Building Excise Fees are Not Property Tax Relief

Henry David Thoreau said, “There are a thousand hacking at the branches of evil to one who is striking at the root.” In Pennsylvania, that “evil” is the school property tax. But instead of being the one striking at the root, Rep. Stephen Maitland (R-Adams) has added his name to the hacking thousands with his introduction of House Bill 2564.

House Bill 2564 would allow municipalities and school districts in so-called “growth counties”—defined as Pennsylvania counties with population growth rates of 0.75% or higher in each of the preceding three consecutive fiscal years—to impose “building excise fees.” These would be new taxes on new residential development, as well as some commercial development. Farm and government construction, along with projects deemed by politicians to be in the “public interest,” would be exempt. In addition, “growth counties” would be able to levy an additional 1% realty transfer tax, with the new revenue split between the county (to fund farmland and open space preservation) and school districts, and municipalities would also be given the power to impose temporary moratoriums on new development.

According to Rep. Maitland, his proposal will help Pennsylvania’s high-growth areas address the costs associated with new development, encourage a more even distribution of growth throughout the state, and help revitalize town centers. He also hopes that by forcing new development to provide “cash in hand” to municipalities and school districts, current residents will not experience “automatic” tax increases for new school construction and other public services.

However, it is not likely that things will work out that way. Artificially increasing the price of housing in Pennsylvania’s few prospering areas (just 17 of the state’s 67 counties currently meet the bill’s definition of “growing”) will do nothing to impact the factors that are causing their relatively rapid population growth, and it will not guarantee any downward pressure on school property taxes.

One of the reasons that Pennsylvania has any “growth counties” to speak of is the fact that people are moving to rural and suburban communities for a number of economic and social amenities that they are increasingly unable to find in urban areas. Affordable housing is at or near the top of that list. A number of Pennsylvania’s border counties have seen an influx of new residents from the District of Columbia, Baltimore, and New York metro areas seeking more reasonably priced homes—all of these areas were rated as “severely” or “seriously” unaffordable by the Demographia International Housing Affordability Survey: 2006. Maryland, in particular, has a reputation as a state in which government-imposed growth controls—including “building excise fees” imposed by some counties—have contributed significantly to a lack of housing affordability.

While Rep. Maitland argues that his proposed “building excise fees” might help slower-growing Pennsylvania counties attract development, forcing growth from one area of Pennsylvania to another provides no net benefit to the state as a whole. Policymakers concerned about the availability of “affordable housing” should focus their energies on addressing the core issues that make large and small urban areas less attractive to potential residents (high crime, high taxes, poor schools, etc.). Increasing the costs of moving to “growing” areas does nothing to solve these problems.

As for preserving farmland and controlling school taxes, solutions superior to “building excise fees” also exist. For instance, reducing or eliminating Pennsylvania’s inheritance tax would lessen the pressure farmers feel to sell their land to developers, rather than pass it along to future generations.

Finally, no meaningful school tax relief will ever be possible in Pennsylvania without first addressing the uncontrolled school district spending that drives property tax increases. Pennsylvanians must be given a direct say in school district taxing and spending decisions via referendum—the same power that, in some fashion, taxpayers in 49 other states already have.

The answer to Pennsylvania’s public policy challenges will not be found in increasing taxes on new homes or placing restrictions on individuals’ freedom to live and work where they like. House Bill 2564 is just another one of the many proposals hopelessly hacking at the branches of the school property tax problem. Only when policymakers commit to reducing school spending will they begin striking at its root.

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Grant R. Gulibon is a Fellow with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, non-profit public policy research and educational institute located in Harrisburg, PA.