Eliminating the school property tax is critical to the economic survival of Pennsylvania and its citizens.
The commonwealth’s voters agree. In November 2017, they approved, by a substantial margin, a constitutional amendment that gave lawmakers the power to rid the state of this regressive tax by legislation.
Where do things stand? In August, after months of study and seeking co-sponsors, I introduced House Bill 13, which would eliminate school property taxes 100 percent for all properties. The objective is simple enough. The tricky part is implementation and finding replacement revenue.
I have spent more than 40 years as a certified public accountant and expert in helping organizations avoid bankruptcy, yet I have never encountered a more complicated problem than eliminating property taxes in Pennsylvania.
That’s because our current system of taxation and funding schools is so fundamentally flawed that even minor fixes to peripheral elements of the system may have significant unintended consequences.
Let me introduce you to two terms that make eliminating school property taxes almost impossible: “funding formula” and “hold harmless.”
The “funding formula” is how the commonwealth allocates state funds to the school districts. And it has two in operation, a “new” funding formula and an “old” funding formula.
“Hold harmless” is a provision of the funding formula that guarantees a school district will receive no less from the state than it would have received in the 1970s and ’80s. Basically it means that well over half the school districts get more than they should from the state, giving property tax relief to those citizens, while other school districts get far less, which means that those property owners pay far more in property taxes for the same home than others in a “hold harmless” district.
I have never encountered a more complicated problem than eliminating property taxes in Pennsylvania.
Despite these obstacles, we must act to put Pennsylvania on firmer financial footing. The long-term trends are not in our favor. Consider the “graying” of Pennsylvania. The Independent Fiscal Office’s five-year outlook notes the state’s declining population of citizens under age 60 and its significantly increasing population of those over 65. Seniors for the most part don’t pay income taxes and too many younger people are leaving the state. The consequences for the state budget could be disastrous.
We must take decisive action now to reform our tax policies for working families, seniors, businesses, and school districts.
Prior efforts to eliminate property taxes have not been successful for a number of reasons, including:
- The proposed replacement taxes went to the commonwealth instead of localities.
- The impact of property tax elimination on people who rent.
- The perceived lack of stability in school funding with the replacement taxes.
- The expansion of the sales tax base was problematic for some powerful stakeholders.
- The proposed replacement taxes were directed predominantly at working families.
HB-13 addresses these issues and provides for an orderly phase in so that schools and communities can adapt to a new system with no major disruptions to the educational opportunities of our students.
The bill would be revenue neutral, providing a dollar-for-dollar replacement of about $15 billion raised through local property taxes statewide. That revenue would be replaced by a 1.85 percent local personal income tax and a 2 percent local addition to the sales tax – both going directly to local school districts.
HB13 also includes a 4.92 percent retirement income tax – Social Security would be exempt – with 1.85 percent of that going to districts. The rest would go into the state’s general fund to ensure that all school districts receive the amount of funding they received under the property-tax system. Any leftover money from this tax would go to senior programs. We estimate that, under this proposal, seniors would pay $1.4 billion in income taxes instead of the $3.4 billion they currently pay in property taxes.
In addition, landlords will be expected to lower rents by the amount of property taxes saved – unless they didn’t raise rents when property taxes increased – and the bill sets aside $500 million to assist school districts that experience financial distress.
I have talked to as many stakeholders and taxpayers as possible, and worked hard to craft a bill that spreads the burden of school funding equitably. And I am very much open to further amendments.
Eliminating school property taxes isn’t easy, but it is critical to the long-term financial health of the commonwealth. We cannot afford to get this wrong.
State Rep. Frank Ryan represents the 101st District. He is a retired Marine Reserve colonel and a CPA who specializes in corporate restructuring. Learn more about his property tax elimination plan at www.repfrankryan.com or contact him at firstname.lastname@example.org.