Funding Uncertainty in Property Tax Plan

As I blogged yesterday, a new analysis from the Independent Fiscal Office concludes that a proposal to eliminate property taxes in Pennsylvania would leave school districts with $2.6 billion less in overall funding within five years.

The property tax plan — proposed in both HB 76 and SB 76 — would swap school property taxes for higher state income and sales taxes, largely on individuals. The IFO did not take a position on the proposal but did crunch the numbers on its fiscal impact on school districts and the state.

Looking at all education funding streams, the IFO found that Pennsylvania schools would see a net decrease of $1 billion in 2018-19 from the current system. So what is the difference between the $2.6 billion total loss in school funding and the $1 billion net decrease?
Net Fiscal Impact of HB 76 / SB 76
The proposal calls for the creation of the “Education Stabilization Fund" to receive the new personal income and sales tax collections intended to replace property taxes. The proposal, however, places an artificial limit (the lower of sales tax growth or the rate of inflation) on how much in new income and sales tax dollars go to school districts to replace lost property taxes in future years.

By 2018-19, this fund would accumulate $1.7 billion in revenue not sent out to schools because of the cap on funding growth. It is not clear how the dollars accumulating in the fund could be used. It does not appear this money would be going to schools.

Apparently, cutting funding to schools over time is a goal for some supporters of the property tax plan. The PA Independent quoted David Baldinger of the Pennsylvania Taxpayers Cyber Coalition saying the school funding gap created by the property tax plan is just what the doctor ordered:

“The bills were designed to slow the growth of education funding,” he said. “Those numbers (from the IFO) are telling us exactly what we want to know — that, yes, we are succeeding in slowing down the growth of education funding.”

This is a recipe for short- and long-term disaster. Shortchanging education over time will not only deprive school students of new opportunities but also hamper our ability to prepare a workforce that can meet the demands of a 21st Century economy.

Paying property taxes are a real problem for some homeowners and in some specific areas of the state. We should address those concerns with targeted reforms rather than a one-size-fits-all approach that has been adopted nowhere else in the nation.

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