Both property tax proposals are ridiculously complex, and require computer model to compare
Gov. Tom Wolf and his political opponents in the state General Assembly, the Republicans, have advanced highly complicated and differing proposals that each say is meant to address local school property tax “relief.”
Unfortunately, both Gov. Wolf’s and the Republicans’ plans are long on complicated tax language and arcane formulas that only a wonk could love, and short on answers to everyday questions homeowners and taxpayers are sure to ask.
Neither Wolf nor the Republicans have answered the two simple questions an average Pennsylvanian has about either plan:
How much property tax would I pay on my home under each plan?
And, How would each plan affect the quality of education in my local school district?
Those two simple questions, which in past decades would certainly have driven any public policy debate on this subject, have been pushed to the back forty acres in the current debate.
Instead, those two simple questions have given way to obtuse and highly technical tax language that few outside of business school or municipal accounting offices can understand.
Wolf’s plan: complicated, relies on homestead exemption fund
Democrat Gov. Tom Wolf kick-started this year’s debate over school property taxes by proposing his plan for property tax relief at the start of the budget season.
Majority Republicans in the state General Assembly quickly picked up the idea.
But rather than accepting Wolf’s plan, Republicans cooked up and passed a plan of their own, House Bill 504, sponsored by Rep. Stan Saylor, of York County.
Like Wolf’s proposal, the Republican plan would provide some property tax relief by increasing both income and sales taxes, and applying those funds against local property taxes in different ways.
The simple part is this: the state’s personal income tax rate would be raised from a flat 3.07 to 3.70 percent under both proposals.
Wolf proposes to raise the sales tax to 6.6 percent, while the Republican plan would ratchet up sales tax to a full 7 percent.
That’s about all the two plans have in common, and as simple as either gets.
How the new taxes would be applied against local school property taxes, and who would benefit, differs drastically between the two proposals.
Wolf’s plan would redirect proceeds from increased sales and income taxes to a single fund for each school district, applying relief against what’s called the property tax homestead exemption.
The homestead exemption, or exclusion, was created in 2006 to distribute proceeds from casino gambling to homeowners in each of the commonwealth’s school districts.
Simply stated, under the homestead exemption the assessed value of each home in a school district is reduced by the same amount before the property tax is computed.
For example, a $25,000 homestead exemption, applied against a home with a $75,000 appraised value, means that a home would only be taxed at a $50,000 value ($75,000 appraised value – $25,000 exemption = taxed as if the home is appraised at $50,000.)
As its name implies, the homestead exemption applies only to homes and family farms. It doesn’t apply to businesses, second homes or vacation homes.
Republican approach: ridiculously complicated, with two funds
The Republicans, unlike Gov. Wolf, propose creating two new funds with the proceeds of increased sales and personal income taxes.
One fund, like Wolf’s plan, would be applied to the homestead exemption.
The second fund is called the “millage rate reduction fund,” and would be applied to those who do not benefit from the homestead exemption (i.e. businesses and wealthy owners of second homes, etc.)
The legislative language for the “millage rate reduction fund” in the 43-page Republican House Bill 504 is itself tremendously complicated with variables including the size of a municipality, past tax collections, appraisals, and millages.
How complicated is this Republican plan, as compared to the plan offered by Gov. Wolf? And can the average homeowners understand it?
The Pittsburgh nonprofit group publicsource.org recently tried to compare both plans. The group is supported by hefty funds from the Heinz Endowments, the R.K. Mellon Foundation, the James L. Knight Foundation, and the Fund for Investigative Journalism.
The group spent weeks, if not months, gathering tax and appraisal data in the different school districts in Allegheny County alone. It developed a sophisticated computer model to calculate expected tax changes under both plans. Needless to say, these resource tools to understand the pending legislation and tax bills are not available to average homeowners.
The bottom line?
The group says Gov. Wolf’s plan would better help those with less expensive homes, and those homeowners living in economically troubled school districts.
The Republican plan sends more relief to wealthy homeowners, and businesses.
“Wolf’s $3.8 billion plan focuses on relief for homeowners, especially in school districts with lower property values and high tax rates,” writes Eric Holmberg of publicsource. “It would reduce the property tax rate in 311 of the state’s 500 school districts, and some of the state’s poorest school districts would be able to completely eliminate property taxes.”
“The $4.9 billion property tax relief plan backed by House Republicans directs more money to residents in school districts with the highest property tax bills, which would favor wealthier school districts. The plan also reduces the property tax rate in every school district, extending more of the perks to businesses than under Wolf’s proposal,” Holmberg writes.
“Not only are poorer school districts better off under Wolf’s plan, but people in less expensive homes across all districts would benefit because of how the homestead exemption works,” publicsource estimates.
“It applies the same reduction to the assessed value of each property in a school district, which has more of an impact on less valuable houses.”
Publicsource estimates, on the other hand, that the ten wealthiest school districts in Allegheny County, for example, “would receive at least 10 times more money for property tax relief under (Republican) Saylor’s plan as they do now.”
Still confused? Of course you are.
In future articles I’ll try to hold the authors of both plans — the Wolf administration and Republican lawmakers — accountable for this confusion.
I’ll keep asking the important questions:
How much property tax would I pay on my home under each plan?
And, How would each plan affect the quality of education in my local school district?
Most importantly, I’ll consider how we got to this state of confusion, and what we should expect in the future.
