The Key to Property Tax Relief

The failure to pass a property tax “relief” plan in Harrisburg has everything to do with politics—politicians can’t agree on whose ox to gore. Current proposals require some taxpayers to “win” and others to “lose,” depending on a family’s income and whether they rent or own a home.

The Hobbesian choice of shifting or raising the property tax burden from one Pennsylvanian to another through higher income or sales taxes is unnecessary. Avoiding it, however, requires policymakers to recognize and address the root cause of escalating property taxes in Pennsylvania—public school spending.

Until politicians find ways to reduce the growth of public school spending, no real tax relief will ever occur in Pennsylvania. Neither Gov. Rendell’s property tax relief law, Act 72 of 2004, nor the repackaged version that may emerge from the current House and Senate Conference Committee will solve the property tax problem because they merely shift and raise taxes.

The good news is that a solution that strikes at the root of the problem is now on the table for consideration. The Commonwealth Foundation has a plan that actually reduces public school spending while providing up to five times more property tax relief than promised under Gov. Rendell’s Act 72. Even better, it does so without shifting or raising any taxes, on any taxpayer!

How is this done?

First, it assumes that Act 71 of 2004 (the gambling law) is here to stay, and will produce $1 billion in tax revenues. Under our proposal, the Property Tax Relief Scholarship Act, this revenue would be used to provide $3,000 scholarships for low- and middle-income students to transfer from a high-cost public school to an alternative school of their choice.

In 2003-04, the average per-pupil expenditure in Pennsylvania was approximately $10,300. Therefore, every child that transfers from a district school to an alternative school using the Act 71-funded $3,000 scholarship effectively saves taxpayers $10,300 in spending. This savings would be required by law to be used for school property tax relief.

Even if no children transfer from public to alternative schools (which is highly unlikely), the Property Tax Relief Scholarship Act guarantees the property tax relief promised under Act 72 as a minimum, and it does so without any tax shifting or tax raising. Under Act 72, every homeowner in Pennsylvanian was promised, on average, $289 in property tax rebates for every $1 billion in Act 71 revenue. However, under the Property Tax Relief Scholarship Act, property tax relief increases as soon as just one child migrates from a public to an alternative school. By leveraging the power of choice for parents and children, the Property Tax Relief Scholarship Act reduces public school spending and lowers school property taxes.

For example, if 10% of public school students in Pennsylvania transfer to an alternative school, the property tax relief increases to $584 per household. If 20% of the public school student population transfers, the property tax relief increases to $1,078 per household—almost four times the property tax relief provided under Act 72, without shifting or raising taxes on families or job providers. The per-pupil expenditure for those students remaining in the public schools is held harmless and remains at $10,300. By leveraging the power of choice forparents and children, the Property Tax Relief Scholarship Act reduces public school spending and lowers school property taxes.

The benefits of the Property Tax Relief Scholarship Act are clear.

• No taxes are shifted or raised on either working families or job providers.
• Homeowners are guaranteed the level of property tax relief promised under the Act 72 of 2004, even if no students use Property Tax Relief Scholarships.
• Property tax relief for homeowners increases with every student that migrates from a district to an alternative school.
• Homeowners could receive property tax relief as great as five times the relief promised under Act 72 of 2004.
• Low- and middle-income families are empowered with the financial ability to choose better or safer schools for their children with $3,000 Property Tax Relief Scholarships.
• Public school per-pupil expenditures are maintained at current levels.

Policymakers in Harrisburg don’t have to make a Hobbesian choice of shifting or raising taxes on Pennsylvanians. But they must decide to reduce public school spending if they are truly interested in providing citizens with real property tax relief. To date, only the Property Tax Relief Scholarship Act promises to do so.

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Matthew J. Brouillette is president and CEO of the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.