ABC 27 has a story about East Pennsboro School District - the first stop on Gov. Rendell's bus tour - using fiscal restraint, not higher taxes, to deal with their budget crunch. Rendell and House Democrats continue to insist that not spending as much on education as they want would require higher property taxes - unless, of course, districts choose not to increase taxes.
New data from the Pennsylvania Department of Education (released last week) show that school districts across the state have a combined $2.4 billion in General Fund reserves as of the end of 2007-08 school year.
I raise this fact because during yesterday's budget debate, House Democrats claimed that spending "only" $5.2 billion on basic education grants was evil and mean, but spending $5.5 billion on the same line item was "for the kids." Yet this $300 million dollar difference is one-eighth the level of money schools have but are not spending on the kids.
Furthermore, Rendell administration continues to claim that property taxes will go up if we don't spend more state dollars (and raise state taxes) on schools. This is just further evidence that Rendell's claims are false - first because schools have already set property taxes for next year and can't be changed, so the state budget will have no impact on property tax rates - but also because schools have more than enough funding:
Property Taxes: est. $11.6 Billion
Other Local Taxes: est. $2.7 Billion
State Aid Under SB 850: $9.7 Billion
Federal Stimulus Funding to Schools: $720 Million
Federal Aid (non-Stimulus): est. $900 million
Other Funding: est $200 million
School Districts' Budget Reserves: $2.4 Billion
TOTAL: $28.2 Billion
Is $28.2 billion not enough to fund school districts? If I suggest $28 billion is enough, does that mean I hate children?
How much money do schools really need, when they aren't spending what they already have? Must the answer always be "more"?
In a press conference last week, Gov. Rendell patted himself on the back for all the property tax relief he has provided via gambling.
But John Delano of KDKA-TV in Pittsburgh challenges this notion in a new video, noting that most folks are not seeing property tax relief. That is because, while gambling is providing about $600 million in relief, property tax increases have matched this level of relief (and since gambling was passed in 2004, property taxes have increased by an estimated $3 billion, far exceeding the level of relief).
The Allegheny Institute points out how the second major aspect of Act 1 - the "back-end referendum" - has also failed. As they note, school districts are given a perverse incentive to raise property taxes to the index (the cap over which they would have to seek voter referendum - 4.1% and higher for districts this year) every year, and that when districts want to exceed that thresholds, they can usually get an exemption from the state. In practice, voters have rarely had any say in local property tax increases.
Pressured by a looming June 30th budget deadline and Gov. Ed Rendell’s economic team, House Speaker Keith McCall of Carbon County announced yesterday his support for a 16% increase to the state income tax. Citing concerns over Pennsylvania’s $3.2 billion dollar deficit, McCall had few words to say on why he finally broke his budget silence. “My concern is it'll equate to significant property tax increases if we cut our way out of this”, said McCall. The reality is that McCall’s fear of property tax increases seems rather unfounded, given that the proposed state budget will already increase public education subsidies by 12%.
In an attempt to remain in good graces with Pennsylvania taxpayers, McCall also called for a 70% decrease in the corporate tax, placing it at roughly the same level as the proposed income tax according to CapitolWire (subscription). While this is a good move for Pennsylvania's economic competitiveness, this proposal could force all multi-state companies operating within Pennsylvania to pay the tax, regardless if their profit is generated elsewhere.
A Democrat from a largely rural and conservative district, McCall seems to desperately be trying to shift the focus away from why his constituents will be seeing such a large increase in their state income tax. Pennsylvania is one of the few states with both state and local income taxes, giving Pennsylvania the 16th highest per-capita state and local income tax revenue in the nation. More importantly, Pennsylvania has the 11th highest overall tax burden.
Last week, the State Supreme Court ordered Allegheny County to perform property reassessments due to a lack of uniformity as guaranteed by the State constitution. Most states use the Coefficient of Dispersion (COD) to measure property tax uniformity. A COD score less than 20 is acceptable, but under 15 is ideal. Allegheny County scored 30.2 in 2007.
