Why the Property Tax Bill is Bad

Don’t Believe the Rhetoric! “Property Tax Independence” Is a Dreadful Bill

Peter CalcaraBy Peter Calcara, Vice President – Government Relations


In late March, Julius Green, PICPA president, signed a PICPA letter sent to newspaper editors across the state detailing PICPA’s opposition to legislation touted as a property tax elimination plan. The so-called “Property Tax Independence Act,” or Senate Bill 76 (SB 76), is once again vying for the attention of state lawmakers. Just last November, the state Senate by a vote of 24-25, defeated a plan similar to SB 76 in the form of an amendment to another bill. The issue is bound to resurface.

Before getting into my discussion about this plan and why it is a horrible idea for Pennsylvania taxpayers, I want to apologize to Julius Green. As a government relations professional for the PICPA, one of my first obligations is to shield our volunteers from messy or unnecessary controversies. As the word suggests, volunteers don’t typically get into the rough and tumble of public policy debates, particularly one so charged as property tax reform. As paid professionals, PICPA’s government relations team are the ones who should take the hits, particularly when an issue has broader implications outside of our core membership base. Julius is the consummate professional with unquestionable integrity and ethics. He did not deserve the vile response oozing from some of the bill’s supporters. Most of those slinging the offensive comment couldn’t hold a candle to Julius or what he has achieved both personally and professionally.

Responses to Julius’s letter from proponents of SB 76 were personal and beyond the pale. If the proponents of SB 76 want to spew from the gutter with personal attacks, that’s their decision. It seems the plan’s proponents believe that they can bully and intimidate people into believing their rhetoric if they just scream a little louder than anyone else in the room, and to hell with the facts. Though being a bully seems to be popular in today’s political arena, when it comes to issues as important as this – transforming the taxing structure for our schools – good people and good organizations have to take a stand. The PICPA has an ethical obligation to not only the profession but to the public to stand up and voice our objections to this destructive and ill-advised piece of legislation.

The facts are the facts, and no amount of spin can turn really bad legislation into good public policy. The facts do not support what proponents of SB 76 are trying to sell. As PICPA stated in our letter to newspaper editors, the plan would not eliminate all school property taxes as advocates claim. Under SB 76, taxpayers in school districts with current debt would continue to receive a property tax bill until that debt is completely retired. Only 8 of Pennsylvania’s 500 school districts have no debt. The other 492 school districts have a total debt burden of about $25 billion! That’s billion with a “B”! So if you live in one of the 492 school districts with debt, you would continue to receive a school property tax bill for years.

Some SB 76 proponents acknowledge that the plan won’t immediately eliminate property tax, but with the caveat that property tax bills will only cover a school districts debt obligation, “typically 10 percent.” Nothing in SB 76 says that your property tax bill will be limited to “10 percent” of what it was the year before. Nothing. We are not sure if that is a “best guess” or merely wishful thinking. Of course, you will still get a county property tax bill and an earned income tax bill to pay, unless your school district decides, with voter approval, to levy a local personal income tax or net profits tax, which school districts will be permitted to do under SB 76.

What proponents fail to tell you is how they plan to make up the $12 billion to $14 billion revenue gap that would appear when property tax revenue is removed. Let me try to explain. First, your personal income tax would likely increase by more than 60 percent, from 3.07 percent to 4.95 percent. It will probably have to be higher if this legislation is ever passed into law, but the proponents thought they had to keep the rate below 5 percent for political expediency, as if a 60 percent increase wasn’t shocking enough.

That’s not the end of it. Every time you go to purchase something in state you will have to pony up 17 percent more because SB 76 would increase the state Sales and Use Tax from 6 percent to 7 percent for most Pennsylvanians. Sales taxes in Pittsburgh and Philadelphia would be even higher, and we would have some of the highest sales taxes in the nation in our two largest cities. If SB 76 passes you would also pay sales taxes on a range of new products and services (the bill adopts the North American Industry Classification System’s list of about 2,000 new taxable services) used in everyday life, including new taxes on food, diapers, legal services, daycare, public transportation, advertising and public relations, and cable TV, as well as fees on museums and historical sites, behavioral health and substance abuse services, and developmental disability and vocational rehabilitation services. The new tax will also fall on personal hygiene products, textbooks, nonprescription drugs, home health care services, nursing care and assisted living facilities, and funeral services and caskets. The sales tax will also be expanded to include accounting services. Though cynics will try to make this the key reason why we oppose this legislation, that’s simply not true. While we oppose taxing accounting services for a host of reasons, that is not the driving factor in our opposition to SB 76.

