David Seropian fears a proposal to eliminate school property taxes across Pennsylvania would send McKeesport Area School District residents packing.
While the proposal — likely to be reintroduced in the state Senate within the next few weeks — vows to rid residents of their hefty school property tax bills and replace them with higher sales and personal income taxes, school districts across the state still could collect property taxes to pay off existing debt.
What does it mean? It means that in some districts, especially those with higher debt, residents could be paying nearly double in taxes until their local school district pays off its debt. In some districts, that will take more than 20 years.
“This is not tax relief for them. This is like piling taxes on to them,” said Seropian, business manager in the McKeesport Area School District.
And it’s hurting residents in some of the state’s least affluent districts, like McKeesport where the district is $106 million in debt due to past building projects, Seropian said. The district pays about $8.6 million a year to its debtors, yet receives about $10.7 million from local property taxes. The district operates on a $62.6 million budget, with about 65 percent of its revenue coming from the state.
If the proposal to eliminate property taxes gets the go-ahead from the state Legislature and Gov. Tom Wolf, residents in the McKeesport Area School District would be paying nearly 80 percent of their property taxes for the next 22 years, while still paying the added sales and personal income tax like everyone else.
“They’re going to be getting a double whammy,” Seropian said. “It makes no sense. It’s almost the reversal of who they ought to be helping – the districts that are less able to afford this kind of thing.”
The legislation, which Sen. David Argall (R- Schuylkill) said he plans to reintroduce to the state Legislature “any day now” is a “tax shift.”
The $14 billion funding shift would include an increase in personal income tax from 3.07 percent to 4.95 percent. State sales tax also would increase from 6 to 7 percent under the proposal and expand to include items not currently included in Pennsylvania’s sales tax, such as food, personal hygiene products, horses and clothing when a garment costs $50 or more. Sales tax in Allegheny County, which has a 1 percent county sales tax, then would increase to 8 percent.
The legislation, deemed the Property Tax Independence Act, or Senate Bill 76, failed to pass the Senate when it received a 24-24 tie vote on Nov. 23, 2015. The lieutenant governor broke the tie against the bill.
With a shift in the Legislature, Argall said he’s hopeful the bill will pass this time around.
“The way that we’re funding the public schools today is rotten at the core,” Argall said. “It dates back to the 1830s. The world has certainly changed. We just can’t continue to fund the public schools based on this, outdated, archaic, unfair property tax.”
While eliminating school property taxes may sound simple, “The devil is in the details,” said Steve Robinson, spokesman for the Pennsylvania School Boards Association.
Concerns related to the proposal from school district officials across Allegheny County are vast: Will funding be stable? How will decisions be made? How can they pay for needed expenses? Will property taxes truly go away? And how can they make any major repairs to their buildings without what they see as a stable funding source?
How it came to be
David Baldinger, a retired radio personality and longtime television producer from Reading, has dedicated more than a decade to getting school property taxes eliminated in Pennsylvania.
“It’s been my full-time, unpaid job since September 2004,” he said.
Baldinger, who says he got involved for selfish reasons, at first, because he wanted to see his own property taxes go away, worked with his state representatives and senators in Berks County, sometimes sitting in their offices several days a week, to craft a bill he says would bring more fair taxes to all of Pennsylvania.
“Think of the other taxes that you pay, the income tax, sales tax. They grow over time as the economy grows. So you don’t have to raise the rate,” he said. “If you want more money out of the property tax, you’ve got to raise the rates and it’s killing people. They just can’t afford it anymore.”
Pennsylvania residents will pay an estimated $13.87 billion in school property taxes in 2016-17, based on a forecast done by the state’s Independent Fiscal Office in January. That number likely will jump to about $14.3 billion by the 2017-18 school year and $16.45 billion by 2021-22, the forecast shows.
Baldinger launched the Pennsylvania Taxpayer Cyber Coalition in 2004, one of the six founding groups of the Pennsylvania Coalition of Taxpayers Association. The association that now has 87 local tax groups from across the state supporting the effort. Baldinger says he can’t even count all the ways property taxes hurt Pennsylvanians.
