Property Taxpayer Referendum

Good afternoon.  I am Nathan Benefield, Director of Policy Research for the Commonwealth Foundation.  We are a nonprofit, independent public policy research and educational institute based in Harrisburg.  I would like to thank Chairman Benninghoff and the members of this committee for the opportunity to testify on the issue of taxpayer referendum.

Prior to 2006, Pennsylvania was the only state in the nation without any limits on school districts’ power to tax and spend, according to the Education Commission of the States.  Act 1 of the 2006 Special Session attempted to change that.  Combined with the setting the distribution of slot machine revenue for property tax relief, Act 1 provided that school districts seeking property taxes above an “index” must seek voter approval.

Two provisions limited voters ability to actually have a say in school tax hikes-the index was set at a level higher than the rate of inflation, and ten exemptions to the referendum requirement were allowed.   As the details of Act 1 were being worked out, former Gov. Rendell told school boards that pretty much every reason they’d have to increase taxes would be exempted.  His prediction proved accurate.

In the five years since Act 1, only 12 school districts have held voter referendums on tax increases.  (The predecessor to Act 1, Act 72 of 2004, gave taxpayers in only one of the 111 participating school districts the opportunity to vote on proposed tax increases.)

Restricting tax hikes to the base index alone (and for many school districts the index was higher than the base) would have allowed property tax increases of 22% from 2006 to 2011, during which time the Consumer Price Index rose only 11%. Since 2006, 1,345 waivers have been granted by the Pennsylvania Department of Education for school tax increases above the index.

Thus, Pennsylvania remains the only state without real controls over school taxes and spending.

Act 1 was intended to reduce and control school property taxes.  Yet despite a 30% increase in state aid to school districts from 2005 to 2009 and around $700 million from slot machine revenue per year to offset school property taxes, school property taxes have continued to skyrocket.  School district property tax collections increased by $2.1 billion, or $688 per homeowner, from the passage of the slots law in 2004 through 2008, the latest year of data from the Pennsylvania Department of Education-far exceeding both inflation and student enrollment growth.

If not addressed, the consequences of a “referendum-in-name-only” will continue to be felt in coming years. Exemptions for some of the fastest growing costs-including the cost of pensions under the Pennsylvania School Employees Retirement System (PSERS), which are expected to dramatically increase over the next few years-offer taxpayers no real protection against rising property taxes. 

House Bills 1326 and 1383 take an important step giving voters more control over school taxes, by eliminating the referendum loopholes allowed under Act 1.  Combined with mandate relief legislation to give school boards more flexibility in spending, these bills will help control the growth in school spending and property taxes.

Many opponents of real voter referendum for school tax increases claim that voters will always reject increases, and schools will have to make drastic cuts to programs. But the evidence from other states with taxpayer controls on school budgets does not support this view. In fact, it shows that voters are willing to approve school tax and spending increases if and when they are convinced that those increases are worthwhile.

For instance, in Ohio, voters had a say in 1,664 tax issues from 2006 to 2009.  In 54% of these referenda, voters approved these tax increases or renewals.  This trend is consistent with older data from New York, New Jersey, and Michigan, where voters approved more than half of all school budgets, tax increases, or bond issues. Taxpayers have been willing to raise their own taxes when school districts have been able to demonstrate to voters the need for additional tax revenue and fiscally responsible spending.

If a strong voter referendum requirement were in place in Pennsylvania, local school boards would have to make a compelling case to taxpayers as to why a tax hike is necessary or find an alternative way of balancing the budget.  Lawmakers should help Pennsylvania join the ranks of states that give taxpayers the final say on all school tax increases.

In support of this testimony, we are also submitting our BudgetFacts publications on property tax referendum & mandate relief and on public education spending.

I thank you for the opportunity to testify, and look forward to any questions you may have.