What’s At Stake for PA Schools in Property Tax Debate?

Michael Wood, Third and State

The latest proposal to eliminate property taxes in Pennsylvania would leave school districts with $2.6 billion less in overall funding within five years, according to an analysis from the Pennsylvania Independent Fiscal Office. Matthew Knittel of the IFO presented the findings during a Pennsylvania Senate Finance Committee hearing Tuesday.

The 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, which did not take a position on the bill, compared what could be expected from the new mix of state funding to projected property tax revenue over time and tallied the fiscal impact on school districts and state government.

Much like with previous versions of this property tax plan, the numbers don’t add up. The IFO projects school districts would receive $112 million less in funding than they would have received from property taxes in 2014-15, which grows to $2.6 billion by 2018-19

The reason is fairly simple. The bills place an artificial limit (the lower of sales tax growth or 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. This is true even if those state tax collections exceed the caps, as they likely would in most years. The bill does not address how schools are to pay for increasing pension obligations, let alone costs for health care, supplies, or utilities that may increase in price faster than inflation.

Like all tax swaps, this one picks winners and losers – with Pennsylvania’s school students and the state’s future among the biggest losers.

Corporations, which pay about 30% of all property taxes and are among the largest taxpayers in many districts, would come out as big winners. Their school property taxes would be eliminated, but unlike individuals or small businesses, corporations would pay no more in state taxes. Instead, their share of school funding would be shifted to individuals and small business owners who pay income taxes and consumers who pay sales tax. (Many goods and services purchased by businesses would remain exempt from the state sales tax under this plan).

Renters, including many seniors, would see higher sales tax and income tax bills, but little “relief” in the form of lower rent payments. For low-income families, this plan is Robin Hood in reverse, with poor renters paying higher taxes to subsidize tax cuts for wealthy property owners.

For non-elderly homeowners, it’s a mixed bag. Homeowners would see their local property taxes decline, but their state income taxes would rise. Many homeowners would also see their federal taxes increase, as they would lose a deduction for paying property taxes.

Many school districts have already adopted earned income taxes to reduce dependence on property taxes. Taxpayers in those districts would pay increased state taxes to subsidize property tax cuts in other parts of the state.

The change could make houses in Pennsylvania less affordable in the future. When California adopted property tax limits, it saw housing prices skyrocket. 

Many seniors and people with medical conditions would have to pay sales tax on an array of health care goods and services.

Finally, schools would receive much less than they need to help students succeed. Good schools are the lifeblood of a community and its economy. If we shortchange our schools, how will Pennsylvania ever prepare better workers for tomorrow’s economy or attract and retain businesses that need skilled workers?

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. Some of the reform efforts, like Act 1 of 2006, have helped moderate property tax growth – and the IFO report reflects that. Many districts have adopted earned income taxes to lessen reliance on property taxes.

The most effective way to ease Pennsylvania’s over-reliance on local sources for school funding is to increase the state’s support of education. Pennsylvania trails most states in state funding for schools, creating tremendous inequities across districts. A good education should not depend on where a child lives. The state needs to make – and keep – a commitment to provide a larger share of school funding. That is the key to a healthier economy and a better Pennsylvania.

Bank Swap Deals Cost Philadelphia City, School District

( – promoted by John Morgan)

Large financial institutions, including many that received financial bailouts in the wake of the financial crisis, are making hundreds of millions of dollars off interest rate swaps negotiated with the City and School District of Philadelphia.

That’s the key finding in a new report from the Pennsylvania Budget and Policy Center. We found that swap deals negotiated with banks such as Wells Fargo, Morgan Stanley and Goldman Sachs have cost the city and school district $331 million in net interest payments and cancellation fees. If interest rates continue to remain low, still-active swaps could cost the city another $240 million in future net interest payments.

WHYY’s NewsWorks was there and posted this brief video clip.

Our report recommends that banks refund a portion of the cancellation fees they received for terminating bad deals and renegotiate those deals which are currently active.

Financial institutions have returned to profitability after the financial crisis, yet some Philadelphia schools cannot afford to keep nurses on staff. Now the banks have an opportunity to step up and help prevent more damaging cuts to schools and public safety, just as taxpayers helped the banks avoid total collapse just a few years ago.

Some other news outlets covered our release of the report yesterday. Check out the coverage.

Jobs Down, College Tuition Up, School District Taxes Up and Policy Makers Are Focused on What?

A blog post by Mark Price, originally published at Third and State.

Other recent Morning Must Reads from Third and State:

Monday: No Revenue for Public Transportation & Corporations Need Another Tax Loophole for their Jets

Tuesday: Mo Gas, Mo Problems

On Tuesday, the Keystone Research Center published a summary of the employment situation in Pennsylvania. With the release of September’s jobs data, which included a loss of just over 15,000 jobs, a picture is emerging of a job market in Pennsylvania that is shrinking. The continued loss of public-sector jobs and relatively slow growth in private-sector jobs is the main source of weakness in the labor market. The bottom line is that although Pennsylvania ranked in the top 10 of states in terms of job growth early in this recovery, the Commonwealth has moved to the bottom 10 in the last five months.