“People can’t buy homes anymore because of the property taxes,” he said.
He tells the story of people that come to him, forced from their homes because they couldn’t pay their property taxes and their home was taken from them.
The coalition drafted the bill now known as House Bill/Senate Bill 76 and presented it to Argall in 2011, said Jon Hopcraft, Argall’s executive director. The bill required compromise on many issues, Baldinger said.
“If it was up to the Republicans, it would all be in sales tax. If it was up to the Democrats, it would all be income tax. We said, if we’re going to get this done, we’re going to have to compromise,” he said. “The best part is, you can’t lose your home. Nobody is going to take your house because you didn’t pay your sales tax.”
The issue has reached a “fever pitch” level in the eastern part of the state, Hopcraft said.
The senator said: “It’s the single largest issue in the district that I represent in Berks and Schuylkill counties. I can’t go anywhere in the district without someone asking me about it.”
He admits that Western Pennsylvania isn’t as caught up on the matter.
Under the proposal, school districts would receive the same amount they are collecting at the time of the bill’s passage from property taxes through the increased sales and personal income tax collection. The districts also would receive an annual adjustment for inflation that could equal a 2.5 to 4 percent increase each year in what they receive, Baldinger said. Money collected from sales tax and personal income tax would be distributed quarterly to the districts from an Education Stabilization Account that would not be impacted by the state’s general fund, he said. However, school officials said they worry the annual adjustments in funding could be impacted by fluctuations in income and spending habits.
Allowing districts to continue collecting property taxes to pay off their debts stemmed from a compromise made to move the bill along, Baldinger said. It’s only fair, he said, that the districts that racked up the most debt pay it off themselves.
Elimination could take years
Pennsylvania has 500 school districts. Residents in 488 of the districts would continue paying property taxes even if this bill to eliminate property taxes passes.
That irony is brought to you through an analysis of 2014-15 data by the Pennsylvania Association of School Business Officials [PASBO]. Essentially, the vast majority of districts have debts to pay off, so it could take years for residents to realize the benefits of the proposal.
Forty-three percent of the districts in the state would continue collecting at least 20 percent of their property taxes under the proposal, based on the PASBO analysis. In Allegheny County, 13 of 43 districts would continue collecting at least 20 percent of their property taxes, PASBO asserts.
“We’re looking at it as double taxation,” said Amy Burch, superintendent of the Brentwood Borough School District.
It’s been more than 20 years since the Brentwood Borough School District has made any major upgrades to its three school buildings, located in the heart of the 1.5-square-mile, single-town district, where students still walk the borough’s hilly terrain to get to class each morning.
Yet, the district still pays more than $1.8 million a year for past debt, including renovations and additions of all of the buildings in the 1990s.
“Do we think [we have] the perfect system? No. But the one thing was that it was stable. We could estimate from year to year what we were anticipating,” Burch said.
As Brentwood undergoes a feasibility study to review what upgrades are needed in the district’s three buildings, Burch said she worries about stable funding for improvements if this legislation were to pass.
The legislation would allow the Brentwood district to keep 22.23 percent of its current millage rate of 29.5332, or 6.5647 mills, to pay off its existing debt. The debt lasts until 2023. Residents would be required to pay that, plus the increased sales and personal income tax.
As it stands for 2016-17, the owner of a property of median value in Brentwood ($83,200) will pay $2,457 in school property taxes. Under the new plan, they would be responsible for about 22 percent of that (about $540) along with the increased sales and income taxes.
Brentwood has the second highest school property tax rate in Allegheny County, according to county records.
“I do not feel that that’s fair and I think that’s going to hit the middle class the hardest, which is what the Brentwood community is right now,” Burch said. “I’m concerned if they’re paying more at the cash register when they’re checking out that when it comes time to pay their school taxes that they might not have the money to be able to pay that as well.”
Residents in the Pittsburgh Public School District would continue to pay 32.14 percent of their school property taxes to pay off existing debt, per the PASBO analysis.
