SB76 Ends School Property Tax (not really)!

            The SB76 School Property Tax Elimination may be misnamed. The title of the bill provides a great sound bite. Legislators are going to be hard pressed to vote against the illusion of the elimination of school property tax. The goal of SB76 is to eliminate all school property taxes across the Commonwealth and replace those taxes with a combination of funding from the Personal Income Tax and the Sales and Use Tax. The elimination of school property taxes effectively removes the taxing authority of locally elected school boards and transfers local control over education programs to the government of the Commonwealth located in Harrisburg.

SB76 Increases the Sales and Use Tax by one percentage point and increases items to be taxed by the state sales tax. . The sales tax would increase for 6% to 7%. More services and products will be subject to tax. Increase in the state’s personal income tax from 3.07 percent to 4.95 percent.

The bill targets most school property taxes, but do not eliminate them completely or other local property taxes (county, local municipality). School districts would keep a portion of their taxing authority to satisfy their respective debt service. The bill fails to be a net tax cut for the citizens of Pennsylvania. Rather it shifts the tax burden to sales tax increases and personal income tax increases while leaving a portion of the local school property tax in play.

If the property tax is eliminated, not all communities will be winners. Taxpayers in some districts will pay simultaneous increases in the state personal income tax and sales and use tax while still paying school property taxes. In these districts, taxpayers will be subject to double taxation, paying significant state tax increases while continuing to pay some or their entire current school property tax bill and all of their county and municipal property taxes.

Additionally, 215 of the state’s 500 school districts (43 percent of all districts statewide) will retain at least 20 percent of their existing school property tax, and 23 districts will keep at least 50 percent of their current property tax to pay for existing debt.

A few school districts will still need all or nearly their entire current property tax levy to fund existing debt payments. Educators understand that people generally hate the property tax and the threat it causes to people on fixed incomes. However, there are ways to address that problem without wholesale elimination.

            Specifically Lawrence County schools will be able to keep the following percentage of real estate taxes to cover existing debt:

o   Ellwood City SD        19.12%

o   Laurel SD                  29.16%

o   Mohawk SD               26.38%

o   Neshannock SD         14.51%

o   New Castle SD           51.54%

o   Shenango SD             0.00%

o   Union SD                   17.70%

o   Wilmington SD          26.29%

A proposal to eliminate property taxes will further increase the disparities in school funding. The elimination of the property tax effectively ends the new basic education funding formula. This formula was designed to create equity and stability. The formula not only hinges on a measure of local tax effort, but was designed to account for student and district characteristics. Property tax elimination would further entrench the inequities in our funding system.

The elimination of school property taxes leaves individuals holding the bag. Under current law, commercial businesses pay approximately $3 billion in school property tax. Under the proposal commercial business would pay $1 billion in school property tax. The bill equates to a $2 billion tax cut for business. The cut will supposedly be offset by increased collection of personal income taxes or sales taxes. The offset for business comes at the expense of employees.

The bill also trusts that the state will fund local schools without local input. Currently, the Laurel S.D. receives approximately 2/3 of its funding from the state. Local schools will have no control over their financial future and stability. The inability of a district to levy property taxes may impact the district’s ability to pay for any new federal or state mandates, or expand the academic or extracurricular programming of the district. The state must consider expenditures when appropriating revenues.

Also, the bill curtails school districts’ ability to incur new debt and would prohibit districts from responding to immediate need for cash. If the state fails to pass a budget, districts would be unable to proceed with a Tax Anticipation Note (TAN). The doors of the school would literally be locked and the facilities cease operation. Local school boards would unable to respond to maintenance and repair needs for school facilities.

            The bill locks in disparity. Some of the poorest districts in the state generate only $1,100 per student in property tax. Some of the wealthiest districts in the state generate $24,000 per student in local property tax. The bill will send $1,100 per student to one district and 22 times that amount to another district. Somehow, this makes sense in Harrisburg.

The property tax is a stable and predictable source of funding for the schools. Unlike personal income or sales, the property tax base is less prone to fluctuate from year to year. Revenue from sales tax and income tax obviously will be higher during economic prosperity and lower during economic down turns. The sudden decrease of revenue would cause a significant negative impact on programming curricular and extracurricular offered to students.

This legislation will have the Commonwealth assume virtually all the authority once held by local school boards, effectively eliminating local control. With no ability to raise revenue or make financial decisions at the local level, the state will be responsible for ensuring that districts have the resources to comply with all mandated costs. By removing a local school board’s authority and ability to respond to the needs of its students and residents, the state will be responsible for the financial health of all 500 school districts.

Should this bill become law, the cuts would be Draconian. Taxpayers can expect reduction in personnel and programs. Class sizes will increase. Educational resources will be cut. Professional development will be limited or eliminated. Athletics and other extracurricular activities will be a luxury.

The system we have to currently fund schools is imperfect. Its replacement should be less imperfect. SB76 is an example of creating more problems to an existing problem rather than finding a solution.