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GOP: Changes in PA property tax, spending must go hand in hand

By   /   March 12, 2012  /   2 Comments

Otherwise, higher taxes could result

By Eric Boehm | PA Independent
HARRISBURG — Changing Pennsylvania’s property tax system should be paired with spending reforms, or else it’s not effective, said the top Republican on the House Finance Committee.

Local government organizations and business groups echoed that message during a committee hearing Monday to consider a bill from state Rep. Seth Grove, R-York, that would give local governments two options for generating revenue if they wanted to reduce property taxes.
The bill is intended to broaden the base of local taxes used to fund the bulk of basic education costs and relieve what is widely viewed as an unfair and unbalanced tax on the state's residents.
The committee did not vote on Grove’s proposal, and no timetable for its consideration has been set, Benninghoff said.
Republican House leadership and the Corbett administration have indicated a willingness to address property tax reforms this year.
State Rep. Phyllis Mundy, D-Luzerne, the minority chairwoman of the committee, said the property tax is unfair, but changing it has been difficult.
Trying to do one statewide fix is difficult to come by given the diversity of Pennsylvania,” Mundy said, referring to the variance in local economic conditions in the state, which are reflected in school district budgets. 
House Bill 2230 would allow:
  • A county to implement a local 1 percent sales tax on all purchases via a countywide referendum. That revenue would offset a reduction in property taxes in each school district through a formula based on student enrollment.
  • A county and municipality to institute — without voter approval — a trade of property taxes for personal income taxes. That revenue would offset a reduction in property taxes by at least 30 percent, and the property tax mileage rate would be frozen for the future, although the new income tax rate would be allowed to increase.
However, the bill does not solve the underlying problem, said Kevin Shivers, state director for the National Federation of Independent Businesses, which represents 14,000 small businesses in Pennsylvania.
“A concern is that this legislation merely enables these government units to impose new taxes but does not eliminate property taxes or impose stricter requirements for them to justify new or higher tax rates,” he said.
Statewide, 78 percent of education funding comes from the local level, according to data collected by the Pennsylvania School Boards Association, or PSBA, which represents school districts’ governing bodies at the state level.
Nationally, state funding accounts for about 46 percent of education costs.
Dave Davare, director of research for the PSBA, said schools are too reliant on property taxes for their budgets, which has been the driving force behind budget inequity for the state's school districts.
He suggested that changes to the state’s charter school funding formula, special education funding and prevailing wage reforms should be included to give school districts more flexibility in spending.
“A successful and effective property tax reform plan must diversify the tax base while simultaneously addressing the costs that drive a school district budget,” Davare said.
Advocates of prevailing wage reform are pushing for an increase to the state’s threshold for which projects would qualify for the higher wages. Now, any public project that exceeds $25,000 must be paid the prevailing wage, a limit that has not been updated since 1960.
Unions oppose changes to the prevailing wage law because it would lower wages for workers, which, they argue, would further undercut tax revenue and limit economic activity. They also argue that the higher wages ensure the best workers are used for public projects.
Benninghoff said the prevailing wage reforms would be a "key change in local governments and schools to help drive down the costs."
Mundy said repealing or changing the prevailing wage laws would be “penny wise but pound foolish.”
But school districts and local government groups say the prevailing wage changes would save 20 percent on many building projects and allow more tax dollars to be spent on services and education, rather than on inflated wages.
State Rep. Scott Boyd, R-Lancaster, said the property tax issue won't be solved until unions are willing to make concessions, though not all Republicans see the issues as necessarily connected.
State Rep. Jim Cox, R-Berks, who is preparing his own version of a property tax reform bill to compete with Grove’s proposal, said tying too many issues together could prevent any of them from being accomplished.
He argued that property tax reforms should be addressed separately while the state House looks at prevailing wage reforms and the elimination of other regulations.