Residents in West Mifflin would continue to pay about 30 percent of their property taxes under the proposal, Superintendent Daniel Castagna said.
“It’s not going to be an elimination. It’s going to be a reduction. I think there are clear winners and losers in this, but the winners aren’t anybody who is working in the community. The clear winners are the retirees and the business owners, in my opinion,” Castagna said. He’s referring to the fact that seniors and businesses won’t be impacted by the increase in personal income taxes.
He fears, if passed, the legislation will chase residents from homes in districts that currently have more debt.
“What’s that going to do to families? That’s going to push them out of districts with debt service. It’s going to give them another reason to want to leave,” he said.
Castagna, too, worries the proposal would have a greater impact on students in poorer districts.
McKeesport Area School District would go from one of the lowest property tax rates in Allegheny County, at 16.74 mills, to one of the highest as it would still collect about 80 percent of property taxes under the proposal, Seropian said. In 2016-17, a resident with a median property value of $60,000 will pay about $1,000 in district property taxes. If they qualify for a homestead exemption, their bill will be reduced to $680.
“If you’re going to pay 80 percent of your tax bill in the McKeesport Area School District and only 20 percent somewhere else, where are you going to live? Why would you live here? I don’t even think they thought this through. It just doesn’t make any sense the way it’s designed with keeping the portion for the debt,” Seropian said.
How much Allegheny County school districts would still owe in property taxes under the Property Tax Independence Act
Source: Pennsylvania Association of School Business Officials analysis of 2014-15 property tax data.
Residents in the Duquesne City School District would continue to pay 100 percent of their property taxes while paying the added sales and personal income taxes if the proposal moves forward. PASBO’s analysis shows Duquesne’s debt payments equal 203.72 percent of what the district collects in property taxes.
Jeff Ammerman, director of member assistance for PASBO, said this is likely because the district receives a greater percentage of its funding from the state than local property taxes.
“It certainly varies greatly by district. Duquesne is an outlier,” Ammerman said.
Baldinger said school districts would not be allowed to collect more in property taxes than they are currently collecting to pay off debt. Under the proposal, districts would be required to declare all outstanding debt with the state on the bill’s date of enactment. That number, divided by the number of years of debt service remaining, would determine how much districts would be allowed to collect in property taxes to pay off the debt service, he said.
Will it pass?
The bill has come a long way since Baldinger began working on it nearly a decade ago, he said. The tie vote in late 2015 “woke some people up,” he said.
When it was announced earlier this year that the bill would be reintroduced in the state Senate, “It brought the cockroaches out of the nest,” Baldinger said. He called many of the concerns from school district officials “unfounded.”
Gov. Tom Wolf has met with advocates on both sides and plans to monitor the bill, along with any other proposed property tax reform, as it works its way through the Legislature, said J.J. Abbott, Wolf’s press secretary.
Wolf is focused on getting more state dollars to public education, Abbott said. While he supports property tax reform, he doesn’t want to see increased sales tax on food or clothing, he said.
“He’s in a place where he could be supportive of elimination. It’s just really how you get there,” Abbott said. “At this point, he just wants to have productive conversations with people, see what other ideas may be out there.”
While Baldinger says most Pennsylvania residents will end up paying less with the tax shift, local school officials are urging people to see if that’s true.
School officials in the region say they’re not sure if the bill will pass this time around, but if it doesn’t, they’re certain it will be back again for another try. They’re urging taxpayers to see for themselves if the proposal would be a benefit to them.
“It’s important that everybody runs their own numbers,” Castagna said. “Look at what the increase in the income tax is going to do to you. Look at your local district and see what your property tax reduction is going to be. I think for a lot of people they’re going to see this is not a win.”
PublicSource's Interactives and Design Editor Natasha Khan produced the graphics for this story.
Stephanie Hacke is a freelance journalist in Pittsburgh. She can be reached at firstname.lastname@example.org or on Twitter at @StephOnRecord.