However, Allegheny is far from the worst offender in Pennsylvania, ranking 26th out of 67 counties. Philadelphia scores worse at 39.5, and Huntingdon County received the honor of having the least uniform property taxes, with a COD of 51.8.
In related news, the administration has new figures on the "property tax relief" for homeowners by school districts. As the Patriot-News notes, many districts will get "less relief" per homeowner than last year - in other words, a property tax increase (on top of any tax increase the district might enact).
State Rep. Sam Rohrer will soon introduce his proposed legislation to eliminate the collection of property taxes to fund Pennsylvania’s school districts. This will have the pleasant effect of preventing Rendell spokesman Chuck Ardo from repeating his favorite line, saying any attempt to reduce education spending “will lead to higher property taxes.”
According to Rohrer, “No tax should have the power to leave you homeless.” To replace the property tax, sales tax will be expanded to include many goods (excluding food, clothing, prescription medications, and other necessities) and services. The School Property Tax Elimination Act will force schools to spend money more efficiently when economic condition decline and Pennsylvania taxpayers are forced to watch their own spending.
Additionally, schools will receive funds allocated from natural gas royalties, not revenue from a severance tax. Pennsylvania is in a unique position among gas producing states in that many of the ideal drilling sites are located on public land.
Perhaps most importantly, Rohrer’s bill puts tax increases in the hands of – get this – taxpayers. No tax increase will be passed without taxpayer approval by a ballot referendum, a measure supported by 75 percent of Pennsylvanians.
Gov. Rendell today announced an estimated $770 million in property tax "relief" from slots revenue, or about $200 per homeowner.
As always, I put "relief" in quotes because the amount of "relief" is far outpaced by the increases in property taxes - an estimated $3 billion since slots the slots law was enacted in 2004. This year, the estimated "relief" will be about $160 million more than last year, but property taxes will likely increase by around $600 million.
Indeed, while the news story reads, "Millions of Pennsylvanians received tax cuts last year, the first time slots money was distributed," it would be more accurate to say, "Millions of Pennsylvanians received smaller tax increases than they otherwise would".
Likewise while the article says "the state released enough to cut school property taxes by about 10 percent." It is more accurate to say that average Homestead and Farmstead owners saw average tax rebates of 10%. Business property owner, rental property owners, and the rest saw no reduction; the total "cut" was closer to 5% of school property taxes.
Sharon Smith writes that the slots taxes may not generate enough revenue to trigger property relief this year. By law, the Property Tax Relief Fund must have $570 million when it is certified on April 15. It is currently a quite bit short of that level. Even if it does reach $570 million, it will like provide less property tax relief than last year's $613 million.
You can get the latest State Gaming Fund collections numbers here. Remember that the State Gaming Fund first pays for the Gaming Control Board, volunteer fire companies, compulsive gambling treatment, the local share, and a handful of other programs before allocating the leftover funds to Property Tax Relief. (Horse Racing Fund and Economic Development Fund get funds directly from taxes on gambling losses).
Perhaps more importantly is the fact that local property tax increases have far outpaced any "relief" from gambling revenue. Since the slots law passed in 2004, school property taxes increase by about $3 billion, exceeding the property tax "relief" by almost $2.5 billion
A myth floating around Harrisburg is that the state government used to fund 50% of K-12 education, and has reduced support since then. This was most recently stated by a candidate in the special election to fill the 29th PA Senate seat, but I don't really blame him, as Gov. Rendell, Dan Onorato, the PSBA, and the PSEA repeat the same myth.
The fact is there was a law up until 1983 that the state should provide 50% of the funding, but in practice they never did - largely because school districts kept increasing spending. The state share of education has never been 50% (at least, going as far back as 1968). It peaked at 45% in 1971-72.
