MARCH 21, 2012

No School Tax Referendums in Pennsylvania this Year

Remember the gnashing of teeth over "cuts" in state education subsidies (driven by the end of federal stimulus money)? The education establishment and partisan critics of Gov. Corbett insisted this would result in massive property tax increases.

You will also remember that the General Assembly passed legislation reducing the number of exemptions to the school tax referendum requirement. Add to that the fact that the base "index"— the level above which school districts must seek voter referendum on tax increases— is only 1.7 percent. This contrasts to recent school district property tax increases, which averaged 5.2 percent per year over the past decade, even factoring in "relief" from gambling revenue (see chart below).

Surely this combination of factors would result in a bevy of school tax referendums in 2012. But the Reading Eagle reports that not a single district in Pennsylvania is seeking a tax referendum this year.

In other words, schools, thanks to decades of funding increases, are able to make ends meet without going to local taxpayers for significant tax hikes (except for pension increases, which remain exempt, and will be a cost driver for decades).

But that doesn't mean we shouldn't help school districts stretch their budgets further. Matt Brouillette and Pennsylvania School Boards Association Executive Director Thomas Gentzel's recent op-ed in the Allentown Morning Call explains how prevailing wage reforms and economic furloughs will allow districts to do more with less.

posted by ELIZABETH STELLE, NATHAN BENEFIELD | 00:38 PM | 0 comment

DECEMBER 29, 2011

Tax-Exempt Government Property Adds to Harrisburg's Woes

The city of Harrisburg is facing a fiscal crisis primarily brought on by over-spending, accruing too much debt, and getting into areas government has no business—from the incinerator to owning a baseball team to collecting wild west artifacts.

But the Capitol City's woes are aided by the abundance of tax exempt properties. Nearly half of all property value in the city of Harrisburg is owned by government or hospitals and other charities exempt from property taxes. Yet these properties still receive city services, including fire and police protection, and benefit from other core city responsibilities, like road repair and clearing the streets of snow (more or less, as anyone who has driven in Harrisburg after a snowstorm can attest).

According to information from the Mayor's Office and the Dauphin County Assessor detailing Harrisburg tax-exempt government properties, assessing the municipal property tax rate on land (not on improvements, or imposing the school property taxes) would generate around $6 million per year, not an insignificant sum.

The city receives payment in lieu of taxes (PILOTs) to offset some of these costs. According to the Act 47 report, the city gets about $410,000 in PILOTs from 13 organizations. The state budget also includes $500,000 (down significantly from years past) for Capital Fire Protection. But these payments are a far cry from what these entities would pay if their property—even just the land portion—was taxable.

The tax exemption creates a perverse incentive for government and tax exempt organizations to acquire more property than they need. More importantly, these exemptions—combined with over-spending—require higher property taxes on businesses and homeowners.

According to a comparison in the Act 47 plan, property owners in the city of Harrisburg would pay two to three times as much as those in the surrounding suburbs, on average. This high tax burden helps explain why so many are moving out of the city: Harrisburg has lost 45% of its population since it peaked in 1950.

posted by NATHAN BENEFIELD | 11:08 AM | 0 comment

SEPTEMBER 26, 2011

By the Way, Residents Don't Like High Taxes

Dr. Antony Davies, a member of CF's Council of Scholars, and John Pulito add to the growing body of research showing higher state taxes drive out residents. Their new study, "Tax Rates and Migration," finds lowering "high-income" tax thresholds, high overall state income taxes and high property taxes deplete populations.

Often known as "millionaire taxes," states lower personal income tax thresholds to include more than millionaires in the highest bracket. For instance, anyone in Arizona who makes $150,000 or more a year pays the highest level of income tax, in Ohio it is $200,000. The evidence suggests people tend to leave states that lower "high-income" tax thresholds, the same way they leave states that raise tax rates. Pennsylvania does not have tax thresholds because the state levies a flat 3.07 percent personal income tax, but seven states don't even have a state personal income tax.

