“Back-End Referendum”: No Taxpayer Protection

The recent enactment of Special Session Act 1 of 2006, the so-called “Pennsylvania Taxpayer Relief Act”, came as a disappointment to taxpayers throughout the Commonwealth who are fed up with increasing school property taxes. When given the opportunity to tighten the “back-end” referendum provisions that existed under Act 72 of 2004 (the previous law that was to distribute the gambling tax revenues), the legislature instead broadened the exemptions and enabled school districts with the power to circumvent voter referendum and continue to increase spending without hindrance.

Like Act 72, this law represents a weak attempt at curbing school spending through voter referendum. Certain proposed property tax increases that exceed a district’s so called “inflation index,” which ranged from 3.9 to 6.5 percent in 2006, would have to be approved by voters. While this sounds like an excellent solution, Act 72 gave taxpayers in only one of the 111 participating school districts the ability to vote on proposed tax increases.

The façade of voter control of school property tax increases is twofold. First, the “inflation index” allows many districts to increase property tax rates substantially without voter consent. The “inflation index” varies by district and gives school boards generous leeway to increase spending well above traditional measures of inflation, without facing referendum.

Second, Act 72 provided ten spending exceptions for which school districts could avoid voter referendum. These loopholes allowed many tax increases to occur without voter input. In fact, 26 of the 111 school districts that opted into Act 72 submitted budgets greater than the “inflation index”, but only one district was required to hold a voter referendum, as all the others were exempted.

These flaws remain in the new legislation. A lengthy list of loopholes and a hefty inflation index will allow districts to avoid the ballot box and leave voters helpless in the face of major spending and tax increases. Throughout the Commonwealth, property taxes will continue to rise and further burden taxpayers.

In the State College Area School District, the new mandate started a spending race. The school board’s effort to pass a $102 million construction plan in advance of the implementation of referendum could lead to bloated budgets for years to come. Why? Because paying off debt that was incurred before the implementation of Act 1 is exempted when future tax increases are considered. The expensive proposal has created a massive public outcry, but the ultimate decision is in the hands of State College’s nine-member school board, not the taxpayers. If the building plan faced voter referendum, its future would be uncertain.

Statewide, it appears that tax increases over the next three years will far exceed any expected relief in 2008 or 2009. A 5% annual increase in property tax rates—the average cap for school districts in 2006—represents $1.5 billion in increased revenue from 2005-06 to 2008-09. Many lawmakers from both parties—whether they voted for or against the bill—acknowledge that Act 1 was a compromise, and that they desired something more substantial. Yet taxpayers and homeowners will continue to suffer until lawmakers give them real control over tax increases.

Pennsylvania’s school boards exercise far more taxation power than their counterparts in other states. According to the Education Commission of the States, Pennsylvania is the only state that places no practical limits on the taxing and spending power of school boards. Yet Pennsylvania’s only limit on local school boards is the new token referendum, which most school boards will be able to avoid even while hiking property taxes.

The Pennsylvania Taxpayer Relief Act merely serves as a Band-Aid for Pennsylvania’s property tax crisis. Rather than confronting increased school spending, the recent legislation offers voter referendum with no teeth and no way to control the spending explosion that is taking place in our school districts. Sound property tax relief in Pennsylvania will not become a reality until school spending is substantively restrained by empowering taxpayers with a vote on any and all tax increases. Only when we give control back to the people who pay the bills will relief come to Pennsylvania homeowners.

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Mary F. Yoder is a Research Intern with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, non-profit public policy research and educational institute located in Harrisburg, PA.