That the state share has slipped slightly in recent years is not because of a decline in state funding, but because of out-of-control spending and tax hikes by local government. Under Rendell, state K-12 subsidies (excluding the gambling money for property tax relief) increased 33% through last year, but local revenues increased 45%. Since 1983, state spending has increased 286% (79% after adjusting for inflation), but has been surpassed by local spending, which increased by 347% (109% in inflation-adjusted dollars).
The idea of setting a goal of 50% state funding is naïve and simple-minded. Setting a goal that state government has to increase education spending at a faster rate than local government is a perverse incentive – it encourage districts to dramatically increase spending to get even more from the state. If the Commonwealth Foundation were to set a policy of paying half my rent, I would just get a much bigger apartment.
The only way to get to a state share of 50% of funding would be to curtail local spending and taxes. We could achieve "funding equity" right now, if we cut local property taxes by 25% or so.
The Tribune-Democrat features an editorial by a PSEA member in which he calls Matt Brouillette's commentary "a hodgepodge of distortions, half-truths and unadulterated flapdoodle". I have no idea what flapdoodle is, but it is ironic how many "half-truths" the writer uses in his own editorial.
To demonstrate how school spending has grown so dramatically, the York Dispatch has a story on the great debate raging on how much to spend on the turf for the school football fields:
Whether they make it to eight years, or beyond, before wearing out remains to be seen.
Nothing lasts forever. Not even something that can cost anywhere from $400,000 to $800,000.
But Lloyd Price, the athletic director at Ringgold, says a synthetic turf field is worth the investment.
Central High School athletic director Marty Trimmer said a normal sod field would cost anywhere from $30,000 to $50,000 a year to maintain properly. Trimmer said the cost of maintenance on a turf field is one hour of grooming time a week.
"All of our outside teams have used it (the turf field) at one time or another for practice because of wet grass fields," he added.
Trimmer said his school's price tag for the new field, after credit for the sod and drainage that were already in place, was "probably around $400,000."
That was four years ago.
York Suburban's cost for two fields was $1.2 million (part of a $2.5 million project), and Wayne McCullough, business manager for the Southern York County School District, said the cost to install the two fields at Susquehannock was $1.6 million. Suburban began using its turf field last year, and Susquehannock's fields debuted this year.
This is awful - some high schools are still playing football on grass, like the Steelers? Clearly this is evidence we need to dramatically increase state spending on education to keep pace with property tax hikes. Did someone say Edifice Complex?
"The question of whether turf fields are a necessity or pointing out of the advantages of turf fields disguises the real issue, the huge concentration on varsity sports," Sears said.
"They keep adding (varsity) sports," he said. "Lacrosse is the latest one. Sports are wonderful, there's nothing like them when it comes to building team spirit and learning to sacrifice for the good of the team. But why not put more spending into intramural programs and better physical education programs?"
Sears also questioned why every district has to have its own turf field.
"Why not build a few fields and share them?" he asked.
The Tax Foundation has a new analysis of property taxes by state and by county.
The state data shows that Pennsylvania ranks 15th in median property taxes ($2,159), 10th when calculated as a percentage of home value (1.39%), and 13th as a percentage of income (3.63%).
As for county data, Chester County has the highest average property taxes ($4,086) in PA, ranking 50th in the US. Allegheny County has the highest effective rate, taxing 2.2% of home value (ranking 20th among all US counties)
Tony Phyrillas laughs at school board members complaining about not having control over things like teacher salaries - you know, the salaries school boards establish (typically through labor contracts) for teachers.
Phyrillas ponders, "Why do we need school boards if they can't control costs?" Indeed the Goldwater Institute suggests we don't need school boards, or the bevy of school district administrators, at all, but should move to make all public schools operate as charter schools
The Morning Call ran a story yesterday, including comments by me, on how Governor Rendell's proposed funding formula will benefit schools that have raised property taxes rather than schools that have kept taxes in line. PDE has calculations for 08-09 by district and for the six-year plan. Here is an explanation of that proposed formula (I can't promise it will be simple).
