On the first day of the new legislative session and at the same time a number of education groups were rallying in the Capitol Rotunda for more adequate state school funding, the House Finance Committee forwarded a series of bills to the House floor that would allow local school districts to shift who pays the local share for schools. With this action, these bills could be voted on by the full House as early as this week.
Property tax repeal advocates are converging on Harrisburg Tuesday, so these actions may be a demonstration by House leadership that they are taking action on the issue.
Not included in this package being “fast tracked” to the House floor is House Bill 76, the controversial plan to shift all school property taxes to state income and sales taxpayers.
While not as radical as HB 76’s proposed solution, all of these bills are only dealing with the symptom — that some people in specific situations pay too much in property taxes — rather than the underlying cause of too few state dollars being used to fund our schools. This causes the property tax issues in some parts of the state where districts are overly reliant on property taxes to provide adequate education for our children.
House Bills 125 and 1677 work together to amend the Pennsylvania Constitution to increase the maximum homestead exemption for property taxes from the current 50% of the district-wide median value to 100% of a residential home’s (or homestead’s) value. This would permit districts to exempt all homesteads (on paper) from property taxes. However, the bills contain no manner for local districts to fill the school funding gap that would occur if such a move were made.
House Bill 1189 allows local school boards to replace property taxes they collect with earned income and new mercantile/business privilege taxes on certain businesses on a dollar-for-dollar basis.
Current law requires districts seeking to enact or increase their local earned income tax rates to have a public vote and bars any local government not already having a business privilege or mercantile tax from enacting one. This bill would allow school boards to make the switch without a public vote. The bill also allows school districts to enact taxes on the gross receipts of retailers, wholesalers, and service providers.
Under this plan, many manufacturers, beer distributors, banks, farmers, and food processors would no longer pay school district taxes of any sort, as they are exempt from the new gross receipts-based taxes.
The House Finance Committee amended House Bill 1189 to limit the share of revenue that can be raised by the business privilege and mercantile taxes to 50% of the property taxes eliminated. While this was meant to ensure that all property taxes are not being shifted to businesses, it also means that many districts that already have earned income taxes would not be able to enact new business privilege or mercantile taxes, as at least half of the new taxes raised must be from earnings.
Finally, House Bill 1685 would allow school districts to enact earned income taxes without direct voter approval.
While some of these tax-shifting bills have more unintended consequences than others, they all ignore the main cause of property tax issues in Pennsylvania — that too few state dollars are available to fund schools. Without dealing with this primary cause, these plans only shift who pays local taxes from one group to another.