SEE ALSO:

- Proposal holds renters accountable for education funding
- City residents stand to lose under tax bill
- Tax relief plan would shift burden to workers

The premise behind tax reform might be to keep elderly people in their homes, but such shifts could mean big breaks for businesses paid for by tax increases on most working people in York County.

Legislation unveiled in March by state Rep. Seth Grove, R-Dover Township, proposes property tax breaks made possible, in part, by raising earned income tax rates.

Grove ... vows to update his bill.
Grove ... vows to update his bill.

Under the bill, all renters would pay more. So would the average household with the average house in every school district in the county.

Meanwhile, commercial and investment properties would get property tax breaks without contributing to the earned income tax -- because businesses don't pay the earned income tax.

Recognizing the trend demonstrated in an in-depth analysis completed by The York Dispatch, Grove said he plans to change House Bill 2230 to allow school districts and municipalities to exclude businesses from the property tax relief and focus it only on owner-occupied properties.

Grove said the changes he plans to make to his proposal between now and January would mean owners of homesteads and farmsteads, owner-occupied homes, could see complete elimination of their property taxes.

The average two-income household would still lose money, according to The York Dispatch analysis of tax revenue, but not as much as if the tax breaks are extended to businesses. There has been no state-sponsored analysis of the proposal to determine its impact.

Who wins: Property owners who don't pay the earned income tax, such as retired people and businesses, would save money. But the bulk of relief, under the existing legislation, would go to businesses.

For example, the York Galleria in Springettsbury Township is assessed at $58.6 million and pays about $1 million in property taxes per year to the Central York School District. Reducing its tax bill by 30 percent would cost $312,000.

And since the Galleria and other businesses don't pay earned income tax, the Galleria

would keep all of its property tax relief while Central's working residents make up the difference.

Though there is a sales tax component of Grove's legislation, which he said would net about $42 million for distribution to the county's 16 school districts, The York Dispatch's analysis focused only on the effect of the bill's largest component, the shift from school property tax to earned income tax.

School property tax rates would be lowered by a minimum of 30 percent. If they decreased by 30 percent, the average York County property owner would save between $457 and $1,218, depending on the school district in which they live.

To make up for the lost tax revenue, the local earned income tax would be increased, and that would mean a net loss for many working people, even after the property tax savings are taken into consideration.

A household of two people both earning the average yearly income in their school district and living in a home of the average assessment in their school district would lose between $293 and $1,754 per year because of the increase in the earned income tax.

If Grove changes the bill to eliminate businesses from the property tax break, the net loss for the average two-income family would drop to between $140 and $1,227, depending on the school district.

But under both scenarios, the higher the percent of property tax relief, the greater the loss for average working homeowners.

Questions: The discrepancy has some concerned about whether Grove's proposal or any other bill that doesn't make businesses contribute to the redistribution kitty will pass muster with the state constitution's uniformity clause.

The clause states that "all taxes shall be uniform," and it's the constitutional provision cited in arguments against a graduated income tax.

The Pennsylvania School Boards Association is still "looking at the weeds" in Grove's bill, but the idea of shifting taxes from nonresidential properties to the individual taxpayer is "not an ideal scenario" for the association, said Dave Davare, director of research services.

"The businesses end up paying nothing in terms of a property tax, there's no companion tax to go along with the increase in the EIT for the taxpayer," he said. "The Equity Clause is applicable. You can't treat property differently. All property is treated equally pursuant to the constitution."

He said he wasn't surprised by the numbers in the analysis, and the bill, "as it stands now, would probably not get our seal of approval ... but addressing the business component goes a long way from our association's standpoint to addressing one of our biggest concerns."

But there would still be underlying issues that will continue to make education funding a serious challenge for school districts, he said.

The state needs to address mandates with which school districts are forced to comply, such as a requirement for one school nurse for every 1,500 students.

"You can't prorate, so if there are 1,501 students you need two full-time nurses," he said.

