News

August 10, 2008

Lack of agreement hindering property tax reform

Area legislators see problems no matter which way the state turns.

By Andrew M. Seder aseder@timesleader.com
Times Leader Staff Writer
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When it comes to property tax reform, most would agree it needs to be done. The rub comes when you ask people how.

Property taxes account for billions of dollars in revenue that school districts rely on to operate. But they’ve also been reviled by senior citizens who face losing their homes because some can’t afford the skyrocketing increases and property owners who believe there’s a better way.

Some politicians agree and have introduced proposals in an effort to quell the complaints.

A quick search on the Pennsylvania General Assembly Web site shows dozens of bills introduced this session regarding the issue.

The proposed legislation runs the gamut of reforms. Some go as far as abolishing the school property tax on homes and farms and others propose an increase in sales tax, personal or earned income tax or real estate transfer tax to fund education.

One would broaden the list of items that are taxed and others are aimed solely at benefiting senior citizens by either gradually reducing their taxes or freezing them at the current rate.

Most of the bills end up being referred to the Finance or Appropriations committees in the House where they await a slow, quiet death.

That appears to be the case with House Bill 1275. Known as the “School Property Tax Elimination Act,” it drew support from taxpayers groups and legislators from both sides of the aisle to a June 2 rally at the Capitol. The measure sought to broaden the items subject to sales taxes, in addition to increasing the personal income tax rate to 3.92 percent, a 28-percent hike. But it failed to gain enough support and languishes in committee as the 2007-08 legislative session draws to a close.

While some are still looking at HB1275, all eyes are on how Act 1 of 2005 is working.

Critics: Act 1 not a real cure

For years the state Legislature debated how to best change public education funding, which relies heavily on local property taxes. The 2005 state law known as Act 1 established legalized slot machines and the tax-relief program. While the bill is making a difference on tax bills for some in the state this year, many critics say the law fails to provide enough relief and serves more as a Band-Aid instead of a cure.

The law uses a percentage of slot revenue to reduce school taxes. About $17 million will be distributed by the state this year. This is the first year homestead and farmstead owners will see the offset on their tax bills.

Act 1 was meant to reduce -- not eliminate -- the tax, said state Rep. Eddie Day Pashinski, D-Wilkes-Barre.

House Bill 2199, introduced in January and bearing 11 co-sponsors, proposed abolishing the school property tax on homes and farms and limiting the school property tax on commercial and recreational properties. It’s among those bills stuck in the Appropriations Committee and has no chance of being voted on this legislative session.

Pashinski said that while critics are quick to bash the property tax, “the problem is (it’s) still the most stable tax.” He said sales tax revenue can fluctuate year to year based on the economy. Ditto for the income tax.

If the state were to switch to funding education with sales tax or earned income tax revenue “with this economy there would probably be a shortfall,” Pashinski said.

Between $12 billion and $15 billion is needed annually to fund education in the state.

A single percentage point of sales tax generates about $1.4 billion annually, Pashinski said. Therefore, any proposals to raise the state sales tax a percentage point and use that revenue to pay for property taxes wouldn’t be the solution.

“I don’t see any possibility of eliminating property taxes,” Pashinski said. “We can reduce it, but we can’t eliminate it.”

Instead, Pashinski said, he favors a combination plan using additional sales or earned income tax, plus the gaming funds, to help significantly lower property taxes. Others do too, including state Rep. Karen Boback, R-Harveys Lake. A survey she sent out to her constituents seems to support that route, too.

According to Boback, 70 percent of the respondents said they would support an increase in sales tax if their property taxes would decrease as a result.

“While a 0.5 percent to 1 percent increase in the sales tax – when combined with gaming revenue – would have a significant impact in lowering school property taxes, this shift would not eliminate them,” Boback said.

Gambling plan gets support

Pashinski points out that half of the projected 14 slot parlors are operational and those, including Mohegan Sun at Pocono Downs in Plains Township, have been open for less than 18 months.

He said he hopes that once there’re all open, property taxes will be halved for most homeowners. Legalizing table games could also generate revenue, adding to the relief, he said.

“In my opinion, (Act 1) is working,” Pashinski said.

State Rep. John Yudichak, D-Nanticoke, concurs but said that doesn’t mean those in Harrisburg should rest on their laurels. He said total property tax reform, not relief, should be tackled and said it doesn’t appear that will happen this session.

Yudichak said he’s “hopeful” the House, Senate and Gov. Ed Rendell can work together next year to address the matter.

He admits it won’t be an easy task, but not for lack of effort.

Yudichak said that some logical solutions to residents in one corner of the state might sound awful to those in the center or opposite end of Pennsylvania.

“It’s the diversity of a state this size,” he said.

He used sales tax as one example. It might sound fine to those in Luzerne County, but to business owners in counties on the state line, it places them at a competitive disadvantage and may force them to lay off workers or close their doors, he said.

Mike Peifer, a freshman legislator representing parts of Monroe, Wayne and Pike counties, said the issue isn’t a lack of wanting reform, it’s just too many different ideas on how to go about it.

“You have 203 representatives, each with a different plan that tries to benefit those in their district,” Peifer, R-Greentown, said.

While legislators make proposals, property owners sit and wait for results. In Luzerne County, property values, and in turn, taxes, have climbed because of the recent countywide reassessment.

The lack of action in Harrisburg, coupled with the long overdue action made by county commissioners in Wilkes-Barre, has resulted in the perfect storm for many in Luzerne County.

State Sen. Lisa Baker, R-Lehman Township, said many of her constituents feel this has been “the equivalent of the 1-2-3 knockout punch. ‘

“Most have seen their assessment values dramatically increase, while their projected tax relief from gaming funds has been among the lowest in the state,” she said. “All of this has taken place at a time when rising food, energy and utility costs have hit their already stretched budgets.”

Baker said people are worried they might not be able to afford to stay in their homes.

“They are strongly urging me to support a legislative tax reform plan that is based on an individual’s ability to pay,” she said.

The state Constitution does not grant the Senate power to introduce bills raising revenue, so Baker and others sit and wait for their colleagues in the House to send them something. Baker said she’d prefer to see “a mix of taxes that includes a sales and/or earned income tax” that she called “a better alternative to the heavy burden currently placed on property owners.”

Various bills languishing in House

There are dozens of bills addressing property taxes sitting in House committees in Harrisburg. Among them that gained some traction but ultimately stalled out are:

1275: Introduced Nov. 14, 2007, the bill sought to eliminate property taxes by using the current 6-percent state sales tax revenue to fund education. It would expand the items and services covered by the sales tax and would increase the current state income tax to 3.92 percent. This bill is in the Appropriations Committee.

1600: Introduced July 17, 2007, the bill was originally introduced with the idea of increasing the state sales tax one-half of one percent and the state personal income tax rate from 3.07 to 3.29 percent. The additional $1 billion in revenue would help reduce property taxes. Amendments changed the look of the bill and the current version is geared more toward eliminating the property taxes for senior citizens by using Act 1, state gaming revenue. This bill is in the Appropriations Committee.

2199: Introduced Jan. 28. 2008, the joint resolution proposes an amendment to the state Constitution abolishing the school property tax on homes and farms and limiting the school property tax on commercial and recreational properties. The bill is in the Appropriations Committee.

Andrew M. Seder, a Times Leader staff writer, may be reached at 570-829-7269.

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