns. Sudden shifts could leave school districts short of money to pay bills.
“I mean who doesn’t want to eliminate property taxes, right?” Blake said. “But I think it was disingenuous for many of the advocates here who were stirring this pot not to be honest with people of Pennsylvania what the obligations of this public policy suggestion really are.”
The expanded sales tax would hurt low- and middle-income citizens the most, said state House Democratic Leader Frank Dermody (D-33).
“People don’t talk about that and they (tax-elimination advocates) don’t explain that,” Dermody said. “Cradle to grave, we’re going to tax your diapers, we’re going to tax your caskets.”
Without the expanded sales tax base, the bill falls billions of dollars short, Dermody said. The higher, expanded sales tax base would raise almost $5 billion this school year, according to a 2013 Independent Fiscal Office analysis.
As low- and middle-income citizens pay more, more affluent owners of commercial and industrial properties would no longer pay $3 billion a year in property taxes, Blake said.
The higher income tax would also fall hard on small businesses. Most pay the personal income tax of 3.07 percent rather than the higher 9.99 percent corporate tax, Blake said. Landlords would get property tax breaks but probably wouldn’t lower rents, he said.
With the state providing a lot more money, school districts would also cede power and financial control to Harrisburg, Blake said.
He favors rebating property taxes up to 100 percent with a cap of $1,990 and a $500 rebate for renters with household incomes of $50,000 or less. About 3.2 million homeowners and about 800,000 stand to benefit from that.
That would ease the problem and allow the state to keep meeting its state constitutional obligation to adequately fund public education, Blake said.
“I think people need to understand that ... any property ownership carries a certain responsibility,” Blake said. — (AP)