Step 1: the state determines the adequacy target that schools "should be" spending to reach proficiency (this number comes from the Costing Out study, which I debunked here, and the Allegheny Institute debunks here). The shortfall is the adequacy target minus actual spending per pupil.
Step 2: State Funding Target computes the "state share":
State Funding Target=Shortfall * Students * (1) * (2)
Step 3: State aid for 2008-09 and future years
Annual Percent of State Target Funding High Tax Districts (top 20% in millage) Low Tax Districts (bottom 80%) 2008-09 16.75% 10% 2009-10 47% 15.5% 2010-11 72.9% 27.9% 2011-12 100% 35% 2012-13 100% 69.4% 2013-14 100% 100%
Again, this phase-in favors districts with higher taxes, which as I pointed out, is a perverse incentive for districts.
And the formula, despite Governor Rendell's changes, still funds school districts, not school children. A formula where the money follows students (weighted for high cost students) is a better, and far simpler approach.
Several PA school boards put their Edifice Complex on display this past week. The Danville School Board voted to renovate three elementary schools, rather than save costs by consolidating them, to the tune of $22 to $37 million. Central Bucks taxpayers will face a property tax increase – which basically wipes out any "relief" from gaming revenue for the median valued homeowner – despite the fact the district has $30 million in reserve funds. And in Kutzown, the school board unveiled a plan for an addition to the high school, for the price of $27.6 million.
PDE has released the amount each Pennsylvania homeowner and farmstead owner will get in property tax relief in 2008-09 from gambling revenue. (Note: if you own rental property, own commercial property, or are a renter, you get no relief).
Click here for the full list by district. The amount is a flat rate, so regardless of what you currently pay/current home value, you will get the same amount of reduction as everyone in your school district (unless the rebates take you to $0).
For a better way to reduce property taxes, see our proposal for a Property Tax Relief Scholarship Act at SchoolChoiceSaves.org.
The House State Government Committee passed a Pension COLA bill - AP Story here - which would require a dramatic increase in spending (on top of the expected higher required contributions in future years) and higher state and local property taxes (read: unfunded mandate)
Here is Rick Dreyfuss's commentary on why Pension COLA's and reducing property taxes are mutually exclusive options. For a solution to the pension mess, read about a proposal to put all new employees - state, school district, local government - into a defined-contribution plan.The estimated cost is $10.4 billion over 20 years ...The Public School Employees' Retirement System would need an estimated $348 million a year for 20 years under the bill, according to a preliminary analysis Baker provided. The cost would be funded by a state government subsidy and by local school taxes.
The higher pensions would cost the State Employees' Retirement System an estimated $174 million annually for 20 years. ...
"The question really isn't whether or not it's affordable," said Tim Allwein, the association's assistant executive director. "The question is whether or not it's going to raise taxes, and it certainly has the likelihood of doing that."
In our report, Edifice Complex: Where has all the Money Gone we looked at the fastest growing cost for school districts, and what is driving property taxes higher—school construction. A few recent news stories capture the Edifice Complex at work: For more on school spending and the Edifice Complex attend our Policies and Principles Luncheon on April 29.
Over 100 school districts have applied for exemptions to increase property taxes above the Act 1 index, notes Tony Phyrillas. He points out that this is fewer than last year (over 200 exempted districts) and the state actually rejected some requests for exemptions this year.
Of course, that may be because the Index is higher this year, ranging from a minimum of 4.4% to a high of 7.1% - meaning that school districts, based on their index, can raise taxes by that level without voter referendum, and then can get exemptions to exceed that level without voter approval.
To date, there has yet to be tax increase subject to the Act 1 referendum.
Allegheny Institute Blog looks at Act 1 "Indexes" for 2008 - the level each school district can increase property taxes without referendum, before exemptions are included.
The complete list of indexes for each school district can be found here.
