The state's Independent Fiscal Office hasn't vetted a locally authored proposal to allow school districts to reduce or eliminate property taxes, but the bill took some heat Thursday from two past presidents of the Pennsylvania Institute of Certified Public Accountants.
In a conference call hosted by the Pennsylvania NewsMedia Association Foundation, the accountants said there are big problems with House Bill 1186, which was introduced by Seth Grove, R-Dover Township, and passed the House about a month ago.
"There are some gaping unknowns in this bill," said CPA Cheri Freeh. She later added that members of the House, under pressure to address property taxes, might've just passed the legislation so they could point to some accomplishment on the issue.
The bill has been sitting in the Senate Finance Committee since passing the House by a significant bipartisan vote Oct. 2. The Senate hasn't taken up the bill.
But even if it does pass the Senate and gets the governor's signature and becomes law, few school boards are likely to move away from the stability of property taxes toward a new, unproven taxing system, Freeh said.
The bill: Under the proposal, called the Optional Property Tax Elimination Act, each of the state's 501 school boards could vote on whether to shift away from property taxes.
School districts opting to move away from property taxes could implement an additional earned income tax, mercantile tax or business privilege tax to reduce the property tax rate by up to 100 percent.
Personal income taxes, which include money earned on investments, could be added if school districts wanted to take the issue to voter referendum.
The money raised by shifting taxes would be used on a dollar-for-dollar basis to reduce the school district millage rate.
All taxpayers, even renters, would notice an increase on their earned income taxes, taxes paid on wages, to compensate for the lower property taxes.
Businesses could be included, but they would have to pay an additional tax on their services or on their gross receipts of goods sold. York County school districts don't currently collect business taxes.
CPA William Lazor, Freeh's counterpart for the conference, said the state's taxing system is already "fractured," and adding a school business tax could be tricky.
"When the ideas get ahead of the ability to administer, it works against everyone's interest," he said.
Lazor compared the impending administration issues to that of the implementation of the national Affordable Care Act, the faulty website for which has been vexing those who want to sign up for insurance.
Grove said after the conference that the accountants' comments seemed to show a lack of understanding about how his bill would work. She said the two seemed to be taking the business lobby's position that property tax reform is bad.
"Business lobbyists don't want to see any change whatsoever," he said. "Property taxes are business taxes. That's what they're missing. Businesses pay property taxes."
Winners: Lazor said school districts that would shift taxes could have to worry about forcing their businesses into school districts where the business tax hasn't been instituted.
But Freeh said some businesses could be "the biggest winners," paying no taxes.
That's because, Lazor said, their property taxes could be eliminated and they're exempt from paying the other taxes that Grove's bill allows the school districts to implement. Examples include banks, manufacturers, insurance companies, and beer distributors. They're exempt under current law, and Grove's bill doesn't strip them of the exemption for the purpose of the property tax reform, Lazor said.
Grove said that's true, but there's no way of changing the entire business taxing system to do something about the exemptions.
"There's no perfect solution, so we went with something that is achievable and can get done," he said.
Other big winners could be retired people and people who are independently wealthy and live off investments, Freeh said. They pay no earned income tax.
Winners: Freeh said it would be hard to believe that any school district would give up its current system for the uncertainty of "Door Number Two" provided by Grove's bill.
School districts can reasonably predict their annual income based on the values on properties, but earned income taxes and business taxes are less stable depending on economic circumstances, he said.
Grove said many school districts might just wait to see what happens with the legislation, then evaluate whether it would work for their districts.
"If they don't want it, that's fine," he said. "But they would have the option. Right now, they don't have any other options."
Bob Jensenius, vice president of advocacy for the York County Economic Alliance, which includes the York County Chamber of Commerce, said the alliance is following both Grove's bill and other property tax proposals.
The group supports property tax reform but isn't endorsing a specific bill, he said.
Jensenius said he was glad to see Grove's bill made it out of the House, "which nobody else has been able to do," and the legislation will evolve to make sure all bases are covered.
"We look at it as a journey," he said. "The House did something, now the Senate has to come back and then they both get together and decide. We just want to see the process keep going."
- Reach Christina Kauffman at firstname.lastname@example.org.