This isn’t empty rhetoric; these items are in the bill. And the dire predictions are not just ours. Let me highlight an Independent Fiscal Office (IFO) study of SB 76 from 2013. IFO states in its report that SB 76 would have “a negative net fiscal impact” on school district funding in Pennsylvania. In fact, the report says the plan would result in a $1 billion deficit for public schools, and a “simulation of the proposal using 11 years of historical data from FY 2002-2003 to FY 2012-2013 confirms this general pattern.”

 

Net Fiscal Impact of House Bill 76 / Senate Bill 76
(Fiscal years, $ in millions)


2014-2015
2015-2016
2016-2017
2017-2018
2018-2019
Education Stabilization Fund
$354
$720
$1,056
$1,380
$1,716
School Districts*
-304
-1,098
-1,761
-2,311
-2,813
Other Impacts**
-53
-15
17
41
66
Net Fiscal Impact
-3
-393
-688
-890
-1,031

* Includes the impact of replacing property taxes for all school districts and eliminating nonproperty taxes levied to fund the School District of Philadelphia.
**Includes the impact on the General Fund and special funds.
Source: IFO’s “Analysis of Proposal to Replace School Property Taxes: House Bill 76 and Senate Bill 76 of 2013”

 

In other words, SB 76 is not “cost control,” it’s a type of funding arson for school districts. SB 76 also will likely jeopardize school funding certainty by relying on more volatile sources of funding tied to personal income and sales tax revenue which can drop significantly during a bad, or even a weak, economy.

Moreover, a recent report provided by IFO to the House and Senate appropriations committees states that over the next decade (2015-2025), Pennsylvania’s working age population will contract by roughly 222,000 residents. In addition, over the same decade, the number of retirees will increase by roughly 673,000 residents. Pennsylvania does not tax retirement income, so the burden to fund schools through SB 76 will fall disproportionately on the young and working class.

Finally, let me be clear: the current system for funding public education does need to be addressed by the General Assembly. It needs to be fixed, but throwing out a predictable and reliable source of funding for a volatile one that won’t provide the same level of funding is simply a horrendous idea. There must be a reasonable and equitable balance between revenue sources. The growing burden of school property taxes is a big concern, but lawmakers first need to address the major cost drivers in the system, including pensions and the absence of a prevailing wage index, before looking at a massive restructuring of Pennsylvania’s local school funding system.

 

 

 

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  • Ross | Mar 24, 2017
    @ Anonymous- that is not true that all those parents do not pay the property tax, although some may have an exception. If they pay rent, then they pay it through the landlord. If they live with other family, then that other family pays the property tax on their behalf.
  • Anonymous | Mar 24, 2017

    We own our home and therefore are subject to property tax.  We have children in the school system, so I do feel like we are “doing out part” to fund our own children.  What upsets me most is that there are more children in school whose parents do not own their home and are not subject to property tax.  So in short, a small few are paying for the majority privilege.  This Act to eliminate Property tax just evens the playing field and is based on income.  Those who spend more because they have more will obviously contribute the most while those who have less choose to contribute less because they are frugal spenders (like myself).  And the list of newly taxed items does not include medical or daycare services.  The fact that you listed cable TV as a newly taxed item and were upset about it is appalling.  Perhaps citizens will actually take a look at what is necessary and make better purchasing decisions.  We don’t have a lot of amenities and believe it or not, I am still breathing.

    Oh, and this may come as a shock, but I work in public school.

  • Joe Smith | Feb 13, 2017
    76 is very well thought out, well written and long overdue. Not only does it eliminate the oppressive and unfair property tax, it also holds school districts responsible for their spending which has been historically outrageous.  Time to get 76 enacted and make funding schools done more equitably and encompassing.
  • Rodger D Hyle | Feb 04, 2017
    60% of nothing = $00.00
  • SS | Jan 25, 2017

    Take the politics out of this debate and take an independent and objective look at this issue.  Of course, property tax reform is needed, we can all agree on that.  On one side of this debate it is true that school districts are fiscally mismanaged and there exists a lot of waste, and the state residents should not bear this burden.  On the other side of this debate, these same districts are mandated to expend a lot of their resources on rising special ed. costs and endless testing.  Further, and to be truly fair and honest, the property tax elimination bill is a veiled attempt to starve districts of funding so they are ultimately forced to downsize which weakens the teachers union.  I, as a skeptic, believe this is what is truly at play and our legislature is attempting to seize the moment.

