Sales taxes could replace property taxes for school funding
By Eric Boehm | PA Independent
HARRISBURG — State Rep. Jim Cox, R-Berks, is the chairman of a pair of legislative panels trying to address property tax issues in the state of Pennsylvania.
Cox is leading the House Republican’s property tax reform team with state Rep. Seth Grove, R-York, and he has formed a bipartisan property tax caucus of 92 lawmakers who want to focus on changing the system in some way.
Cox is critical of property tax reform efforts made by the state in 2004 and 2006. He sat down with PA Independent on Thursday to discuss the failures of those efforts, his new plans for reforming property taxes and how the issue will affect the upcoming state budget battle.
What is your property tax caucus working on right now, and when can we expect to see this become a legislative priority?
A lot of the new Republicans in the House ran on property tax elimination or relief and they want to do something substantive to address this issue in their district. Because of that, we’ve got a lot of people that know that there is a problem, but as we began our discussions we discovered that a lot of them didn’t know the full range of details on how deep the problem goes.
At this point, we’re educating our members on how vast the problem is because you can’t address the potential solutions for a problem unless you fully understand the problem. And I think that’s part of the reason why, perhaps, this issue hasn’t been addressed in previous years.
Our hope is to follow this up with some additional meetings that essentially will lay out the cost drivers and talking about what is forcing school districts and school boards to raise property taxes. They say unfunded mandates — OK, show us what they are.
We know nothing is going to happen on this until after the budget. This fall is when we expect to see something moving on this issue. We’re laying the framework for where we need to head.
Property taxes seem to be an issue everywhere. From what you’ve looked at — geographically — is this a bigger issue in rural areas or suburban areas or urban areas?
In areas of strong commercial growth, property tax collections might go up, but that doesn’t always mean that property tax rates and millage rates have gone up. But it’s a pretty fair assessment on many levels, and if you look at the map of where the tax collections have increased, you do see obvious areas where there has been commercial growth, but by and large you’ll see it where there have been school district spending increases.
If you want to reduce or eliminate property taxes, you’ll have to find another way to fund the school districts in the state. How do you propose to do that?
We could take the existing sales tax base, where there are existing goods and services, and try to utilize a percentage increase to generate revenue for property tax relief. And then there is the more controversial approach, which would be expanding the sales tax to reach out and grab goods and services that previously haven’t been taxed.
What’s the rationale for replacing a property tax with a sales tax? What makes one tax better than another?
Sales tax is more fair because you’re tapping into the people who are not currently paying their pro-rata share.
There’s just not a good pro-rata way to break it out. Renters just are not paying their fair share. The single family home gets hit harder. Many times they don’t have kids or they might have one kid, while another place might have four kids or six kids and they are paying the same amount.
When you have a larger family, you’re going to buy more food and clothing and consumable goods. You’re going to use more services than you would if you’re a senior or someone who doesn’t have children. So that’s the fairness model in the nutshell.
One of the major efforts on property tax reform was the Gaming Act in 2004, which promised
property tax relief from revenue at slot machines. What is your assessment now of the Gaming Act and the relief that was promised through it?
In many cases, that relief has been outpaced by local property tax increases.
From 1998-99 to 2008-09, state funding for Pennsylvania schools increased by $3.65 billion. That’s a 66 percent increase. The rate of inflation across that same time period was 30 percent. Property taxes, local funding efforts, have gone up by $4.77 billion, which is 77 percent.
Breaking that down, for every dollar we gave them from the state, they were raising $1.33 locally.
Everyone wants to say, get the state’s share back up. Well, we’ve clearly increased it more than double the rate of inflation, but they are outpacing us at almost two and a half times the rate of inflation. How can we possibly have the state share be anywhere near what they are raising locally?
The other major property reform effort was Act 1 of 2006 — which prevents school districts from raising property taxes above an index calculated annually by the state, unless the district applies for an exemption to the law. How do you assess that law five years later?
It’s a colossal failure. We didn’t require them to do anything, because it was all left to what the school boards wanted to do. Everything was just voluntary and then we had exemptions the size of a Mac truck, where any solicitor right out of law school who had failing grades and barely passed the bar exam could find an exemption.
Then we found that many exceptions were filed for and never even used. Part of that was because you had a February deadline for filing for exceptions and you don’t even know what you’re going to get until July, many times.
When you don’t know what your funding is going to be, they went out and asked for exemptions — just because.
When you look at that, say, is it providing any relief? Arguably no, because we’ve found that school districts often just raise their property taxes to the index every year knowing that someday they might have to seek the exception and actually use it. So to avoid a big tax increase, they just max it out every year based on the index.
The school district issue has to be settled in the budget. Leadership in your caucus is planning to restore at least funding for basic and higher education. Is that a good idea?
I’m not going to say that it would be a mistake to shift funding to education from welfare. What I will say is that I do question the wisdom of continuing to plow more money in when we’re not seeing results statewide. We’re not seeing accountability.
Why are we going to give them more money when student enrollment from 2001 through 2009-10 has dropped by 49,000 students while at the same time the number of classroom teachers has gone up by just under 14,000?
When you look at school district budgets statewide, you will see 60, 65, sometimes 85 percent of the district’s budget is personnel. We’ve lost close to 50,000 students and we’ve added 14,000 teachers, so who are we helping when we shove more money in their direction?
The school districts point to federal and state mandates that have forced them to hire more staff to meet instruction requirements and spend more money on items like pensions. Your response?
We don’t require them to hire assistant superintendents, and those aren’t teachers, but they are personnel costs. We don’t require them to hire teaching aides in the classroom. There is a lot of staff that are hired that we don’t require them to hire.
The next step for our caucus is going to be to say: what are we actually requiring them to do, and what are they actually doing?
