Taxing retirement income part of new Pa. school property tax relief plan
A new piece of legislation would replace Pennsylvania's school property taxes with boosted taxes on income, retirement and retail sales. It joins a slew of bills that Republicans in the state Legislature have floated in recent years in an effort to decouple public school funding from property taxes.
State Rep. Frank Ryan, R-Lebanon County, plans to introduce the 295-page House Bill 13 sometime in mid-September — following a bipartisan and bicameral work group on school property tax elimination starting Aug. 8.
It would be "revenue-neutral" — a dollar-for-dollar replacement of about $15 billion raised as of this year through local property tax dollars throughout the state, he said.
Instead, residents would pay a 1.85% local personal income tax to school districts and a 2% local sales tax added to the state's tax — with that increase going to districts countywide.
It would also include a 4.92% retirement income tax — excluding Social Security — of which 1.85% would go to districts, which has not been done before in the state and has received mixed reviews from seniors, Ryan said.
The remainder of that tax would go into the state's general fund, to be used to fully fund education up to the property tax amount, with leftovers going to senior programs.
The $3.4 billion seniors are currently paying in property taxes would be traded for $1.4 billion in income taxes, Ryan said, but since income is variable, some people would end up paying more.
York Suburban Superintendent Timothy Williams questioned why those with limited incomes would have to pay more.
“I would think that the intended beneficiary of any type of property tax reform would be those on fixed incomes,” he said. “Taxing pensioners seems to fly in the face of who they’re intending to help.”
But it would help those who struggle to pay fixed property taxes when their income is reduced, and landlords would be required to pass the savings along to renters, Ryan said.
HB 13 has a "hold harmless" provision for the first three years — meaning every district would be guaranteed to receive no less in revenue than it did in property taxes, with the difference covered by the state.
After that, if districts run into financial trouble, there would be a last-resort lending fund of $500 million, and if that’s not sufficient, state-mandated financial recovery.
Though Ryan supports other bills looking at property tax elimination, "I want a permanent fix, not a temporary fix," he said.
Statewide, the number of adults ages 20 to 64 is expected to decline by 251,000 through 2025, and retirees ages 65 to 79 are expected to increase by 442,000 in the same period, based on a five-year Pennsylvania budget outlook from the Independent Fiscal Office.
If something is not done to help younger people, seniors will end up shouldering the burden in the long run, Ryan said, and with many of them not paying personal income taxes, the state would need to return to property taxes.
School districts would be barred from reinstating a property tax under the bill, Ryan said in a news release, but there would be opportunities for legislative fixes or executive branch intervention in districts with unanticipated financial issues.
Ryan said he met with legislators and a number of community groups who objected to previous legislation, and one criticism had been that the bills sent personal income taxes and sales taxes directly to the state. But he said the language in his bill specifies that the money going to districts could not be spent elsewhere.
"There’s a lot of skepticism about whether the state would return the money to the school districts," he said.
Williams said restoring the responsibility of education funding to the state would be a benefit to local taxpayers, and if Ryan's plan is not well thought out, there is a risk residents will end up paying more.
“I worry about the unintended consequences,” he said.
One of those consequences could be an increased spending disparity from district to district when states relying on sales taxes are hit by recession, which is what happened in Idaho, according to a recent article in a journal for educators.
Ryan said an issue with the last recession in Pennsylvania was the state's failure to pay its actuarial required contribution to the pension plan each year, but he is working on a series of bills to get state spending under control.
Two examples include a reduction in pension management fees and an increase in the federal government's share of Individuals with Disabilities Education Act costs.
State Sen. Kristin Phillips-Hill, R-York Township, acknowledged the long history of the issue in the Legislature and several failed attempts to get a bill passed.
The conversations on school property taxes and how to reduce cost drivers have to be done simultaneously she said; otherwise, “we potentially just trade one onerous burden tax for another.”
A property tax town hall will be hosted by state Rep. Mike Jones, R-York Township, on Wednesday, Aug. 7, and there are several bills up for discussion, including Ryan’s, at a public Senate Majority Policy Committee meeting next week. The town hall will be held from 6 to 8 p.m. at Bethlehem United Methodist Church, 109 E. Main St., Dallastown.
Senate Bill 76 and HB 1231 similarly propose eliminating property taxes and adjusting sales and personal income taxes, while others would exempt low-income households, senior citizens and noncommercial residences.
A policy meeting is scheduled for Aug. 13 to see which bill would generate the most support and therefore have the best chance of passing, Phillips-Hill has said.
“This is something that requires a tremendous amount of study,” said David Broderic, spokesman for the Pennsylvania State Education Association. “PSEA is going to be watching very carefully.”
York County superintendents, as well as school business officials and property managers, have been invited to attend the Senate policy meeting.