Finally, Property Tax Reform?

Each year prior to June 30 school districts across Pennsylvania are required to pass a budget for the upcoming fiscal year.  We as directors do our best to support the educational needs of the students while trying to be fiscally responsible to the taxpayers of our respective districts. 

We hear from all aspects of the community. Some say spend more to provide the absolute best education for our students. Others feel over-taxed and plead for relief from their property taxes.  It is not an easy decision, and ultimately will leave a portion of the community unhappy. 

This could all change if some proposed legislation is enacted this year. House Bill 1776, called the “Property Tax Independence Act" is currently in the House Finance Committee and would eliminate property taxes as a source for public education funding in Pennsylvania. 

The bill, sponsored by Rep. Jim Cox (R-Berks), calls for increases in income taxes and sales taxes as alternative means of revenue. The income tax rate, currently 3.07 percent, would increase to 4 percent, while sales taxes would jump 1 point from 6 to 7 percent.

In addition, a sales tax exemption on many goods and services would be eliminated; such as on dry cleaning, funeral expenses, amusement parks, gum and candy, flags, magazines and newspapers. Those are the basics. Eliminate school property tax and replace with sales tax and higher income taxes.

On the surface this seems like a win-win for all parties. School districts will be funded by the State and we will all pay gradually and not in one lump sum. It will spread the burden to renters, students, and anyone who buys goods or services, not just property owners.

Digging deeper into this bill, a 176 page monster to read, I am left with some concerns. I want to share some of those and encourage everyone to research this bill, no matter which side of the debate you fall under. 

First, HB 1776 eliminates all local funding control for school districts while creating bigger government in Harrisburg. School board members in Pennsylvania are elected officials. Members are elected for a four-year term, with the election process calling for five members being eligible for re-election during one election cycle and four being eligible in the next cycle. 

In my opinion there is no more “local” government than school directors. The average person can have their voice heard by the board on any given Monday evening in Bethlehem. If the voters are unhappy they can vote out the members and change the dynamic of the board. 

Local grassroots campaigns are how most directors, myself included, win seats on the board. Your local State Representative can represent your views perfectly, but if they are in the minority in Harrisburg their vote will fall silent. 

If you value your local school district and its local control, this bill could be a problem. What happens if Harrisburg decides it needs to borrow from the “school fund?” Where will the money then come from? Will boards be forced to cut basic programs if Harrisburg can’t deliver promised monies?

Second, HB 1776 eliminates property taxes from all properties. This includes commercial and industrial properties. The big box stores that currently share in the funding of the local schools will now go tax free. Think of all the warehouses, office parks, malls, grocery stores, entertainment venues, and more that will have their taxes eliminated. Should they not contribute to the local school districts? 

The argument is that eliminating property tax will allow folks to spend more in these stores thus generating more sales and income tax. That may be true, but those taxes are still not paid by the company. 

Third, HB 1776 does not actually eliminate all property tax. There will still be a property tax levied for the life of a districts debt service. 

In Bethlehem there are bonds that go out 30 years covering the past construction debt that will be covered by property tax. It will be less than the total current tax bill, but none the less it will exist.  This bill also does not eliminate Municipal or County property tax.

Finally, HB 1776 makes it extremely difficult for districts to raise needed revenue in the future. Five years from now the PSERS pension system contributions from local districts will skyrocket. This is a result of mismanagement, raiding of the fund by Harrisburg, and Legislators giving themselves pension raises in 2001. 

This was not caused by local districts or “greedy” teachers and administrators.  How will districts fund their mandated programs, meet the PSERS obligations, and continue to educate students with no long term funding structure? Here is the funding explanation from the bill’s author:

“Schools will receive their property tax replacement funding directly from the state. Initially, the Property Tax Independence Act will fully fund the districts at their current per-pupil level, with a long-term funding formula to be determined by the legislature. All students in Pennsylvania, regardless of their location or their area's economic condition, will have the opportunity for a quality education.” 

Take special note of the bold sentence. A long term funding formula to be determined by the legislature. How can we completely change the school funding system without knowing what we will do long term?

There is no doubt property tax hurts. I would love to have that money to invest in my home or spend how I see fit. Who wouldn’t? The problem is we need a system that will meet the needs of today’s educational system. There has to be some hybrid mix of property and sales or income tax that can be composed to fund schools with less dependence on property tax. There also must be local control over part of the funding.

A quality school district helps a community thrive. It makes people want to live in that community. It brings good business to the area. First time home buyers and young families want to live where there kids will get a good quality education. 

There is so much more to this bill that can be discussed and I do hope you take the time to investigate it more. Here is a link to Rep. Cox’s website where you can find all the details and the bill itself. 

I would love to hear from the community of what you think of this bill. (Tell us in the comments.)

The BASD board will discuss it on June 18. It’s slated for a vote by the House Finance Committee on June 11. If it makes it out of committee it could be approved by the legislature this session