TURN PA BLUE – REAL ESTATE TAX PRIMER
Over the past two years, as we have engaged voters for municipal, school district, State, and Federal candidates, the number one issue for many of them has been taxes. The quarterly polls conducted by Franklin and Marshall College confirm our experiences, where taxes are consistently among the top tiers of concerns for voters in the State.
The tax that voters most frequently target – particularly in the suburbs – is the real estate tax. It doesn’t matter whether the canvas is for President or county prothonotary, people will talk about the enormous burden that real estate taxes have had upon their family budgets. Many of our respondents will describe the archetypal widow, in danger of losing her property for her inability to stretch a fixed income to meet the demands of an ever-increasing real estate tax burden.
Of course, these taxes are determined at the most local level – county, municipality, or school district – but what happens at the State level will generally determine how local real-estate taxes are levied.
As of this writing, it appears that for the nation, school districts account for close to 40% of revenue received from property taxes. In Philadelphia, about 55% of our property taxes go to pay for our schools.
On the whole, Pennsylvania’s real estate tax burden is the thirteenth highest in the country with an “effective real-estate rate” (the total school, municipal, and county tax rates on the assessed value of a home [land and improvements]) of 1.55% of a home’s assessed value. Many factors contribute to the disparity of these rates, but one significant cause is the level of funding that the state governments contribute to their individual school districts. In Pennsylvania, there are two problems with State funding that affect local property taxes. One problem is the amount of funding. Pennsylvania is 46th in the nation in the proportion of school revenues that come from the State.
The other problem is the way that Pennsylvania funds its districts. Pennsylvania distributes more money to richer districts than they currently deserve, leaving poorer districts in dire shape.
As a result of these two problems, many school districts find themselves with no other recourse than to revert to real estate taxes as a revenue source.
Local governmental leaders and school board members know that the solution to the problem with property taxes lies at the State level, particularly with the General Assembly, and no doubt, this fall, Tom Quigley, Todd Stephens, and other Republican incumbents in the State legislature will campaign upon their record of facilitating passage of a constitutional amendment that would allow local governments and school boards to eliminate the value of one’s home in determining property taxes, provided these local governments and school boards favor such a move. In other words, this amendment will be a way for these politicians to shift the blame onto the municipalities and school boards for not lowering property taxes.
In fact, in the last year, since the amendment has been in effect, no district in the State has taken advantage of it, and in Southeastern Pennsylvania, many districts have seen extreme spikes in their taxes, even when student enrollment has declined.
How can local real estate taxes be lowered? First, Pennsylvania should follow the lead of most other states and contribute more money, in an equitable fashion, to local school districts. In order to make such a contribution, Pennsylvania needs to bring in more revenue. Over the years, the Pennsylvania Budget and Policy Center has offered a number of suggestions that would allow Pennsylvania to collect more money without financially distressing most of its own residents. Here are two of those suggestions:
(1) Collect a severance tax from the Marcellus Shale: We keep hearing from Republican legislators who are paid handsomely by natural gas industry that these companies will take their business and jobs elsewhere if they are taxed, but in fact “elsewhere” does not exist. Pennsylvania is the only significant gas producing state without a gas severance tax.
(2) Create a graduated income tax: Such an effort would require a amendment to the current State Constitution’s uniformity clause, but if voters could approve the recent amendment (cited above) that would have no effect on their property taxes, they would probably approve of an amendment that would in reality lower those taxes. Republicans will no doubt scare constituents into believing that such an amendment will drive rich taxpayers from Pennsylvania, but two Stanford Center on Poverty and Inequality Studies have shown that high income taxes do not create a net loss of wealthy residents from a state.
These are only suggestions. There are most likely a number of other sources of income, and definitely more efficient ways in which money is currently spent, but we need to elect a legislature that is willing to be more courageous and creative in tackling these issues. We can start with a significant change of leadership, and an electorate that realizes that Pennsylvania is a cheap state, not a “Deep” one.