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Bill to eliminate property taxes raises questions about equal funding for schools

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Could Pennsylvania abolish school property taxes without also blowing up the basic funding formula for the state's public schools?

That's was the thorniest question at a standing-room only Senate Finance Committee hearing Wednesday on a plan to replace the school property tax with increased sales and income taxes. That plan, Senate Bill 76. would guarantee a dollar for dollar replacement for what districts currently generate through property taxes.

But senators Rob Teplitz, D-Dauphin, and Scott Hutchinson, R-Butler, both questioned if the state could legally preside over that kind of dollar-for-dollar replacement when the amounts school districts generate varies greatly across the state.

Lower Merion School District, for example, spends more than $24,000 per student from money raised locally. Meanwhile, Reading spends slightly less than $2,000 per student from money raised locally. Even after including state funding, Reading spends $11,200 per student.

"If the state is now going to pick up the local effort and make the total funding a state responsibility, doesn't that lock in the current system and the inequitable treatment and open us up to a constitutional challenge?" Teplitz asked.

"How can the state fund the richest districts at the current levels and the poorest districts at the current levels without being subject to a constitutional challenge on equal protection or on thorough and efficient grounds?"

The sponsors of the bill, senators David Argall, R-Schuylkill, and Mike Folmer, R-Lebanon, both said the current state funding formula needs to be overhauled. But the senators, the only witnesses at Wednesday's hearing, both said that issue should not slow down he effort to eliminate school property taxes they said most Pennsylvanians support.

"Until we kill the beast and put the stake through its heart so it can never rise again, I don't think that we've solved the problem," Argall said to applause from the crowd, many of whom came wearing t-shirts and signs supporting the bill.

The Senate Education Committee recently supported a bill that would create a commission to study the new funding formula, Folmer said. That work could address the concerns about equality. Tying that question up in the property tax would, Folmer said, likely doom the tax changes.

"This already is such a huge lift -- and there is such fear about doing this now -- to get it caught up in the quagmire of education funding, it would never happen," Folmer said.

"We're trying to get this done … We do want to not only create a fair formula to fund our schools for the 21st century, we want to also, alongside of it, deal with the inequitable funding formulas that had been plaguing us in this state."

Hutchinson, who was once part of a school board that sued the state over the funding formula, said he was concerned that eliminating property taxes alone would make

further progress on the funding formula more difficult.

"Once we get that in place, I think there's less incentive in place for people to come to the table and talk about a funding formula change," Hutchinson said. "That's a major hurdle for me."

Argall said the constitutionality question cuts both ways, since many SB 76 supporters believe school property taxes violate the state constitution's guarantee of the right to property. Should the effort to end the tax fail, Argall said, the existing system is "ripe for a legal challenge."

This was the fourth hearing on the bill.

Argall and Folmer detailed an amendment that they said clarified which services would be taxed under the bill, which business-to-business transactions might be exempted and made other technical changes. The amendment was in response to feedback from groups that had questions about the original bill.

The hearing came as the state is dealing with a significant revenue shortfall, in part because income tax and sales tax have come in below estimates. If a similar shortfall were to happen after the property tax is eliminated, the legislature would have to find money elsewhere for schools or cut funding.

"Anytime you run short, you have a choice," Argall said. "You say where can we find additional dollars or where can we better control the spending. There's nothing else we can do."

The proposal would increase the state’s personal income tax to 4.34 percent, up from the 3.07 percent rate that has been in place since 2004. It also would raise the state sales tax by 1 percent, to 7 percent, as well as broaden the base to have the sales tax apply to more items but not food staples on the WIC food list.

In a world without property taxes, Pennsylvania school districts would have to ask voters for permission to borrow money for new construction, Argall said, and those bonds would be tied to a local income tax. This is similar to what's done in other states, Argall said.

The sponsors believe they have the votes to advance the bill out of committee and to pass the Senate. Finance Committee Chairman Mike Brubaker, R-Lancaster, said members questions would still have to be answered before their could be a vote there.

Senate Majority Leader Dominic Pileggi, R-Delaware, said the bill is working its way through the legislative process.

Last year, a similar bill in the House had 91 co-sponsors, but only received 59 botes on the floor. If SB 76 bill should pass the Senate, Argall said he believes it might be able to attract enough interest from property tax opponents in the lower chamber to move to the governor's desk.

-- This story has been updated to correct the number of votes a similar bill received in the House last year.

Category: Taxes

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