Much of the public-sector job loss is driven by the fact that tax revenue has yet to fully recover from the recession, the end of federal Recovery Act funding, and state lawmakers’ unwillingness to raise state revenues which has deepened state budget cuts.

In related news – stemming from state budget cuts in funding for higher education – The Pittsburgh Post Gazette this morning reviews the latest on tuition costs at colleges and universities in Pennsylvania.

The average cost of tuition and fees at a public four-year college in Pennsylvania grew by 7 percent, from $11,331 last fall to $12,079 this fall, the College Board said. That’s an average increase of $748.

Pennsylvania’s average cost of $12,079 for four-year public college tuition and fees puts it behind only New Hampshire at $13,507 and Vermont, $13,078.

In K-12 education, local school districts are looking to compensate for state budget cuts through increases in property taxes. 

Meanwhile, state policymakers, instead of focusing on ways to maintain employment in education and more generally, are moving to approve a school voucher program. 

School’s Open but There’s Less Funding for Kids

A blog post from Chris Lilienthal, originally published at Third and State.

Kids are back in school across Pennsylvania and the nation, but many of them are likely seeing the fallout from education funding cuts.

Pennsylvania ranked among the top 10 states to cut school funding this year, according to a recent analysis by the Center on Budget and Policy Priorities. The Center found that 21 of 24 states for which data are available (including Pennsylvania) are providing less funding per student to elementary and high schools than last year (after adjusting for inflation). These states account for about two-thirds of the nation’s school-age population.

Pennsylvania ranked sixth among the 24 states, with an 8.8% cut in per-student, inflation adjusted spending. Only Illinois, Texas, Wisconsin, California and Ohio cut school funding more.

Overall, Pennsylvania is doing better than many of the other states, where funding cuts this year come on top of other cuts in state K-12 funding since the recession hit. As the Center’s Phil Oliff wrote:

As a result, 17 of the 24 states studied are providing less funding per student than they did in 2008. (See second graph.) In ten of these states, funding is down more than 10 percent since 2008, and in South Carolina, Arizona, and California, it is down more than 20 percent.

These cuts have serious consequences for students and the broader economy. They slow the economic recovery, hurt education reform efforts, damage the nation’s long-term competitiveness and leave school districts with few choices for restoring the lost state aid.

It all comes down to a question of priorities, as Oliff wrote:

While the state funding cuts partly reflect the economic downturn, which has depressed state revenues and raised the demand for public services, they also reflect choices by state and federal policymakers.  Most states took a cuts-only approach to closing their budget shortfalls for the current fiscal year, rather than using a more balanced mix of cuts and additional revenues.  And the federal government has failed to extend the emergency education aid it gave states earlier in the downturn, which played a crucial role in limiting the funding cuts to schools across the country.

UNITE HERE Local 634 Members Beat Back SEIU Raid By 2:1 Vote

Last week the Pennsylvania Labor Relations Board (PLRB) announced the results of the election to represent the 2,300 cafeteria workers and noon time aides in the Philadelphia School District: members of UNITE HERE Local 634 voted by a 2:1 margin to stay with their union and rejected SEIU’s anti-union tactics.

After months of attacks directed by New York-based SEIU 32BJ, the PLRB counted 1121 votes for UNITE HERE Local 634 and only 551 votes for SEIU Philadelphia Joint Board.  There were 10 votes for no union and 198 challenged ballots.

Local 634 members had already made their choice clear months ago.  In March, Local 634’s Executive Board voted unanimously to stay part of UNITE HERE and leave the Philadelphia Joint Board.  In April, two thirds of the workers signed a petition remaining UNITE HERE Local 634 and rejecting SEIU again – just as workers could choose a union under the Employee Free Choice Act.  But SEIU wouldn’t take no for an answer.  Instead SEIU filed for an election, stalling the contract negotiations underway with the Philadelphia School District and subjecting workers to months of dishonest attacks.  And SEIU lost again.

Local 634 members are among nearly 30,000 workers across North America who have resisted SEIU raids and returned to or stayed with UNITE HERE, including the 2300 members of St. Louis’ Local 74 last month and the 2000 Delaware North company food service workers in August.

Local 634 members cook and serve food, supervise children, and keep them safe in nearly 300 Philadelphia public schools and early childhood programs.  The workers’ contract with the Philadelphia School District expired September 30.  Hundreds of Local 634 members rallied in September to demand a fair contract with the staffing and training they need to do their jobs and the wages and benefits they need to support their families.