    Solution,  if property tax relief is what our legislature truly wants, then let’s pass a 5 year property tax freeze.  Let’s then increase the sales tax 1/2% over these 5 years.  The revenues from the 1/2% sales tax gets pooled and used as a supplement to each districts annual and allowable budget increase (following the inflation index but capped at 3%).  The 1/2% sales tax increase should be able to cover this.  Districts that wish to spend above and beyond their allowable increase must initiate a district referendum and vote.  This would be a much better starting point then where we are now.  Increasing  the sales tax by 1%, and the PI tax by 2% is a lose for everyone involved. Sure it may pinch enough school districts to the point where they must downsize and therefore collect fewer union dollars, but that’s not reform that works for our kids, it’s just plain old fashioned spite against the real target; those who were promised pensions and our ineffectiveness to find a way to eliminate them.

  • Fred Ohr | Dec 01, 2016
    Why not leave the current property tax in place on commercial property and cut residential property taxes by 50%? With a permanent freeze of course. This seems to address many of the issues raised by those opposed to the bill. It lowers the amount by which other taxes would be raised, it retains a portion of the most stable source of revenue, it broadens the tax base, it is a significant step toward protecting seniors, and ensures that school taxes are subject to scrutiny by elected representatives.
  • Gary Ponchak | Oct 27, 2016

    Why do I want to pay for everyone else’s children to go to school when they don’t?  Everyone should contribute to be vested in our future.  Everyone, no exceptions.

  • Joe Durika (NOT an accountant…just a guy who can do math) | Oct 25, 2016

    First of all, you are absolutely correct. The personal income tax and the sales tax would both increase significantly by percentage. 3.07% to 4.95% seems like a huge swing, and 6% to 7% sales tax increase is, indeed, large, by percentage.

    But let’s look at this practically. A person making $50,000 a year would see their personal income tax go from $1,535 all the way up to $2,475…an increase of $940 a year.

    Assuming I spend the net of that whole $50,000 on taxable items in my local store, and assuming a federal tax bracket of 25% (I won’t try to go into deductions or exemptions, and I’ll take the single tax payer bracket because it’s highest…so federal tax would eat $12,500), my sales tax would go from $2,101.50 to $2451.75, an increase of $350.25 per year.

    So, under SB76, my total additional PIT and sales tax liability will INCREASE by $1,295.25.

    Now, let’s say I am a responsible person with $500 in monthly debt (not including mortgage). So I’m in a house I can afford, which is worth about $170,000. My average property tax, according to most sources, is between 1% and 2% per year. I’ll assume the low end for the greatest possible comparison. My property taxes each year would be about $1,700.

    $1,700 a year versus $1295.25 per year.

    Could I use an extra $403.75 a year for something? I’m sure I could come up with a couple ideas.

    Could I use extra peace of mind knowing that I don’t have to worry about losing my home if I don’t pay my property taxes? Yes. Yes I could.

    It is time to put the property tax to death. It is time that ALL Pennsylvanians pay into the schools’ budgets, because let’s face it: an educated Pennsylvania is good for ALL.

  • Cindi Cauffman | Apr 20, 2016

    Let’s start with something maybe we can all agree upon – school taxes cannot continue rising at their current rate without pricing the vast majority of PA residents out of their homes. In fact, as a state with a very large population of seniors, one could argue that ANY increases that is over the CPI rate of increase will drive all seniors reliant on fixed incomes tied to CPI out of their homes. It has been proven time and time again that school boards do not consider the impact upon property “owners” of the board’s financial decisions, whether it’s putting in astro turf or negotiating personnel contracts. Something has to give, and soon.

    We have tried “reform”, and within a few years taxes are again outpacing inflation. We have tried offsets with things like casinos, and the monies allocated to reducing property taxes are a joke. Additionally, none of these “reforms” constrained the increases school boards could put back on property owners. We all see that with the exemptions to the rate cap that most SD in PA file year after year, It’s past time for a major change, and HB76/SB76 is a breath of fresh air.

