The Legislative Solution
A Plan that makes sense for Pennsylvania
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INTRODUCTION
There is no “Holy Grail” of property tax reform. Any property tax reform measure will involve shifting the tax levy from one type of tax to another – there’s no free ride. But there are ways to fund our schools and to ensure a better education for our children that are fairer and more effective than property taxes.
Many Pennsylvanians lose their homes and a lifetime’s work to sheriff’s sales each year because they can no longer afford to pay their property taxes. Senior citizens on fixed incomes are increasingly forced to sell their homes because of unrelenting increases in their tax burden. Young families cannot afford to purchase a home because the per month property tax escrow is simply too high. School districts in areas of the state with limited population and no commercial tax base are in distress and are unable to afford to give their children a quality education.
A sensible, broad-based, statewide and state-administered funding source is needed to end these educational inequities, eliminate an antiquated and regressive property tax system, and to return home ownership to the homeowner instead of allowing the government to effectively own our homes.
THE BOTTOM LINE: Our current system of school funding is crumbling. This decay has been occurring for many years and continues to escalate. Home foreclosures are occurring at an incredible rate and the new home market is at a standstill. This will have major implications for districts statewide. It can no longer be ignored or diminished.
THE SOLUTION AND HOW IT IS FUNDED
The PTCC and PCTA support House Bill 1275, The School Property Tax Elimination Act (SPTEA), House legislation that will eliminate all school property and nuisance taxes across the Commonwealth and will fund all Pennsylvania schools from a single state source.
HB 1275, the School Property Tax Elimination Act, introduces a modernized school funding plan based on 21st century economic realities.
- The SPTEA will ABOLISH the school property tax on all homestead/farmsteads
as well as eliminate all local school nuisance taxes, local school EIT,
and other ACT 511 taxes imposed by school districts.
- School property tax elimination will be accomplished via a four year
phase out of school property taxes at a rate of 25% per year.
- The SPTEA utilizes our current sales tax mechanism to fund schools,
restoring the original intent of the tax. Unlike the former House Biill
1600 and House Bill 1489, the School Property Tax Elimination Act does
not increase the rate but maintains the current rate of six percent.
- The sales tax provides a predictable and stable funding source that
is tied to economic growth. This is in clear contrast to the school property
tax which was not based on economic growth and was subject to much variation.
The SPTEA’s
revenue sources are twofold:
- Broadens the base of the state sales tax to include more services and purchases at the current rate, but does not raise the rate above six percent. Items exempt from the sales tax are listed in the chart at the left.
- Eliminates the local 0.5% EIT and nuisance taxes and increases the
state income tax by 0.85%, from 3.07% to 3.92%. Because of the elimination
of the local 0.5% EIT, the effective net increase in the state income
tax is 0.35%.
Note that neither of these taxes are particularly burdensome by themselves
but, taken together, provide the funds necessary to support all Pennsylvania
schools. Further, the SPTEA will more equally distribute the cost of school
funding across all of Pennsylvania’s population, rather than just
depending on taxing homeowners.
THE DISTRIBUTION TO THE SCHOOLS
The School Property Tax Elimination Act is historic in that, for the first time, Pennsylvania schools will be fully funded.
- All schools will be held harmless, providing financing at current levels.
- The legislation establishes an exclusively dedicated Education Operating
Fund (EOF) separate from the General Fund into which all sales tax revenue
would be deposited and from which schools would be funded.
- Equity in schools is guaranteed because the state assumes the responsibility
of school funding. Each school will receive the resources it needs regardless
of the local ability to pay. This solves the funding problems faced by
rural, urban and fast-growing districts.
- In addition, the first 50 percent of gaming revenue is dedicated to
enhancing the addressing of the equity issue in rural, urban and fast-growing
districts.
- Eliminates unfunded mandates.
Schools will receive their funding directly from the state. Initially, the SPTEA will fully fund the districts at their current per-pupil level. The SPTEA then will provide upward equity adjustments to bring less affluent districts to a statewide per-pupil benchmark level without reducing funding to other districts, thus leveling the playing field between wealthier and poorer districts. All students in Pennsylvania, regardless of their location or their area’s economic condition, will have the opportunity for a quality education.
In addition, the School Property Tax Elimination Act of 2007 completely eliminates the taxing ability of local school boards. The only exception will be a possible local EIT for major projects such as new school construction, and that will be subject to a no-exemption taxpayer referendum.
SPENDING CONTROLS
Current school spending regularly exceeds tax revenue and the School Property Tax Elimination Act of 2007 addresses it head on.
- The problem is not about simply providing the schools with more money.
A need for more cash is not the problem.
- Under the first phase of the SPTEA (Years 1-4), all districts will begin
held harmless in that they will initially receive 100% funding sufficient
to meet all financial obligations and will be established at a per student
expenditure level per district. Initial funding will receive adjustments
for changes in enrollment as well as yearly base increases indexed to
the rate of inflation.
- Under the second phase of the SPTEA, all districts will integrate locally-driven,
state of the art performance and evaluation methods to improve spending
efficiency and academic performance. The savings that accrue as a result
of this widely-used Data-Driven Decision Making
(D3M) technology belong to the school district to
use as desired. This is first time that Pennsylvania schools will be given
the tools to conduct regular, ongoing performance analyses.
- If a district desires additional revenue, they can present a ballot
referendum to the voters of their district to raise additional revenue
by either an earned income tax or a personal income tax. However, property
taxes will not be able to be re-instituted to raise revenue.
CONSTITUTIONAL AMENDMENT
School property taxes need to be prohibited from ever being imposed on Pennsylvanians again.
- Companion legislation to the School Property Tax Elimination Act provides
for a constitutional amendment which GUARANTEES that, once eliminated,
school property taxes would be gone forever and that a future legislature
could never re-institute the taxing of our properties.
- In addition, the amendment would reduce commercial and non-homestead
property taxes by 50 percent and then cap them at that rate.
A list of Frequently Asked Questions (FAQs) about
HB 1275, the School Property Tax Elimination Act, is available
here.
NEW! Calculate your taxes under the School Property
Tax Elimination Act. Click here.
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