By Timothy Reilly, for the Times
Is the property tax a relic of the past or a necessary tool to secure the financial future of the school system? A budget battle is brewing again in Harrisburg to address this fundamental question.
For state Sen. David Argall (R-Schuylkill/Berks), the answer is simple.
“Based on the overwhelming majority of my constituents, there is no issue more important than ridding taxpayers of this 1830s method of taxation,” he said in an email correspondence.
Argall plans to introduce legislation in the Senate to eliminate the property tax. The bill, christened SB 76 in the upper chamber, will replace the revenue collected from local property assessments with increases to the state income tax and sales tax.
The list of items eligible for the sales tax will also expand. The bill has drawn bipartisan support, garnering sponsors from both sides of the aisle.
This is not the first time SB 76 and its companion in the House of Representatives, HB 76, also known as the Property Tax Independence Act, have been considered by the state legislature.
Argall noted he’s introduced the bill multiple times. Most recently, the bill was narrowly defeated in the Senate in 2015. Lt. Gov. Mike Stack cast the deciding vote that doomed the legislation.
In 2013, an amendment to the Optional Property Tax Act, or OPTEA, was proposed. The amendment also called for the elimination of property taxes. The vote came on the heels of a report from the nonpartisan Pennsylvania Independent Fiscal Office projecting a $1 billion shortfall within four years if HB 76 passed.
OPTEA, which passed the state House of Representatives, was later defeated in the Senate.
This time, however, Argall believes that the new composition of the Senate, which includes two freshmen who campaigned on the issue, will give him the votes he needs for passage.
The bill was authored in collaboration with a citizens group known as the Pennsylvania Coalition of Taxpayer Associations.
David Baldinger, one of the citizen advocates supporting the reform, manages the Pennsylvania Taxpayers Cyber Coalition website.
“The enactment of 76 is going to change the entire paradigm,” Baldinger asserted, calling the legislation “a catalyst for change.”
The burden of addressing the underfunded pension system, for instance, will shift from local school boards to Harrisburg.
The proposal has drawn its share of critics, including the Pennsylvania School Boards Association.
In its view, “school districts will be forced into a system that lacks financial equity and predictability, and robs them of local control.”
Not so, says Baldinger.
“The only local control lost is the ability of school board members to raise taxes at will,” he said.
Baldinger cited another report from the Pennsylvania Independent Fiscal Office that revealed school property taxes have increased at a rate of 146 percent since 1993–94, far outpacing inflation.
The reform measure purports to fund each school district at its current level, replacing dollar-for-dollar the revenue that was collected through property assessments. Future increases in funding will be tied to consumer economic activity.
Local school boards would retain the ability to impose income tax increases for projects such as school construction. They will need to disclose the details of the proposal and secure the approval of voters in a ballot referendum.
Moreover, most school districts will need to continue assessing some level of school property tax for years to come in order to service outstanding debt. Nevertheless, Baldinger reports on his website that the average statewide reduction in property tax will register at 90 percent.
“It’s killing the housing market in Pennsylvania,” he observed of school property taxes.
Baldinger forecasts a housing boom if the legislation is passed.
The property tax debate has also been hashed out in Lower Bucks County. Sam Lee, currently the Bensalem School District superintendent, also addressed the Property Tax Independence Act during his years as superintendent for nearby Bristol Township.
“As a homeowner and community member, it sounds appealing, but with all legislation the devil’s in the details,” he said in a phone interview last week.
Back in 2013, the issue was a hot one in Bristol Township when HB 76 and the OPTEA amendment were in play.
According to Lee, many residents in Bristol felt the sting of property tax increases perhaps more acutely than homeowners in more affluent districts like Council Rock or Central Bucks.
That wasn’t necessarily because the taxes were much higher, he stressed. In fact, those other districts relied much more on local funding than townships like Bristol.
However, in Bristol, the tax obligation-to-income ratio was higher, meaning a smaller tax burden takes up more of the average person’s paycheck.
Meanwhile, a township like Bensalem derives a significant amount of revenue from commercial properties. If the state were to switch to a sales and income tax model, that burden would likely shift to consumers and homeowners.
“The problems are real, and that’s awful,” said Lee of the hardships property tax increases can bring to homeowners. “We understand and are sensitive to the burden, and are grateful for the community’s support of our children.”
There’s also the possibility that the state, which already faces budget problems, couldn’t match current revenue, especially if there’s a downturn in the economy or if schools are faced with new mandates or other expenses, noted Lee.
Elsewhere, state Rep. Perry Warren, who serves the 31st District in Lower Bucks County, remains uncommitted with respect to the proposal. In an emailed statement, he supported the concept of reducing the “sometimes disproportionate burden of property taxes.”
However, in considering reform measures, Warren stated that “we need to do it in a way that won’t hurt working, middle-class families. We also need to do it in a way that doesn’t hurt the children in our public schools, and we need to ensure that corporations are paying their fair share.”
Warren’s comments hint at a potential stumbling block for proponents of school property tax elimination. The state Constitution prevents lawmakers from eliminating property taxes on homes while retaining them for businesses. If the tax is to be erased, it must disappear entirely.
Baldinger had a different view of the issue.
“Businesses don’t pay taxes. People pay taxes,” he observed, noting that property taxes are expenses that companies pass on to the consumer.
Furthermore, Baldinger believes that the elimination of property taxes will end the cycle of lawmakers supplying tax abatements to entice businesses to set up their operations in the state.
Gov. Tom Wolf will deliver his budget proposal in February. Sen. Argall will likely introduce SB 76 during the ensuing budget negotiations.