Politically Uncorrected: Pennsylvania’s Bad Penny

rotundaIt’s baack! Indeed, it never went away.

The “it” here is Pennsylvania’s perpetual debate over property tax reform, a debate in modern times that traces to the early 1970s. Further back, we have been arguing about the property tax since the 19th century. It’s a bad penny that seems to keep turning up.

One current version of tax reform sponsored by Rep. Seth Grove (R-York) recently passed the state House.  It provides school districts the option of replacing some or all of their property taxes with three other taxes, including the earned income tax, and two business taxes.

That bill was sent to the Senate for concurrence and then the fun began. Once in the Senate we learn that Senate Majority Leader Dominic Pileggi prefers a different version of tax reform. Pileggi’s proposal would freeze property taxes for seniors; paying for the freeze with offsetting revenues from allowing Keno in state casinos.

Game on.

For 40 years now the Pennsylvania legislature has struggled to reach consensus on a way to provide property tax relief while funding schools. In 1989 it did actually agree on a plan, one that would have replaced partially the property tax with hikes from sales and income taxes. Voters promptly rejected that proposal in a statewide referendum, three to one. The memory of that debacle offers a vivid lesson in why statewide tax reform has been difficult to achieve.

Later in 2006, school districts were authorized to hold local referenda asking voters to substitute earned income or personal income taxes for reduced property taxes.  In subsequent referenda across the state, however, voters have routinely turned down this option.

Now in 2013 the issue emerges yet again: steady rate increases over many years have put enormous pressure on ordinary property owners, many on fixed incomes, who pay the tax – as well as on Pennsylvania’s 500 school districts who depend upon it.

Property owners and school districts are not the only critics of the tax. Economists, policy makers and most scholars also condemn it – labeling it regressive, hard to administer fairly, economically unstable and politically unpopular.

Pennsylvania’s property tax paradox poses a genuine mystery:  if voters hate the property tax, politicians’ rail against it and policy makers criticize it, why is this tax we love to hate still in place, in fact raising more and more revenue year after year?

The short answer is that our legislators haven’t figured out how to abolish or substantially reduce the tax while still funding the schools.

The long answer is more complicated.   Fundamentally no one yet has resolved how simultaneously to solve three vexing problems – problems that left unsolved, preclude meaningful tax reform.

●       Sustaining Local Government Viability — The property tax is the largest source of revenue available to school districts and local governments. Consequently, if it is reduced or abolished, lost property tax revenues must be replaced. If wholly replaced by state taxes, school districts and local governments would become mere administrative units of state government, shorn of meaningful power or decision making. A government without its own sources of revenue ceases to be a government at all.

●       Money, Money and More Money — If property taxes were abolished, it would take an estimated 11. 5 billion dollars annually to replace the lost revenues.  Raising that amount of money would likely mean huge increases in income and state sales taxes. One estimate projects the state income tax might be raised from 3.07 % to 4.34 %, the state sales tax would be raised from 6 % to 7%.  Hence the property tax conundrum: how to  raise the billions necessary in new revenues to replace lost property tax revenues — but do it in a way acceptable to voters, without  harming the economy or reducing local governments and school districts to sheer sycophantic status.

●       Sorting out the Winners and the Losers — Just as there “ain’t no” free lunch, there also isn’t any way to reform the property tax without producing both winners and losers. Under any proposal to reduce or abolish the property tax, some would pay less and others would pay more. Everyone of course wants to be among those who pay less, while no one want to be among those who pay more. The inevitable consequence is a deepening political schism among voters amid arguments about tax fairness and unfairness.

Daunting as these dilemmas are, there are reasons to think real reform might be possible.  Increasingly, ordinary Pennsylvanians are having a harder time keeping up with their property tax bills, putting growing pressure on them and on their elected representatives in Harrisburg who hear from them early and often.

 At the same time, more and more policymakers and educators realize the traditional property tax base has reached its limit to finance schools. Somehow, public schools of the 21st century must be financed mostly by broad based state taxes or fees.

 Driving both of these trends is the rapidly spreading sense among Pennsylvanians that it’s no longer just a “good” idea to reform the property tax. Instead, it has become urgent that we do so. Colossal catastrophes potentially threaten both local government and public education if we fail.

7 Responses

  1. The answer to your property tax problems starts with reducing rates. Iam under the impression there is no method ensuring a change in assessment based upon a change in true value of property. Simply put, some jurisdictions may be following value changes consistently, others may not. When fair assessments are not maintained the only growth available comes from rate increases, which engender greater disatisfaction. So the start is to equalize values amoung jurisdictions and simultaneaously lower rates so revenues stays relatively unchanged. From there the devil is in the detail, but equalized values need to be maintained regardless.

  2. Property taxes are a means of revenue least likely to affect growth. Per the OECD, “Recurrent taxes on immovable property appear to have the least impact [on growth].” (http://wapo.st/1a5ScyV) Shifting that burden into regressive taxes compounds the various ways in which we already subsidize homeownership. If homeowners in Pennsylvania can’t afford their homes, it is result of two trends: government policies – tax and regulatory – that encourage people to purchase homes and spiraling wage inequality pushing more resources to the rich. Cutting property taxes, including only for senior citizens, does nothing to address either of those trends; it exacerbates laws that favor the rich at the behest of middle class and the expense of the poor. It’s selfish, pandering policy of the worst sort.

  3. Get the burden off the home owner. HB76 may have some drafting issues, but they can be and are being addressed in the Senate. No, I am not embarrassed that I support the bill. I value education and am the first one in line to contribute to funding it. I just cant stand when 8 school board members make decisions that have nothing to do with education reach into my pocket against my will to pay for it. I cant stand the fact that my property taxes double every 10 – 15 years but my district continues to decline: program cuts, larger class sizes, staff reductions, activity fees, kindergarten elimination etc. Already my district is 3.5 million in the hole for next year and no rainy day fund.

  4. 76 has so many conflicts, contradictions, and drafting errors, anyone who understands the bill’s flaws and still promotes it should be embarrassed.

    One big point that is consistently overlooked is that the state share of funding for basic education in PA is historically and contemporarily comparatively low. If the state would buck up and find revenue sources (perhaps cutting back on much of that corporate welfare to gas companies, etc.) and increased basic education funding, there wouldn’t be so much pressure on school districts to raise property taxes.

    Honestly, though, PA’s property taxes are ranked pretty much smack-dab in the middle nationally. It’s popular to rail against them, but it is not nearly the crisis that it’s made out to be and alternatives are consistently shot down by the public. No free lunch, right?

  5. HB/SB 76 was not mentioned in this article. It would solve this issue. It is the most popular bill among the taxpayers, but the House wants to keep property taxes around forever so that they get $$ from special interest groups such as the PSEA to fund their campaigns. The 2 bills mentioned in this article will only cause property taxes to continue to stick around and rise over time. That is why all attempts for property tax relief have been shot down by the voter. We don’t want relief, we want elimination so it can never come back and we won’t lose our homes because of our inability to keep pace with the increase of the property tax year after year at a rate 3 times that of inflation. I wonder why HB76 wasn’t a main feature of this article?

  6. To continue my thought, the courts also have procedures for waiving fees in IFP cases (in forma pauperis). Perhaps this concept should be added to the mix.

  7. An option not mentioned is the shifting of part of the tax burden for schools directly onto the parents in the form of a “users fee.” That how many other governmental functions are funded. Example: the courts have scores of fees which they charge in just about every division and level of court, and at nearly every stage of case processing.

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