Daily Local News (West Chester, PA)
Details reveal hidden hitches in popular bill
LOWER POTTSGROVE >> Most polls show voters in favor of any effort in Harrisburg to enact property tax reform, or eliminate them completely.
With legislators once again raising the hope it will be adopted this session, Pottsgrove School District officials putting together another budget took the time to see what that would look like had last year’s school tax elimination bill been adopted.
And what they found is that there are indeed lots of devils in those details.
“A lot of people hear ‘property tax elimination’ and they think ‘boom,’ their bill goes away, they save a lot of money and that’s it,” Pottsgrove Business Manager David Nester told the board Tuesday.
“But it’s not that simple,” he said.
State Sen. David Argall, R-29, of Schuylkill County, has proposed the same bill that failed by one vote last year, saying some changes in the makeup of the state Senate after the November election give him the votes he needs to get it passed.
The first thing people should know, Nester said, is that school property taxes would not be eliminated completely at first. Under Argall’s bill, as much property tax as is necessary to pay down existing debts would remain until it was all paid.
In Pottsgrove’s case, the annual debt payments add up to about $5 million, or 8 percent of the proposed $66.4 million budget for 2017-2018.
That means about 15 to 20 percent of the current school property tax levy would remain, said Nester, along with the municipal and county property tax levies, which are a much smaller proportion of property taxes and not affected by Argall’s proposal.
As for new debt, like that needed for school renovations
or major building projects, that would have to be approved by voters in the spring, should the tax reform bill be adopted.
“And we all know no one is going to vote themselves a tax increase,” at least not for the first few years, observed board member Ashley Custer.
That means any construction or capital projects at the schools could only be undertaken with whatever cash the district has on hand, Nester said — which is one reason he has been advocating for putting surpluses into the district’s capital budget fund.
Argall’s proposal also has the potential to lock in the funding disparity between rich and poor school districts with the difference being that instead of wealthy districts funding their own higher spending through their property taxes, the entire state would be paying for it under the “dollar-for-dollar” replacement provisions of the bill, according to Nester’s analysis.
An Associated Press analysis of state data found that more than 70 percent of school property taxes were collected by the wealthiest half of school districts in
2014-15.
That means that a wealthy district like Lower Merion, which funds a higher level of spending mostly out of its own property tax pockets, would instead enjoy the same level of spending but now at the expense of all personal income taxpayers in Pennsylvania.
And none too soon, given that the high commercial and industrial property tax revenues on which districts like Lower Merion and Spring-Ford depend would be gone.
“No more King of Prussia Mall, no more Glaxo, Merck or Wal-Mart paying the bills,” said Nester.
To make up for what the Associated Press calls a $14 billion tax shift from property owners and businesses to Pennsylvania consumers and workers, the state’s personal income tax rate would be hiked from 3.07 percent — one of the lowest in the nation — to 4.95 percent.
Additionally, the state’s sales tax would be increased from 6 to 7 percent and more things, including food and clothing, would be subject to the tax.
This is where the question of who benefits and who doesn’t from the change gets murky, said Nester.
“A lot will depend on your spending habits and it will be hard to track, because it’s a little more here, a little more there,” said Nester.
One thing that is clear is that retirees who own their homes and whose primary income is pension and social security, will join property owning businesses as the clear winners in this tax shift, according to Nester’s analysis.
On the other hand, residents of poorer districts — like Pottstown and Reading — would see little or no change in the gap between wealthy districts and poor ones under this plan, absent a decision by the Legislature
to increase state funding to those districts under the fair funding formula, Nester said.
In fact, he said, the Reading School District has so much debt that it would keep almost its entire property tax levy in place on top of its residents paying higher sales and income taxes if Argall’s reform plan is adopted.
On the other hand, noted school board member Rick Rabinowitz, the elimination (or reduction) of local school property taxes would level the playing field in terms of attracting residents and businesses.
It also has the potential to make homes in Pottstown — traditionally less expensive but carrying a higher tax burden — more attractive to homebuyers.
As for future spending, all districts would only see an increase in funding based on whichever is lower — a percentage of income and sales tax projections,
or the statewide average weekly wage — thus making school funding more varied from year to year and more dependent on the economy.
As Nester asked at the end of his presentation — “what happens if there’s a recession?”
The answer could be program cuts or the deterioration of facilities, said Nester.
He also said there is currently no information about how this change would affect charter schools — if at all — and board member Bill Parker said funding constrictions at public schools under “this bill could have parents fleeing to charter schools with their children.”
Eliminating property taxes under Argall’s bill could have many implications, both short-term and long-term said Nester, but one thing is clear: “This is not the windfall that most people anticipate.”