STATE TAX REFORM: Plan for Pa.’s future the only real tax reform
By JOEL SEARS, President of the York County Taxpayers Council
For the Daily Record/Sunday News
May 21, 2006 — For more than 30 years, the Pennsylvania Legislature has failed to deliver on its promise to reform property taxes. House Bill 39 was a blatant attempt to ram something down our throats in time for the primaries. Thank goodness, the House tabled it until June 5. Like its predecessor Act 72, HB 39 targeted seniors and ignored workers who face unrelenting increases in property taxes at rates far beyond the growth in their paychecks.
Adding insult to injury, HB 39 granted school boards the opportunity to shift the tax burden from property to income, but did nothing to address the root causes of runaway school property taxes.
The first step in reforming property taxes is to control expenditures. Pennsylvanians spend nearly $20 billion per year for K12 public education. In the current school year, the total education budget for the 16 York County districts totaled nearly $800 million. With increases of 8-10 percent every year, expenditures double every seven to eight years. Efficiencies from consolidation and “best practices,” such as target costs for providing an adequate education, could easily cut 10-15% from the total budget.
Next, we must completely overhaul the way state funds are allocated. PA still uses a formula from 1990-91 to distribute funds to its 501 districts. York County’s allocations show how the formula ignores rapid growth and changing demographics. Compared to the state average of 50% in 2005-06, York County received approximately 20% of its $790 million education budget from the state. The average subsidy for basic education was $2,480 per student, ranging from a low of $890 (York Suburban) to $5,400 (York City).
Even if there were no variation in the annual cost per student throughout the county (roughly $10,600 this year), the local property tax burden would still vary from approximately 50% to 90% of the total cost of education. The best reform plans circulating in Harrisburg advocate funding based on student populations and demographics (special needs, economic distress, etc.). In other words, send the money where it’s needed, not where it’s always been sent.
Like it or not, school boards have the unlimited power to tax our property to fill the funding gap. Every year, they cycle through the budget process and, with few exceptions, impose another whopping tax increase. The steps above should help mitigate the amount of the increase, but they don’t deal with the arbitrary real estate assessments upon which the final amounts are based. Before we look more closely at the numbers, consider the following from Article VIII, Section 1 of the Pennsylvania Constitution: “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax.”
Starting with school taxes, within a mile of my house in the York Suburban School District, there are dozens of homes with virtually the same market values whose assessments vary by hundreds of thousands of dollars. A single tax rate applied to arbitrary assessments yields arbitrary (non-uniform) taxes. The fact that the tax rate is uniform does not imply that the taxes are.
Turning to county taxes, my house and my state representative’s house (in the city) have approximately the same market value, yet his assessment is less than half of mine. Since we are both subject to the same county tax rate, he will pay half as much to the county as I will. This is the case for most property in York City - “fair market values” are significantly lower than comparable values in the county even when actual listing and selling prices (true market values) are the same. By using arbitrary assessments, school districts and the county have indeed instituted a non-uniform method of taxation within their territorial limits.
Next, instead of looking at tax increases in terms of the “average homeowner,” I’m going to dig a little deeper to see what happens to real people. Suppose you own a home in Dallastown recently assessed at $250,000 (up from $200,000 last year). With a proposed tax rate of 19.8 mills (down from 21.74 mills), your school tax will be $4,950 (compared to $4,348 last year). To review the situation, your assessment increased by 25 percent, the millage decreased by 9 percent, and your taxes increased by 14 percent.
If you live on a fixed income and own your home outright, a tax bill of this magnitude is incomprehensible. To “working class” homeowners, nearly $6,000 in gross income is required to net enough to pay the property tax bill after your share of federal, state, Social Security, and Medicare taxes.
After nearly three years of open, continuous refinement, there is one set of bills in the General Assembly, the Plan for PA’s Future, that addresses the gross inequities in school budgeting and funding by: (a) determining how much an adequate education should cost, (b) allocating funds according to actual student population density and demographics, (c) standardizing and reducing the cost of new construction, (d) providing means for districts to raise additional funds only with voter approval, and (e) replacing all taxes currently levied by school boards with a combination of sales and personal income tax.
This is the only comprehensive plan on the table that addresses the root causes of property tax distress and proposes a broad-based, equitable alternative. It is simple, manageable, and devoid of special interest pandering. However, because there are districts that actually benefit from the current situation, York County and dozens of others in our situation won’t see meaningful relief unless we contact our legislators, the governor, and leaders in both houses to let them know that we won’t settle for anything less than the Plan for PA’s Future.
