Pennsylvania House Bill 76 and Senate Bill 76 Would Eliminate School Real Estate Taxes

Pennsylvanians are being crushed by real estate taxes, especially school real estate taxes, which tend to increase the most.  The burden of funding Pennsylvania’s schools is falling disproportionately on homeowners.

Real estate taxes are particularly burdensome on senior citizens and businesses in Pennsylvania.  Now that estate taxes (“the death tax”) have been eliminated on family farms in the Commonwealth, real estate taxes remain a major contributing factor in the break-up of family farms across Pennsylvania.  They also discourage younger people from purchasing homes. 

Real estate taxes have contributed to a decline in Pennsylvanians’ net worth by reducing the value of real estate because they increase the cost of ownership.  Real estate values decline especially after homes are sheriff sold for failure to pay taxes, thereby resulting in lower assessments for those and neighboring properties, which thereby produce less real estate tax revenue, which, in turn, increases pressure to raise real estate taxes.  Eventually, a point of diminishing return is reached.  This vicious cycle is especially noticeable in urban districts.  Moreover, real estate taxes penalize improvements to real estate and reward dilapidation, thereby encouraging blight.

The power of school boards to increase real estate taxes in their districts has allowed school spending to increase faster than the rate of inflation and population increase. 

            Identical bipartisan bills in both chambers of the Pennsylvania General Assembly, House Bill 76 and Senate Bill 76, would eliminate school real estate taxes.  Both bills are gathering more and more legislative support.  The bills, which are the product of efforts by the Pennsylvania Coalition of Taxpayer Associations, are sponsored by Rep. Jim Cox (R-Berks County) and Senators David Argall (R-Schuylkill County), Mike Folmer (R-Lebanon Count), Judy Schwank (D-Berks County) and John Yudichak (D-Luzerne County).  Argall and Folmer’s districts also include parts of Berks, among other counties. 

            The bills would phase out school real estate taxes in every Pennsylvania school district over two years by replacing them with increases in the state sales tax (from 6 to 7%), as well as by broadening the list of taxable items, and personal income taxes (from 3.07 to $.34%) for those earning over $35,000.  This tax-shift plan would be revenue-neutral, as each school district would continue to receive its current allotment, adjusted for inflation.  Those few districts without debt would immediately see an immediate elimination of school real estate taxes, while every other district would continue to service its debt obligation; real estate taxes would continued to be levied by these districts, but only the amount necessary to service the debt, until the debts are fully retired.  School districts could raise income taxes for major projects, such as school construction, only by referendum.  Gambling revenue from slot machines would continue to help fund the schools. 

It is important to note Pennsylvania’s state sales tax has been dedicated to funding the schools since its inception.  It is paid not only by Pennsylvanians, but also by visitors from other states, thereby reducing the burden on citizens of the Commonwealth.

            A companion amendment to Pennsylvania’s Constitution would permanently prohibit school real estate taxes, once they are eliminated.  Counties and municipalities would continue to levy real estate taxes, however.  Until they are eliminated, Pennsylvania homeowners will continue essentially to rent their homes from the government and will thus never truly own them. 

            If HB 76 and SB 76 were passed and signed into law by the Governor, Pennsylvania homeowners would save a net of hundreds of dollars a year on average, while realizing a substantial gain in net worth because of the increase in property values.  Businesses would also save money, which would make Pennsylvania a more attractive place to locate, maintain or expand a business.  There would be fewer breakups of family farms and less urban sprawl.  The homebuilding industry would benefit from an increase in demand for homes, because they would be more affordable.  All of these factors would stimulate the economy, thereby generating additional sales and income tax revenue for the schools.  Because they would be receiving a predictable stream of revenue, school districts would be forced to control spending, but would be able to focus more on improving education than on raising funds.  These bills would establish tax fairness by spreading the burden for education more equally to all Pennsylvanians and increase freedom by increasing property rights, as citizens of the Commonwealth would be significantly less vulnerable to losing their homes.

           As a homeowner and school director in an urban school district, I see firsthand the damaging effects of school real estate taxes.  I have repeatedly called publicly for the legislature to enact real estate tax reform, as well as privately urged legislators to do the same.  HB 76 and SB 76 represent the best opportunity ever to eliminate school real estate taxes.  To increase freedom and fairness, as well as to improve the Commonwealth’s economy, I urge the Pennsylvania General Assembly to approve these bills and the Governor to sign them into law.