Articles

(March 2004) The State Senate, House of Representatives and Governor Ed Rendell all are considering proposals to provide property tax relief for homestead and farmstead property owners through expanded legalized gambling.

The proposals are complex, and the long-term impact on education finance is considerable. An important aspect of all the proposals now before the state legislature - one not often discussed in depth - is the voter referendum requirement. IssuesPA examined how local referenda would impact public education financing in Pennsylvania.

Property tax relief proposals include several requirements for referenda. They provide local voting taxpayers with a greater degree of control in two areas. First, there are referenda to initiate property tax relief, providing taxpayers the ability to override the action - or inaction - of their elected school board. Second, with a few exceptions, referenda would be required for future tax rate increases, thus limiting unchecked growth of local school tax rates

What do referenda mean for property tax relief?

To qualify for gambling-generated property tax relief from the state, a school board must increase the district's local tax rate on earned income and net profits by 0.1% or impose a local version of the state personal income tax. If the school board fails to take action, the county would be required to put the question of increasing the rate on the ballot for voter referendum.

A school district could end participation in the property tax relief program after a four-year period, if approved in a new referendum.

Voters in a school district could, by referendum, increase the rate of the earned income/net profits tax or local personal income tax above the qualifiying amount to provide more property tax relief and to obtain additional state aid under the formula for distributing gambling revenue to local districts. Districts could increase the earned income/net profits or local personal income tax up to an amount that would allow them to take full advantage of the homestead exemption - which is capped at one-half of the assessed value of the median (middle or typical) homestead and farmstead property in the district.

Referenda and tax increases?

With few exceptions, after the initial property tax relief is instituted, a referendum would be required to raise school tax revenues beyond average increases of the Standard Average Weekly Wage and Employer Cost indexes, as calculated by the Department of Education. Essentially, this limits local school revenue increases to average increases in wages.

After the initial property tax relief begins, a school district must ask the voters to approve any new local tax it would want to impose.

The proposed referenda cover a broad spectrum of financial decisions that, in Pennsylvania, school board directors traditionally make. Preparations for the referenda would force school budget preparations to occur before ballot deadlines for primary and general elections. In essence, required referenda would take much of the revenue-raising authority away from school boards and give it to voters. In many other states, voters have similar responsibilities. But because Pennsylvania now depends on local revenues for a greater portion of total education funding than most other states, the impact of local referenda will be greater for Pennsylvania's public schools.

So how will referenda influence future education financing?

Imposing referenda ultimately may have a negative impact on financial equity in funding Pennsylvania's schools. Although there's very little historical perspective on local tax referenda in Pennsylvania, it's logical to assume that voters in wealthier communities will be more likely to approve revenue increases for education, compared to those in communities with less wealth. If so, Pennsylvania's gap in resources between rich and poor districts likely will become even greater.

Even without referenda, school districts with an expanding commercial and industrial economy will be able to increase spending per student faster than no or low growth districts, simply through growth in their tax base. Again, this could further expand the divide between rich and poor.

Here's one additional consideration. Often lost in the debate about property tax relief is the impact on renters, including those of moderate income as well as younger professionals who are essential to the state's future competitiveness. Any change that involves higher income taxes will be to their detriment. They'll pay an increasing share of the tax burden without seeing any relief.

These factors have not yet been a focus of public debates about the property tax relief measures, but they should be.