Property tax revolt could sharply reduce school funding

The Pennsylvania Association of Realtors and a tea party-backed coalition are mobilizing to support legislation that would abolish local school property taxes, a measure likely to result in the loss of billions of dollars in education funding at a time when districts across the state, including Philadelphia’s, face deep fiscal crises.  

But Chuck Liedike, campaign manager of the Realtor-backed group Real Reform 76, sees only upside to the legislation being considered in Harrisburg. He says the change would eliminate an onerous tax without harming public education.

“It allows Pennsylvania homeowners to stay in their home, to be able to afford a home,” says Liedike. And “school districts would receive a dollar-for-dollar match in what they would have received in property-tax revenues.”

But that does not seem probable: The Education Stabilization Fund, a new entity that would be created under the law, would likely provide far less school funding than the current property tax-based system, according to an October 2013 report from the General Assembly’s Independent Fiscal Office. That shortfall would reach $900 million in the law’s second year, and a staggering $2.5 billion in its fifth.

David Baldinger, the Berks County activist who heads the Pennsylvania Taxpayers Cyber Coalition, told the conservative news website PA Independent that the proposed legislation was “designed to slow the growth of education funding,” and says that school spending on new buildings, excessive compensation and skyrocketing pension liabilities are out of control.

The legislation’s opponents are “saying ‘we’ll underfund education,’” Baldinger tells City Paper. “There’s a point to that if you assume that education should continue to be funded at its current rate. That is not sustainable.” 

Sharon Ward, executive director of the liberal and labor-backed Pennsylvania Budget and Policy Center and an opponent of the proposed legislation, puts it differently. “While the rhetoric is about property taxes, it is really more about the war on schools,” she says. “It takes away the bulk of the authority of local school districts to fund their schools, and imposes a very stringent cap.”

The legislation would radically remake Pennsylvania’s public finances by eliminating the local school property taxes that provide significant funding to school districts and substitute revenues generated by increases in personal-income and state sales taxes — less stable sources of revenue. The sales tax would also be expanded to cover many items currently exempted, and school districts could levy an earned-income tax and net-profit tax, or personal-income tax, by voter referendum.

Senate Bill 76 now counts a majority of senators as co-sponsors, sufficient votes to pass. Its companion legislation, House Bill 76, is approaching a majority in the House. Liedike says that Gov. Tom Corbett, who did not respond to requests for comment, has told advocates that he would sign the bill if it comes to his desk.

The bill has little support in Philadelphia, and few local legislators have signed on as co-sponsors. Rep. Rosita Youngblood’s office says that her name was accidentally added as a co-sponsor and it has been removed. 

Mayor Michael Nutter “strongly opposes this bill,” according to an e-mail from spokesperson Mark McDonald. “SB 76 would force the city into looking at increasing wage and business taxes, precisely what we don’t need. And, it would not end up killing off the property tax in Philadelphia, only the school-related portion of that tax. … We would also end up having to look at raising the sales tax, which would make the city even more uncompetitive with surrounding jurisdictions.”

The measure would also likely provide Philadelphians with more limited tax relief than most other districts. While most districts fund their schools primarily through local property taxes (in addition to state and federal funds and, in many cases, earned-income taxes), Philadelphia revenue sources for schools include use-and-occupancy, liquor-sales and net-income taxes and Parking Authority money. If this legislation became law, Philadelphians would continue to pay those additional local school taxes.

As a result, the Greater Phil-adelphia Association of Realtors (GPAR) has broken ranks with its colleagues across the state.

“This is a devastating blow to Philadelphia if this gets passed because we’re going to be underfunded $400 to $500 million,” says GPAR president Allan Domb. “If other municipalities get reimbursed for 100 percent of their school costs, then why shouldn’t Philadelphia?”

Domb says the legislation would also hurt renters because landlords will not pass on savings from the property-tax elimination to tenants, who would still pay the higher sales and income taxes. He also says that big businesses with fixed triple-net-leasing agreements would reap a windfall since those tenants are responsible for paying real-estate taxes on top of rent. 

For many tea party members, property taxes undercut the right to private property.

“What we see happening and contributing to the decline of the cities, the abandoned properties, properties that aren’t maintained … [is] an inability to pay the property tax,” says Lebanon 9-12 Project Chair Jim Rodkey. “Government was instituted with the sole purpose of the protection of property. We’re not doing that. Through the property tax, we’re destroying property.”

Eighty-four tea party, Glenn Beck-inspired 9-12 organizations and taxpayer groups of unclear political affiliation are listed as members of Baldinger’s Pennsylvania Taxpayers Cyber Coalition, which he says worked with state Rep. Jim Cox to draft the legislation. The Berks County Republican did not respond to requests for comment.

“We span the entire political spectrum, but we’ve managed to come together on this single issue,” says Baldinger. “We essentially wrote the bill.” 

The Realtors have lent a long-running, grassroots anti-tax movement the support of a potent and well-financed political giant. Ward calls it an “unholy alliance.”

“This was one of those ideas that people thought was so far-fetched it didn’t deserve really much attention,” says Ward. “They’ve lent a degree of credibility and also some big money to the idea.”

But Education Policy and Leadership Center President Ron Cowell questions whether legislators are eager to pass a tax cut that also includes major hikes to other taxes. Notably, the Pennsylvania Chamber of Business and Industry opposes the legislation and the Commonwealth Foundation, the state’s principal conservative think tank, has not taken a position.

“It’s one thing to talk about. It’s another thing to cast those votes,” says Cowell.

Franklin & Marshall political scientist Terry Madonna says that he’s “still not convinced it gets done. Maybe that’s 30 years of cynicism on the issue.” But “getting rid of the property tax is very popular — it polls as the most-hated tax. Obviously, if it should pass, the Realtors will gain immensely in selling homes.”

The two sides of this debate do share some points of agreement. Tea party leader Rodkey says that he does not think that Philadelphia schools receive sufficient funding, and Ward suggests that the state explore measures to provide targeted relief to help cash-strapped homeowners, especially in areas like the Poconos that struggle with high property taxes. 

Ward says that increasing state spending on public education, which has been slashed under Gov. Corbett, would provide critical relief. Pennsylvania schools receive 36 percent of their funding from the state, according to the most recent census data from 2012. The figure is significantly below the national rate of 46 percent. 

Progressive blogger and City Paper contributor Jon Geeting says that shifting the entirety of education funding to the state would be a more equitable move since property-tax-based funding fuels the continued inequity among school districts: Those with wealthy tax bases like Lower Merion get more money while poorer ones like Philadelphia get less. 

“It would make the disparities more apparent, inviting a further round of agitation for reform,” says Geeting, who does not support the proposed legislation since it does not include sufficient revenue. “If the state is in charge of distributing the money, we can have that fight. If the money is mostly segregated into 500 different tax bases and unavailable for redistribution across districts, we can’t.” 

Ward says she agrees “that local property-tax payers are paying too much and the state is paying too little. If we fix the state funding problem, it will really help the local property-tax problem.” 

Domb sees the legislation as just the latest example of the state shortchanging Philadelphia and ignoring the role this region plays as the state’s most powerful economic engine. 

“We’d be better off being our own state than part of Pennsylvania,” he says.