    Yes, sales taxes and income taxes increase. BUT, property taxes will decrease by nearly 90% in most school districts; 100% in SD without debt. Why 90% ? Because the bonds will not need to be paid all at once – they are due over many years and so the amount of money required to retire the bonds will be apportioned over those same number of years.

    A bit of history – all schools were funded 100% by the state of PA before 1949. Did we not have local control until 1949 ? The truth is, the things important to local communities such as curriculum will still be under local control. Altho, you can argue that the state still controls education via the PSSA tests, so effectively there is little in the way of local control currently, except the ability to tax you out of your home.

    I did not hear the PICPA scream and whine over the last 9 months when Gov. Wolf was trying to raise the state income tax and sales taxes with NO property tax reduction or elimination. I didn’t hear PICPA moan that poor and middle class people will be negatively impacted by these new levies. PA is ranked 10th in spending per pupil, but somehow that’s not enough.  The “$1 billion so-called cut” is simply the difference in raising your property taxes 6% vs raising them 3% per year. Only in government speak can a lower rate of increase be called a cut. Yes the PICPA wants to peddle the fiction of a cut. Whose side are they on ? Taxpayers they serve professionally, or state employees ? They should disclose that bias.

    The PICPA says it’s a vast burden on taxpayers when HB76/SB76 wants to raise the personal income and sales taxes, except that most people will additionally see a vast reduction in their overall taxes if SB76/HB76 are passed and signed into law, because we will finally be rid of the scourge of property taxes. Finally, people will be able to afford to live in their homes in the decades after their homes are mortgage free.

    Don’t just listen to the facts I stated – try it yourself and see how much per year you will save with SB76/HB76.

    http://www.ptcc.us/calculators/property_tax_independence_act%20v1.2_2016.xls

    Let’s have the truth out in the open, not self-serving lies and omissions of fact.

  • Ed Kihm | Apr 20, 2016

    I don’t understand how CPA can’t see the devastation that is caused by school property taxes.

    Gov. Wolf likes to talk about funding education as an investment, but an investment involves individual choice and careful consideration of risk and reward. If the only thing you get in return for all the money confiscated from you — while your home is held for ransom — is a higher school property tax bill, synthetic turf sports stadiums that sit empty most of the time, and an ever-increasing number of home foreclosures, that’s not an investment, it’s a sham!

    Funding education is an expense. According to the state Constitution, Article III, Section 14, “The General Assembly shall provide for the maintenance and support of a thorough and efficient system of public education to serve the needs of the Commonwealth.” No mention of school boards that can raise taxes regardless of a homeowner’s ability to pay whenever they want more money or are pressured by the Pennsylvania State Education Association. The money has to come from somewhere, but the use of a heavy-handed, regressive property tax is akin to economic cannibalism.

    The property tax is not only the most regressive tax, it is also cruel and inhumane causing distress and hardship in peoples lives.

    Governor Wolf was quoted in the Pocono Record on May 27th 2015 saying “there is a need to understand the investment that is education. There is a choice, he said, of supporting public education, but it comes with the cost of the taxes and the possibility of losing a home for some”.The people who perpetuate this antiquated system of taxation are not adversely effected by it as many thousands of people who are subjected to live under it.

    Governor Wolf and the legislators, who are among the wealthy ruling class and do nothing about this or stand in opposition of completely eliminating property taxes are responsible for the devastation they cause. I reject the premise that a property tax is the only way to fund schools and they can’t be eliminated and replaced with a better funding system.

    No tax should have the power to leave you homeless.

  • C. Miller | Apr 20, 2016

    And,  BTW…..

    the “volatile” funding source is nothing more than a scare tactic.   It’s the same funding source that isbeing used to fund the state’s finances.   It can’t be all that volatile,  or Harrisburg wouldn’t  rely on it!

  • Rae Hofkin | Apr 20, 2016

    The increase in earned income tax will NOT result in the highest in the country, that’s just flat out false as I’m a payroll professional and I know the other state tax rates.  Not to mention that PA hasn’t had a tax increase in EIT for years.  In fact the last change was a drop from 3.09% to 3.07% years ago.  The incomes already do NOT keep pace with the local property tax increases and the out of control spending for PSERS already means that most (if not all property tax increases) don’t even make it to the classroom.  Currently over 65% of a school district budget is for salary and benefits.  (I know as I’m also a school board member)  Add to that the impending Cadillac tax on the healthcare plans, and NOT one penny will make it to the classroom.  So how many people need to lose their homes before property tax elimination becomes appealing to you?  Do you or someone you know, maybe your parents need to lose their homes?

