Prospect of property tax elimination is not what it seems

(Chambersburg) — If you are a taxpayer looking forward to property-tax elimination becoming reality, curb your enthusiasm. 

Even if a planned voter referendum passes this fall and the stateLegislature does away with school taxes, it doesn’t mean property owners will stop paying all school taxes immediately.

Taxpayers in all but one of Franklin County’s six school districts would still have to pay property taxes to finance their district’s long-term debt, even if that tax would be at a much lower rate than today’s school tax.

And a pending Pennsylvania Senate bill — The Property Tax Independence Act — calls for increasing personal income and sales taxes as replacement revenue for school districts.

It would also allow the districts to continue to levy property taxes for a time — years in most cases — to pay off outstanding debt. 

In Franklin County, where school board directors object to the bill on the premise that it would take school funding out of the hands of local school boards and put it in the hands of state bureaucrats, it would mean taxpayers in all but tiny Fannett-Metal School District would still pay some real estate taxes for at least the next two decades.

Fannett-Metal is carrying no outstanding long-term debt.

In the other five districts, taxpayers would see their property tax bills drop to between 13 and 21 percent of what they paid this year, but not entirely go away.

Examples of districts’ debt and when it is expected to be paid off are:

• Chambersburg Area School District, $147 million, paid off in 2037
• Waynesboro Area School District, $64.5 million, paid off in 2039
• Greencastle-Antrim School District, $29.5 million, paid off in 2034
• Tuscarora School District, $32 million, paid off dates not provided by district. 
• Shippensburg Area School District, $29.5 million, paid off 2029

School taxes have been the bane of property owners for decades. It was 20 years ago when a constitutional amendment limited school property taxes to 50 percent of the median value of homes in the district.

In the years since, there have been arguments, debates and unsuccessful legislative attempts to further limit or eliminate school property taxes.

The referendum question is the result of proposed constitutional amendments in the General Assembly in 2016 and 2017.

The November general election referendum will ask voters if the Pennsylvania General Assembly should be given the authority to amend the state Constitution to entirely exclude the taxation of residential properties.

Should the tax independence act become law, districts would still be allowed to collect lesser percentages of property taxes to put toward the pre-existing debt payments.

Those percentages vary widely, according to the Pennsylvania Association of School Business Officials.

In Franklin County, those percentages would run from zero percent to up to 21 percent. Current millage rates run from 80.35 mills in Fannett-Metal School District to a high of 119.1478 mills in Tuscarora School District.

Even if school taxes are eliminated, they would have to be replaced with some other type of tax, something proponents say would spread the tax burden more evenly.

Proposals for financing schools, should the property tax be eliminated, include a higher sales tax and increasing the state income tax.

The higher sales tax also would be imposed on a number of goods and services that currently are untaxed, including: food; clothing and shoes over $50; non-prescription medications; funeral expenses; diapers; child care services; trash collection; public transportation; newspapers and magazines; flags; horses; textbooks; candy; gum; and telecommunications (cellphone plans).

Money collected from those increased tax rates would not go directly to the school district. Instead, it would be collected by the state, which then would distribute it to the districts through the Education Stabilization Fund.

And that is what most school boards object to, claiming it would tie their hands and put the fate of local schools directly in the hands of state bureaucrats. 

The elimination of property taxes does not include or change property taxes levied by municipalities or the county.

Reasons it will work

From a variety of sources, including the Pennsylvania General Assembly and grassroots taxpayers groups, here are five reasons why supporters of property tax elimination say it will work:

• Funds distributed by the commonwealth would be at a one-for-one rate for each district, meaning no district will see a reduction in funding. 
• Taxpayers who see a reduction in property taxes would see increases in their disposable income. The reduction offsets the higher sales tax.
• Inability to pay school property taxes will not result in home foreclosures.
• The state will assume responsibility for school funding regardless of district taxpayers’ ability to pay. Proponents say that will bring financial equity to school districts.
• Elimination of the property tax removes financial pressure on seniors and retirees living on fixed incomes.

Reasons it won’t work

Opponents of the switch from property tax to personal income and sales taxes for school funding — largely people and groups with ties to education — predict a myriad of problems just as dire as ever-increasing property taxes.

• With the state collecting and distributing funding, there will be disparity in the distribution. School districts in Allegheny, Bucks, Chester, Delaware, Montgomery and Philadelphia counties have the highest property taxes, and in the one-to-one replacement funding promise, these districts will receive the lion’s share of the funding. Local tax dollars from increased income and sales taxes will not go to local school districts.
• Taxpayers in districts with high debt will see the money they pay for taxes rise as they continue to pay a percentage of property tax to pay off school debt and also pay the increased personal income and sales taxes.
• School districts that need to expand or encounter unexpected expenses will have no ability to generate revenue through property taxes.
• Personal income and purchases of taxable items rely on the health of the economy. An economic downturn or depression could significantly affect the amount of money available for distribution to schools.
• The personal income tax rate is increased from 3.07 percent to 4.34 percent and the sales tax is increased to 7 percent, creating a financial hardship on the middle class.

The public notice issued recently by the Secretary of the Commonwealth announcing the proposed constitutional amendment on property taxes does not address the increase in sales and personal income taxes. 

The half-page notice, in fact, makes no mention of what would replace property taxes as the primary source of school funding.

It does, however, include the referendum question as it will appear on the November ballot throughout the Commonwealth.

The question reads: “Shall the Pennsylvania Constitution be amended to permit the General Assembly to enact legislation authorizing local taxing authorities to exclude from taxation up to 100 percent of the assessed value of each homestead property within a local taxing jurisdiction, rather than limit the exclusion to one-half of  the median assessed value of all homestead property, which is the existing law?”

If a majority of voters can negotiate their way through the question and approve it, the constitution will be amended to prohibit school property taxes.

This article is part of a content-sharing partnership between WITF and Public Opinion Online.