January 2017

The Proposed “Property Tax Independence Act”

by Robert Bruchak on January 23, 2017

school-funding-genericCurrently, our legislators in Harrisburg are debating and will be voting on a bill to reduce school property taxes. It is also referred to as the Property Tax Elimination Bill or Senate Bill and/or House Bill 76. Take careful note that this legislation will not eliminate property taxes. Like past versions of the bill, our elected officials are looking to replace local property tax revenue with increases to Personal income Tax (PIT) and Sales Tax.  The statewide PIT would increase 60%, from 3.07% to 4.95% and the statewide sales and use tax would increase 17%, from 6% to 7%. For example, a resident earning $50,000 a year in taxable income would see their state income taxes increase from $1,535 to $2,475 per year. That’s just the effect of the Personal Income Tax; the increase in sales tax will be on top of that.  Additionally, by the recent articles explaining this on Capstone, the list of items and services to which the tax would apply would expand to include the majority of services such as food, clothing, shoes, accounting and financial services, legal services, basic TV, mental health services, trash pick-up, non-prescription drugs, and funeral services.  Approximately $14 billion will be needed to eliminate (in actuality, reduce) school property taxes.  According to the Associated Press, more than 70 percent of school property taxes were collected by the wealthiest half of school districts in 2014-15. The legislation, as proposed has several problems all taxpayers need to be made aware of:

  • Eliminating property taxes across the board means that the property tax burden carried by businesses will be shifted to individuals in the form of increased PIT and SUT.  Across Pennsylvania, businesses are currently paying approximately $2.75 billion in property taxes. This amount will be shifted from businesses to you, the individual taxpayer.
  • Six counties and their districts (already the richest in the state) will receive the majority of the revenue generated from PIT and sales tax. These districts are in Allegheny, Bucks, Chester, Delaware, Montgomery and Philadelphia County. It’s unlikely much of the average Salisbury taxpayer’s increased PIT or SUT will actually find its way to our school district.
  • This property tax elimination bill doesn’t actually eliminate property taxes. Instead, it eliminates only school property taxes (and not all at once, as taxes to pay outstanding school debt service remain in place), leaving approximately $5 billion in other local government property taxes still on the table.
  • Despite the fact that the elimination proposal touts the elimination of school property taxes, it actually maintains school property taxes in most districts for a long period of time to pay off debt in existence on December 31, 2016.
  • With the expiration of a school district’s ability to levy a property tax occurring on July 1, 2017, it will be extremely challenging for school districts to open their doors and pay their bills for 2017-18 because of cash flow problems until the state is able to provide revenue from the increase PIT and SUT. This process could take up to 24 months.
  • Property tax elimination removes entirely local control and funding authority of a school district and its school board. As a result, school districts will have very limited ability to add new staff, negotiate new contracts or fund existing contracts and agreements.
  • PSERS (the mandated state retirement system) and charter school costs can increase significantly each year. Property tax elimination will not provide school districts with enough revenue to even begin to cover just these two rising costs.
  • With the elimination of property taxes come the total elimination of taxing authority by locally elected school boards and a total undercutting of local control.
  • During the next dip in the economy, which almost certainly will occur, PIT and SUT revenues will underperform, causing school district revenues to fall short. Essentially, we will have no cash to pay salaries, benefits and district bills.
  • With no ability to raise property tax revenue and complete dependence on the state for funding, school district bond ratings will almost certainly decrease.

The administration and school board are encouraging you to reach out to your legislators and ask them to oppose this bill before it comes up for a vote in early February.  Currently, Senator Boscola has indicated that she is in favor of voting “YES” to pass this legislation. 

Hon. Daniel T. McNeill
1080 Schadt Avenue
Whitehall, PA 18052
(610) 266-1273
Fax: (610) 266-2126

Capital Office- Hon. Daniel T. McNeill
101A East Wing
PO Box 202133
Harrisburg, PA 17120-2133
(717) 772-9902

Hon. Ryan E. Mackenzie
3402 Brookside Road
Macungie, PA 18062
(610) 965-9933
Fax: (610) 965-9174

Capital Office – Hon. Ryan E. Mackenzie
160A East Wing
PO Box 202134
Harrisburg, PA 17120-2134
(717) 787-1000
Fax: (717) 782-2893

Hon. Justin J. Simmons
191 Main Street
Room 104
Village Centre Office Suites
Emmaus, PA 18049
(610) 965-5830

Capital Office – Hon. Justin J. Simmons
5 East Wing
PO Box 202131
Harrisburg, PA 17120-2131
(717) 783-1673
Fax: (717) 705-7012

Senator Lisa Boscola 
1 East Broad Street
Suite 120
Bethlehem, PA 18018
(610) 868-8667
FAX: (610) 861-2184

Capital Office – Senator Lisa Boscola 
Senate Box 203018
Harrisburg, PA 17120-3018
Room: 458 Main Capitol
(717) 787-4236
FAX: (717) 783-1257