By Peter Calcara, Vice President - Government Relations
In late March, Julius Green, PICPA president, signed a PICPA letter sent to newspaper editors across the state detailing PICPA’s opposition to legislation touted as a property tax elimination plan. The so-called “Property Tax Independence Act,” or Senate Bill 76 (SB 76), is once again vying for the attention of state lawmakers. Just last November, the state Senate by a vote of 24-25, defeated a plan similar to SB 76 in the form of an amendment to another bill. The issue is bound to resurface.
Before getting into my discussion about this plan and why it is a horrible idea for Pennsylvania taxpayers, I want to apologize to Julius Green. As a government relations professional for the PICPA, one of my first obligations is to shield our volunteers from messy or unnecessary controversies. As the word suggests, volunteers don’t typically get into the rough and tumble of public policy debates, particularly one so charged as property tax reform. As paid professionals, PICPA’s government relations team are the ones who should take the hits, particularly when an issue has broader implications outside of our core membership base. Julius is the consummate professional with unquestionable integrity and ethics. He did not deserve the vile response oozing from some of the bill’s supporters. Most of those slinging the offensive comment couldn’t hold a candle to Julius or what he has achieved both personally and professionally.
Responses to Julius’s letter from proponents of SB 76 were personal and beyond the pale. If the proponents of SB 76 want to spew from the gutter with personal attacks, that’s their decision. It seems the plan’s proponents believe that they can bully and intimidate people into believing their rhetoric if they just scream a little louder than anyone else in the room, and to hell with the facts. Though being a bully seems to be popular in today’s political arena, when it comes to issues as important as this – transforming the taxing structure for our schools – good people and good organizations have to take a stand. The PICPA has an ethical obligation to not only the profession but to the public to stand up and voice our objections to this destructive and ill-advised piece of legislation.
The facts are the facts, and no amount of spin can turn really bad legislation into good public policy. The facts do not support what proponents of SB 76 are trying to sell. As PICPA stated in our letter to newspaper editors, the plan would not eliminate all school property taxes as advocates claim. Under SB 76, taxpayers in school districts with current debt would continue to receive a property tax bill until that debt is completely retired. Only 8 of Pennsylvania’s 500 school districts have no debt. The other 492 school districts have a total debt burden of about $25 billion! That’s billion with a “B”! So if you live in one of the 492 school districts with debt, you would continue to receive a school property tax bill for years.
Some SB 76 proponents acknowledge that the plan won’t immediately eliminate property tax, but with the caveat that property tax bills will only cover a school districts debt obligation, “typically 10 percent.” Nothing in SB 76 says that your property tax bill will be limited to “10 percent” of what it was the year before. Nothing. We are not sure if that is a “best guess” or merely wishful thinking. Of course, you will still get a county property tax bill and an earned income tax bill to pay, unless your school district decides, with voter approval, to levy a local personal income tax or net profits tax, which school districts will be permitted to do under SB 76.
What proponents fail to tell you is how they plan to make up the $12 billion to $14 billion revenue gap that would appear when property tax revenue is removed. Let me try to explain. First, your personal income tax would likely increase by more than 60 percent, from 3.07 percent to 4.95 percent. It will probably have to be higher if this legislation is ever passed into law, but the proponents thought they had to keep the rate below 5 percent for political expediency, as if a 60 percent increase wasn’t shocking enough.
That’s not the end of it. Every time you go to purchase something in state you will have to pony up 17 percent more because SB 76 would increase the state Sales and Use Tax from 6 percent to 7 percent for most Pennsylvanians. Sales taxes in Pittsburgh and Philadelphia would be even higher, and we would have some of the highest sales taxes in the nation in our two largest cities. If SB 76 passes you would also pay sales taxes on a range of new products and services (the bill adopts the North American Industry Classification System’s list of about 2,000 new taxable services) used in everyday life, including new taxes on food, diapers, legal services, daycare, public transportation, advertising and public relations, and cable TV, as well as fees on museums and historical sites, behavioral health and substance abuse services, and developmental disability and vocational rehabilitation services. The new tax will also fall on personal hygiene products, textbooks, nonprescription drugs, home health care services, nursing care and assisted living facilities, and funeral services and caskets. The sales tax will also be expanded to include accounting services. Though cynics will try to make this the key reason why we oppose this legislation, that’s simply not true. While we oppose taxing accounting services for a host of reasons, that is not the driving factor in our opposition to SB 76.
This isn’t empty rhetoric; these items are in the bill. And the dire predictions are not just ours. Let me highlight an Independent Fiscal Office (IFO) study of SB 76 from 2013. IFO states in its report that SB 76 would have “a negative net fiscal impact” on school district funding in Pennsylvania. In fact, the report says the plan would result in a $1 billion deficit for public schools, and a “simulation of the proposal using 11 years of historical data from FY 2002-2003 to FY 2012-2013 confirms this general pattern.”
Net Fiscal Impact of House Bill 76 / Senate Bill 76
(Fiscal years, $ in millions)
Education Stabilization Fund
Net Fiscal Impact
* Includes the impact of replacing property taxes for all school districts and eliminating nonproperty taxes levied to fund the School District of Philadelphia.
**Includes the impact on the General Fund and special funds.
Source: IFO's "Analysis of Proposal to Replace School Property Taxes: House Bill 76 and Senate Bill 76 of 2013"
In other words, SB 76 is not “cost control,” it’s a type of funding arson for school districts. SB 76 also will likely jeopardize school funding certainty by relying on more volatile sources of funding tied to personal income and sales tax revenue which can drop significantly during a bad, or even a weak, economy.
Moreover, a recent report provided by IFO to the House and Senate appropriations committees states that over the next decade (2015-2025), Pennsylvania’s working age population will contract by roughly 222,000 residents. In addition, over the same decade, the number of retirees will increase by roughly 673,000 residents. Pennsylvania does not tax retirement income, so the burden to fund schools through SB 76 will fall disproportionately on the young and working class.
Finally, let me be clear: the current system for funding public education does need to be addressed by the General Assembly. It needs to be fixed, but throwing out a predictable and reliable source of funding for a volatile one that won’t provide the same level of funding is simply a horrendous idea. There must be a reasonable and equitable balance between revenue sources. The growing burden of school property taxes is a big concern, but lawmakers first need to address the major cost drivers in the system, including pensions and the absence of a prevailing wage index, before looking at a massive restructuring of Pennsylvania’s local school funding system.