    Property taxes are not just a senior’s nightmare.  Working their whole lives and losing their homes because they can’t afford the taxes.  Most people live paycheck to paycheck. Workers have seen stagnated merit increases, bonuses decreased/eliminated, and increases in taxes and healthcare premiums to the point take-home pay has decreased every year.

    The best retirement plans are often derailed by fate such as an accident, job loss, declining health, divorce or spouse’s death, which decreases household income.  Increases in property taxes force single individuals to move back with parents and senior to lose their homes and move in with children.  No tax should have the ability to leave families homeless.

    Controlled spending sounds great, but it doesn’t work.  It’s too easy to spend other people’s money.  Individual board members don’t make much of a difference without a majority.  With elections every two years, the dynamics of the board is constantly changing and there’s a learning curve.  Some board members never learn and become administrative rubber stampers not realizing the conflict of interest.

    Tax increases don’t even make it to the classroom.  The biggest cost drivers are PSERS Pension (30% of salary) and healthcare cost which will increase by the 40% Cadillac tax on luxurious plans. These two cost drivers are out of control.

    Exactly how many people need to lose their homes before total elimination becomes a reality?  By passing SB/HB76 it will spread out the tax base and even include those that visit the state rather that keeping the burden on ONLY property owners?

    Status quo is not acceptable.

  • C. Miller | Apr 20, 2016

    It is clear the only bullying is that from the special interest groups.  Whether 76 number do, or “don’t work”, as some opponents  claim,  is irrelevant.   This is a violation of the PA Constitution. And, yes.  The numbed do work….that is,  if you look at it from a budgetary standpoint. Since most special interest groups are more interested in protecting their pot of gold and lack the idea of spending within means,  they prefer the status  quo.

    Spending within means……any cpa should understand this simple concept.  Any cpa should also understand that this property  tax,  which is outpacing the rate of inflation x3, is becoming unsustainable.

    For nearly 40 years,  not one person,  or group has come forward with a viable plan, but rather chooses to discredit one that will work.  76 will create a spending control,  thus shoeing the numbers you work.   Every opponent claiming otherwise,  Ius only looking at the huge Gap down the road…the gap that will be created if we don’t stop the uncontrolled  spending….the gap that will be controlled by numbers that dov work by page of this bill!

  • Matt Kelly | Apr 20, 2016

    This does not address the issue of true property ownership. As the law is now, and how this proposal would continue, no “home owner” actually own their home. For all intents and purposes they are renting the home and property from the local school board. If a family dedicated themselves to a neighborhood their entire lives, paid off the home and wanted to live there during retirement they are still liable for the ever rising property tax, which eventually will balloon above their budget.

    This still does not address the issue of taxation without representation. School boards are able to raise the taxes at will, without the required approval of the residents within their district. At least if all funding was from the state it would give back representation.

    This puts no limits on spending by school districts. Let us not forget “state funding” is still money from the tax payers of PA. By somehow trying to mislead people in to thinking more money from the state somehow reduces their burden of school funding is patently false.

    No one should lose their home due to illness, unemployment, etc because they can’t pay a tax. Neighborhoods should not be torn apart because of a tax. Gentrification needs to stop. Taxation needs to stop being a form of social engineering.

  • Bill Swope | Apr 14, 2016
    I have reviewed the bills and would concur with the comments stated above. This legislation will likely create more issues going forward than resolving. I agree that property tax reform is needed; but this cannot be addressed in a vacuum. The impact on other tax sources must be addressed; personal income and sales tax. Raising the personal income tax rate, to what could be one of the highest in the country, could result in younger residents leaving the state for jobs elsewhere. This could result in a possible erosion of the tax base needed to support this legislation as well as others. Increasing the sales tax, again to one of the highest in the country, and expanding it to more items could have a significant long-term impact on low income and fixed income residents. There incomes would probably not keep pace with these increases. I think the idea of property tax reform, which again I believe is needed, was raised in a political arena and constituents agreed it needed to be done. As a result, various members of the General Assembly race to provide a bill to show constituents they are listening to their call for action without completely considering all the impacts it may have. They need to stop, take a step back, and consider all options and consequences.
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