Lancer Letter – Property Tax Reform

Submitted by Richard Scaletta, GM School District

Two words that make many people cringe are “property taxes.” For decades, there have been complaints that property taxes are unfair and unnecessarily burden property owners. So from time to time, there have been proposals to reduce or eliminate property taxes. Now is one of those times.

Senator David Argall is pushing a bill to eliminate school property taxes. His bill would totally eliminate property taxes in all schools districts except those districts with debt – which is all but 8. The other 492 school district would still have some degree of property taxes to cover their existing debts but the only revenue that could be raised by property taxes would be just enough to cover the debt payments.

Currently across the state, 14 billion dollars from property taxes are collected for education. Argall proposes to replace those dollars with increases in income and sales tax. Our income tax (currently lowest in the nation) would increase from 3.07% to 4.95%. Sales tax would increase from 6% to 7% and expand to include food and clothing.

Argall claims that with the Republican majority in Harrisburg, now is the time get this passed. He claims Governor Wolf would be foolish to veto the plan and be the only one to stand against it. But there are many problems with his plan.

Currently of the 14 billion in property taxes collected for education, 2.7 billion is paid by business properties. One criticism of Argall’s plan is that the citizens would be making up this 2.7 billion through their income and sales tax while businesses get a free ride.

There will be big winners and losers in this proposal. Fifty-nine percent of school districts will send more money to Harrisburg than they get back in property tax relief. General McLane is one of the school districts. Whatever you save in property taxes will likely be surpassed in what you pay in income and sales tax. Locally, only the Fort LeBoeuf, Conneaut and Iroquois School Districts will come out ahead. In 318 school districts, taxpayers will also lose their federal tax deduction for property taxes and thus pay more in state and federal taxes.

In Senate District 50 of which we are are part, taxpayers in 20 of 23 school districts will pay more in income and sales tax than they currently pay in property taxes. Also in this senate district, 18 of 23 school districts will continue to pay 20% or more of their property taxes.

The challenge for school districts with the elimination of property taxes of course is that we will be totally at the mercy of Harrisburg. (Gulp!) We won’t know how much money we will be getting until they adopt a budget which we have seen many times is well into the fiscal year. In my opinion, which is closely related to fact, this proposal will be a disaster for GM and for most districts throughout the state.

All this talk of property tax elimination is against a background of growing structural debt for the state. The state’s independent fiscal office predicts that if spending and revenue continue on the same course between now and June 2018, there will be a 2.8 billion dollar deficit in Pennsylvania. Ironically, much of the reason for this debt is because the Republican majority has been categorically opposed to “broad based tax increases.” (Yes, income and sales tax are broad-based.) So, the 16-17 budget was balanced with overly optimistic projections and nuisance taxes on cigarettes and other items. The repeated use of one-time stopgaps to plug deficits drew five credit downgrades from 2012 through 2014, leaving Pennsylvania among the lowest-rated states and paying higher rates to borrow money.

I am not totally opposed to the curtailment of property taxes. When Governor Wolf proposed his first budget, it included a proposal to do so. As I explored that proposal, it was well conceived, keeping some control with districts as it carefully shifted taxes more toward those making over $100,000 per year. I thought it was brilliantly designed but it did not even get a hearing in the legislature.

The financial future of Pennsylvania and its school districts is not pretty. Quite frankly, it is quite a mess. The legislature won’t address the major issues of out of control pension and charter school costs but seem to want to cloud the waters with poorly conceived plans that really do not improve much.

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The Lancer Letter is a weekly editorial by Richard Scaletta, Superintendent of Schools, General McLane School District. Opinions expressed are Mr. Scaletta’s views on the issues and subjects of discussion, and not necessarily those of EdinboroOnline.com or our sponsors.

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