However, Pennsylvania is a large offender in the property tax category. Property taxes have skyrocketed, increasing by $2.1 billion, or 26 percent, from 2004 to 2008—exceeding both inflation and student enrollment. The authors find property tax rates have a greater effect on out-migration than high-income tax rates.

For example, a one percentage point increase in the property-tax differential between two states has almost three times the effect on migration as does a one percentage point increase in the difference in high-income tax rates.

High levels of local and state taxation combined with heavy business taxation are a major reason Pennsylvania is losing residents to other states.

posted by ELIZABETH STELLE | 03:00 PM | 0 comment

JUNE 9, 2011

PA Property Tax Administration 2nd Worst in Nation

This past May, the commonwealth tied for second worse in the nation in state property tax administration, according to the Council On State Taxation (COST). States were evaluated in three main categories with Pennsylvania earning a D-. Only our neighbor to the north, New York, scored worse.

Read more on the COST evaluation here.

posted by JONATHAN HUMMA | 06:14 PM | 0 comment

JUNE 1, 2011

Make the Case to Voters

My letter to the editor in today's Post-Gazette on school tax referendum.

The article "Groups Fighting Changes to School Tax Referendums" (May 25) notes the Pennsylvania School Boards Association's contention that school districts may need to raise property taxes to continue to maintain important educational services. I'm wondering why they can't make this case to voters in those school districts.

Indeed, every other state limits the ability of school boards to raise taxes, most through giving voters say on school budgets or property tax increases. In fact, in states like Ohio, more often than not, voters approve tax increases -- but only when school officials justify their spending to voters.

While the school boards association makes the claim that most spending by districts is done responsibly, it is curious they are going to reporters and state legislators to maintain exemptions rather than demonstrating fiscal restraint to the residents in their own districts. In the five years since Act 1, thanks in large part to the exemptions, only 12 out of 500 school districts have actually held a referendum on property tax increases.

Voters in Pennsylvania deserve the right those in other states enjoy: the final say on all school tax increases.

posted by NATHAN BENEFIELD | 00:12 PM | 0 comment

MARCH 25, 2011

Do School Districts have to Raise Property Taxes?

Following Gov. Corbett's budget, school district officials and the tax-and-spend lobby have cried that cuts to state education spending will force schools to increase property taxes.  Yet this ignores several key factors. 

For starters, property taxes have skyrocketed, even as state aid has increased and with the "property tax relief" from slot machine gambling. Likewise, school districts have hoarded over $2.5 billion in reserve funds.

A study by the Pennsylvania Institute of Certified Public Accounts suggests four ways school districts could save over one billion dollars while avoiding teacher layoffs or tax increases. Their recommendations include cutting administrative staff in half, establishing a central administrative office for each county and limiting administrative and office costs to 4.3 percent of a school district's budget—the ratio found in the commonwealth's most efficient districts.

Additionally, school boards may be soon getting more flexibility from Harrisburg to make ends meet. A package of mandate relief bills introduced by Senate Republicans ranging from allowing economic furloughs to alternative certification of school nurses.  Proposals to change the states prevailing wage law, which drives up the cost of construction (the fastest growing category of school spending), are also in the works. 

Further, if all 500 school districts agree to freeze teacher pay for one year, the commonwealth could save $400 million dollars, according to the Corbett administration. In an economy where many wish they had a salary to freeze, the request seems reasonable and is especially appropriate considering the desire to protect taxpayers from property tax hikes.

In Lancaster, eight local school districts have started down this path set to enact voluntary pay freezes for 900 administrative and support staff saving over $1 million. But only four of these districts are asking teachers to agree to a one year freeze; teachers are scheduled to receive, on average, a 3.6 percent increase in 2011-12.

In contrast, the Conrad Weiser School Board voted to retroactively hike administrative salaries by four percent, and continue annual salary increases.  Gov. Corbett can hardly be blamed for any tax increases there.

