"What's black and white and read all over?"

Sunday, May 14, 2006
Posted 11:04 PM by

Taxed reform, patience and credibility in Pa.

TODAY'S ISSUE: TAX REFORM The Legislature failed, yet again, to fundamentally change how Pennsylvania pays for its schools in its fourth attempt at property tax reform in nearly 20 years. There's slots to be angry about.

RANTER'S NOTE: Tuesday is election day in Pennsylvania. To better prepare you for pushing the electronic buttons in a new-fangled voting booth, I've decided to look at an issue each day that you might want to factor into your decisions.

Pennsylvania's method of taxing property to pay the bulk of school districts costs is arguably the worst in the nation and has been getting worse for decades, according to G. Terry Madonna, director of the Center for Politics and Public Affairs at Millersville University.

"No issue quite intimidates politicians, as does the subject of tax reform. They fear it and the wrath of voters should reform be perceived as a tax increase," Madonna wrote in an opinion piece five years ago that's still posted on his Web site at the college.

It's as true today as when he first wrote it.

The state is supposed to pay half of all school district costs. The 501 districts are supposed to pick up the other half with local property taxes, and to a lesser extent, various income taxes.

But as education costs have risen, the state's share of paying them has dropped every year. It's now down to about 36 percent, the Philadelphia Inquirer reported in January. Only Connecticut and Nebraska contribute a smaller share.

Meanwhile, Pennsylvania annually ranks among the highest states in education costs in the nation as new contracts to pay unionized teachers - which account for as much as 60 percent of a school district's annual costs - continually push their average pay higher. The National Education Association now reports Pennsylvania's average teacher salary to be $53,258, while the national average is $47,808.

Pennsylvania is the only state in the nation that does not either restrict its school boards ability to tax or spend, or leave it up to local voters to decide.

"The inevitable result: local property taxes have been going up steadily, and in some cases, sharply, year after year as local school districts are forced to cover more and more education costs," Madonna wrote in 2002. "Politically, state officials are winners by 'exporting' the problem to local government, but policy wise education funding is a mess. It's a classic example of good politics making bad policy.

"... Pennsylvania's population is aging at the same time education costs are rising. The increasing share of education costs are being borne by the property tax at the exact time that aging local tax payers on fixed incomes are less able to pay."

In Pennsylvania, county commissioners set the assessment rates on property while schools have no limit on how their tax rates, known as millage, are applied to those assessments. A mill is a tax of $1 for every $1,000 of a property's assessed value. For example, a homeowner whose house is assessed at $100,000 and taxed at 30 mills would pay $3,000 in property taxes annually.

Despite complaints from taxpayers, many county boards have put off expensive reassessments of the property within their borders for decades - even though over time it produced unfairness in the way newer properties are taxed - in the hope that statewide reform would one day become law and shift the burden away from property taxes entirely.

In 1987, then Gov. Bob Casey tried to do just that.

Casey proposed an amendment to the state Constitution shifting the local tax base from property owners to wage earners. His bill swiftly passed in the Legislature. But the state's Constitution requires that any change in the method of taxing residents must first be approved by voters before it can become law.

The popular governor championed the change, but even he could not prevent the referendum from being shot down in flames - by a four-to-one margin.

"Since then our state political leaders have seemed timid if not downright skittish about the issue," Madonna wrote.

Ten years went by before lawmakers tried again.

In 1997, the Legislature passed Act 50, known as the Homestead Exemption Act. It permitted increases in the earned income tax in exchange for reductions in nuisance taxes and property taxes.

But a year later, only three districts opted to enact it, because the law required districts to get voter approval in a referendum if they wanted to raise taxes in future years.

The issue was shelved again until 2004, when the Legislature passed a bill, S.B. 292 later known as Act 71, legalizing 61,000 slot machines in 14 parlors across the state in exchange for an estimated $1 billion a year in new tax revenue.

The measure was not put to a statewide referendum. Instead, legislative leaders, who took millions of dollars in campaign contributions and lobbying gifts for years from gambling interests, hid the bill from public view.

They merely slid its 145-pages into an unrelated two-paragraph bill before they brought it to the floors of both the House and Senate for votes without any public comment late at night before adjourning for the July 4 holiday weekend.

Anti-casino groups sued, seeking to overturn it. Although the slots bill's passage appeared to violate the normal Constitutionally-required process, the state Supreme Court upheld it.

Common Cause, a bipartisan group advocating good government, is now suing legislative leaders alleging they and Supreme Court justices have been acting in collusion in exchange for a pay raise for all judges in the state. The raise was passed last year along with pay hikes for the legislators and executive branch employees. But voter outrage forced the Legislature to repeal all of the raises four months later.

At the same time the slots bill was passed, the Legislature introduced and voted on Act 72, the Homeowner Tax Relief Act. School districts that "opted in" under the act would get a share of the state's $1 billion from slot machines, if they enacted a 0.1 percent Earned Income Tax (EIT), which in turn would pay for local property tax relief. Each district's share of the slots money would then be used to further reduce property taxes.

The measure promised to curtail property taxes, not eliminate them. But under it, the average property tax bill statewide would be reduced "by an average of $330" a year, Gov. Ed Rendell predicted at the time.

However, to get the slots money, the districts also had to promise that if they needed to raise taxes more than the rate of inflation in future years, the final decision would be put to each district's voters in a referendum.

Fearing their future taxing power would be sapped, only 111 of the 501 school districts in the state opted to take the slots money and put their future budgets potentially at the whim of voters.

Act 72 "is a mess," Senate President Pro Tempore Robert Jubelirer, R-Altoona, told the Pittsburgh Tribune-Review last year. "There's no other way to put it."

The trouble is, property-tax relief was the main justification for legalizing the slot machines, which are expected to begin generating revenue next year. So lawmakers tried tax reform again two weeks ago with H.B. 39.

That bill is similar to Act 72, only this time the school districts are not given any way of opting out.

Each school district would get a share of the slots largesse, but with a catch - they are required to put a referendum on the May 2007 primary ballot asking local voters if they want to switch up to 25 percent of their school district's property tax revenue to either an earned income and net profits tax or a personal income tax.

If voters approve, the district would then be limited in how much it could raise the new income tax based on the increase in statewide wages as calculated by the state and federal labor departments.

By law, the new tax could only climb as fast as taxpayers might be able to pay it.

However, under H.B. 39, the districts would be getting less of the slots money the state receives with which to reduce their millage rates.

Pennsylvania school districts would get less slots money under the proposal the House tabled two weeks ago then they would under a measure that was passed two years ago and rejected by most of the districts.Under a proposal championed by Rendell, about 25 percent of the slots revenue would go to a special property tax rebate program just for seniors who make less than $35,000 a year.

That meant the property tax break for the average homeowner was reduced to about $200 a year. Meanwhile, renting wage earners would be paying a lot more.

On May 2, the measure passed the Senate, 40-9. But House Republicans refused to bring it to a floor vote a day later.

"We can do better than this bill," House GOP leader Sam Smith said after adjourning the session for a month.

 |  0 comments  |  |  RSS Feed | Add to Technorati Favorites

This Week's Rants | The Daily Rant Archives

Creative Commons License
The Daily Rant by Dave Ralis is licensed under a Creative Commons Attribution 3.0 United States License.