The state also needs to create a "fair and equitable funding formula" to correct the flawed system under which some school districts receive a higher amount of funding per students than others.

"The root of the problem remains the funding formula or the lack of a funding formula," Davare said.

The Pennsylvania Economy League has a similar position.

The group is a nonprofit and doesn't comment on pending legislation, but Gerald Cross, executive director of the central division, said the organization believes the entire structure of local government financing is "inadequate," and governments need to regionalize.

Grove said the funding formula is so hard to change because some school districts benefit from the flawed system under which York schools suffer, so legislators in those areas don't support a change that would treat everyone the same.

School officials: While Grove's tax shift proposal might address concerns among seniors, school district business managers said the problem runs too deep to be corrected through simple shifting.

Jeff Mummert is business manager at South Western School District and one of three business managers who vetted The York Dispatch analysis for accuracy.

He said the legislation might have a better chance if business and industrial properties were omitted from the tax breaks and the relief is focused on owner-occupied properties. But shifting taxes in any way might avoid "the real crux of the issue," he said.

School districts need a fair funding formula, he said, echoing the sentiment of school business managers in York for about the past 10 years.

He said he suspects retired people would want the switch because they would benefit from reduced property taxes without an increase in earned income tax, which they don't pay because they don't work.

"But everybody who's working wouldn't want it because they would pay more," he said. "And the costs are greater in the school districts with higher property taxes."

Dennis Younkin, business manager for York Suburban School District, said there needs to be a way of funding public education that "totally reworks" the property tax burden, "and until you have that, I'm not sure you're going to get anywhere."

He said he doubts most voters would want the changes called for under Grove's legislation because "it's basically a tax increase for the average taxpayer."

"Yes, it gives to residential property owners who may be retired, but it also gives property tax reduction to commercial real estate and shifts it to working people," he said. "The average taxpayer ends up paying for the corporations in their (earned income tax). The money has to come from somewhere if you're giving a benefit to commercial properties and, in this, you are."

Suburban's average working homeowners would lose the second-highest amount in the analysis, behind York City.

Support: But Suburban school board member Joel Sears said he supports shifting to an earned income tax and sales tax, including an arrangement where average homeowners would pay for business tax breaks.

While Grove's legislation as it exists would do that, Sears said he was in favor of HB 1776, another tax shifting bill which calls for complete elimination of property taxes. That bill has since been tabled in the House Finance Committee.

Sears, 65, is a small business owner and president of the York County Taxpayers Council, which he said has 225 members.

"If this goes the way we want it to, businesses would not pay," he said. "From an economic development standpoint, business taxes prevent increases in jobs and stifle development."

The savings would "trickle down," he said, with businesses lowering the price of goods because they're saving money.

So sue me: Wayne McCullough, district director of administrative services at Southern York School District, vetted the analysis for accuracy in his district.

He also wrote his 204-page doctoral dissertation on "A Funding Model for Pennsylvania Schools."

Though a costing-out study in 2007 seemed to be laying the groundwork for a reworking of "the real problem," the lack of a stable per-pupil state subsidy, legislators seemed to have abandoned the issue, he said.

He said it wouldn't surprise him if correcting funding inequality is pushed to a level higher than the state House and Senate, forcing legislators act.

"People might start to sue," he said. "It's happened in other states."

And Grove said he thinks they should.

"Heck, yeah," he said. "Jersey did it. They won. They should have done it a long time ago. The votes aren't there to change it because it benefits more than what it hurts."

He recommended they focus on the Equality Clause of the state's constitution and unfair distribution of money instead of just suing for more money.

"Anybody who sued for more money has lost," he said. "There has never been a court case complaining about the distribution of the money and the harm it's done."

Some institutions get $20,000 per student per year while, for example, York Suburban gets $1,000, he said.

"You're basically saying our students are second-class citizens," he said. "I tell taxpayer groups that all the time. I'm dead serious. You should sue."

-- Reach Christina Kauffman at 505-5436, ckauffman@yorkdispatch.com, or follow her on Twitter at @YDYorkCounty.