Instead, school districts should justify their spending and tax increases to voters, with referendum on property tax increases, another idea Gov. Corbett identified in his budget address.   Our friends at the Allegheny Institute, point out Act 1 of 2006 has failed to provide property tax relief with roughly 12 referendums over the last five years (due to exemptions and a very high threshold). In contrast, Pennsylvania Department of Education data shows 133 districts approved for waivers to raise taxes above the set index for FY 2010-11.

It's time to plug the loopholes in Act 1 and give taxpayers the power to vote on any property tax increase. Such a change would force school officials to demonstrate their need for more tax dollars.

posted by ELIZABETH STELLE | 10:28 AM | 1 comment

MARCH 8, 2011

Chart of the Day: Public School Revenue

The chart below highlights Pennsylvania public school revenue, by source, from 1988-89 to 2008-09 (the latest year with data from the state Department of Education). Over the last 20 years, education spending increased 208%.

Tell me, is the problem a lack of revenue, or too much spending?

posted by NATHAN BENEFIELD | 09:59 AM | 0 comment

FEBRUARY 7, 2011

A Tax by Any Name Should Still Smell Defeat

State Senator Gene Yaw is pitching a new natural gas tax. The idea is to allow local communities to include the value of natural gas in property tax assessments, creating more revenue for the communities where drilling is being done—unlike last year's failed severance tax that attempted to send the majority of the revenue to Harrisburg.

However, state law holds gas companies responsible for unintended consequences of the drilling process such as damages to local roads. Plus, local communities are now generating revenue from the growing economy (hotel taxes, real estate taxes, records fees, etc.). If this is not enough to offset local government's cost, then officials should be working with gas companies to appropriately direct their charitable donations.

We shouldn't be targeting this industry for a tax simply because state and local governments want more cash. We didn't create new taxes targeted at the solar industry when it entered PA. In fact, we give away millions of tax dollars every year to convince renewable energy companies to come to Pennsylvania; meanwhile, the natural gas industry isn't looking for any handouts.

There is no guarantee the natural gas industry will continue to invest in Pennsylvania; Consol Energy recently announced it is reducing drilling in the Keystone State.  Higher taxes haven't brought prosperity to Pennsylvania in the past and certainly won't now.

posted by ELIZABETH STELLE | 00:16 PM | 0 comment

FEBRUARY 7, 2011

Even with Act 1, School Property Taxes Climb

The Patriot News takes a look at the failure of Act 1 of 2006 (special session) to slow the growth of school property taxes. Indeed, since the slots law was passed in 2004 to reduce property taxes, school district property taxes increased by $2.1 billion (26 percent) through the 2008-09 school year. The gambling money may have slowed that growth by about $700 million.

Most obvious is the fact that the Act 1 referendum—requiring voter approval for certain tax hikes—has been an abysmal failure. This is because referendum kicks in only after an "index," which varies based on inflation and other factors, and exemptions granted by the state.

In fact, school districts have asked the state 1,345 times to raise property taxes without seeking the approval of voters. They have been approved the vast majority of the time. Those exceptions range from a few thousand to millions of dollars.

The state has 500 school districts. But in the last five years, voters have had a chance to say yes or no to raising property taxes a grand total of 12 times. Voters said yes exactly once.

To constrain property taxes, voters should have a say in any property tax increase, as is the case in almost every other state. I hate always to say that we told you so, but:

[T]he "back-end" referendum intended to limit school boards' ability to increase taxes is riddled with exemptions that will undermine taxpayers' ability to control future school tax increases.

Amazingly, the school boards association is complaining that under Senate Bill 1, an estimated $50 million might be used for school vouchers. That total (allowing school districts to keep their local property taxes for children they no longer educate) represents a mere 0.2 percent of current school district spending, and only one-fortieth of how much districts have raised property taxes in the last five years without voter consent.

posted by NATHAN BENEFIELD | 10:54 AM | 0 comment