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Property tax elimination, back-end referendum continue to be topics of conversation in state Capitol

Capitolwire: Property tax elimination, back-end referendum continue to be topics of conversation in state Capitol.
Driving those discussions is the fact that two out of three school districts raise taxes every year, most within Act 1 index limits.

By Christen Smith
Staff Reporter

HARRISBURG (Nov.16) — The Act 1 index school districts fear losing as part of a five-month overdue budget deal shields taxpayers from footing the bill for ballooning mandated costs, advocates say.

But it doesn’t prevent all tax hikes — meaning any relief generated by a proposed $2 billion sales tax increase could evaporate in a matter of years, leaving property owners paying more for schools and the things they buy.

“The fear is if we somehow temporarily reduce property taxes that it’s something of a bait and switch game,” said Sen. Dave Argall, R-Schuylkill, who has long pushed for total elimination property tax plans over piecemeal proposals. “And in a few years people would be back to paying property taxes again at the same rate or higher.”

It’s a reality both Gov. Tom Wolf and legislative Republicans want to change, despite the protest from scores of school advocacy groups across the state who say eliminating Act 1 will skyrocket property taxes — or force districts to make “draconian” cuts just to survive.

“Act 1 has done and continues to do what it was intended to do — and it has done this despite the fact that we’ve been seeing some of the steepest increases in mandated costs for school districts, mostly in the form of pension costs, during the same time period,” said Hannah Barrick, director of advocacy for the Pennsylvania Association of School Business Officials. “It is critical that school districts have some ability to increase their revenue annually, as costs, mostly mandated costs, increase every year.”

Neither side of the negotiating table has publicly copped to supporting a back-end referendum that would force school districts to get voter approval for every tax increase, but that hasn’t stopped the state’s Campaign for Fair Education Funding, of which PASBO is a member, from pressuring lawmakers to abandon the idea before it turns into legislation.

“Considering school districts’ current financial conditions, the Campaign for Fair Education Funding considers this idea to be reckless, poor policy, and detrimental to the bipartisan efforts you have engaged in over the past year and a half to establish a rational and predictable basic education funding formula,” campaign members wrote in a letter sent to Wolf and other legislative leaders last week. “It will have long-lasting consequences that will jeopardize the ability of all public schools to provide quality educational service.”

Data compiled through the state Department of Education shows, over the last nine years, two out of every three school districts have raised taxes annually — and many did so within the limits of the Act 1 index.

The index, first established in 2006, is district-specific and varies year to year, falling somewhere between two and three percent for most districts. In the 2015-16 school year, three out of four districts who raised millage rates did so by less than three percent.

Barrick says in the two decades prior to 2006, property taxes increased each year by an average of 6.5 percent. After lawmakers passed Act 1 during a special legislative session, that rate was cut in half. In the last five years, she says, annual average increases have dropped to 2.8 percent.

The situation, however, presents a catch-22 for districts: the Act 1 index is critical for funding costs “beyond a district’s control,” but it’s not nearly enough. In fact, Barrick says, the gap between revenue generated through Act 1 increases versus pension and charter school tuition costs in 2013-14 was about $430 million.

PDE spokeswoman Nicole Reigelman echoed Barrick’s comments, saying 60 percent of districts report raising property taxes every year “as a result of the cuts to education made by the previous administration.”

It’s worth noting, PDE data for the 2011-12 school year shows that, despite an $860 million loss in federal funding, only one third of districts raised their taxes above 3 percent — a rate that could require permission from the state. Some 135 districts in that same year used an Act 1 exemption, which gives districts authorization to raise taxes beyond their assigned index when certain costs, such as pensions or grandfathered debt, far exceed available revenues.

In the stimulus-augmented year of 2010-11, 28 percent of districts increased taxes by more than 3 percent, but only 84 districts used exemptions.

Since 2011, PDE data shows roughly 75 percent of districts haven’t raised millage rates by more than 3 percent each year and the number of districts seeking exemptions has dropped from a 2011-peak of 135 down to 93.

Schools still reeling over the “cuts” — $860 million in federal stimulus money that ran out the year former Gov. Tom Corbett took office — may finally catch some relief if Wolf and Republicans finalize an extra $350 million for education spending in 2015-16, but advocates worry a back-end referendum will undo all of the benefits of the rumored funding boost.

So far though, they are the only ones convinced a budget deal could go through with such a provision intact.

“The governor opposes a back-end referendum without exceptions, but knows we must protect homeowners from future property tax increases while ensuring the legislature meets it obligation to fund our schools now and into the future,” said Jeff Sheridan, Wolf’s spokesman. “At this time, final details regarding property tax relief are still being negotiated.”

Jenn Kocher, spokeswoman for Senate Majority Leader Jake Corman, R-Centre, said while the senator supports protecting homeowners from an eventual uptick in property taxes, “we aren’t sure what form those protections will take at this point.”

Meanwhile, Argall says Senate leadership may bring up for consideration a property tax elimination bill he sponsored in June, Senate Bill 76, sometime this week.

The bill would increase the sales tax to 7 percent and eliminate existing exemptions — similar to what Wolf proposed in March — and raise the income tax to 4.34 percent.

“Any public survey I’ve seen … you give people a choice between a temporary cut and complete elimination, they choose full elimination,” Argall said. “I reminded the governor when was the last time over 80 tax payer groups came to us and said ‘raise our taxes?’ That’s how much people hate the property tax.”

Argall says support is strong for his plan because “this is one area where there is considerable agreement between the four caucuses and the governor.”

“I believe we have the votes we need, but there is only way to find out,” he said.

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