Smoke And Mirrors: Ward and Fontana’s property tax bill.

Here we go again.  It seems whenever we build up momentum the same smoke and mirrors come back into play.   Senators Kim Ward and Wayne Fontana, who both jumped ship on the School Property Tax Elimination bill, are now going to come up with their own property tax elimination plan which, as we have seen time and again, is anything but an elimination plan.

In a memo that went out to other Senators we read that

We are introducing a Constitutional amendment to allow the General Assembly to adopt legislation that would grant any local government in Pennsylvania with local voter approval, the option to eliminate property taxes and choose   from alternative taxing options to make up for the lost revenue.

While it sounds an awful lot like HB1189 there is some wording here that is raising some serious concerns.   By enabling this option for “any local government” we have to realize what that encompasses.  We have 67 counties, 500 different school districts and more than 2500 municipalities (cities, townships and boroughs).  Are we talking about a potential of more that 3000 different Income taxes, Merchant taxes, Business Taxes and Sales/Use Taxes across the commonwealth?

The densely populated cities in the commonwealth are landlocked and the majority of the cities can do nothing to really expand these tax bases.  If you go shopping or go out to eat in an area outside your school district, you are paying taxes to support other schools and other municipalities.  If you go outside your county, you are paying taxes to support their county government.  The landlocked cities, where attracting new business of this nature are more difficult, will bear the brunt of this proposal.

As we’ve already discussed these cities often see higher millage rates meaning they pay more per every thousand dollars of property worth than their neighbors and the Ward/Fontana proposal will only exacerbate this.  Those cities won’t even be able to consider this as an option leaving the surrounding, often wealthier municipalities with the ability to expand for new retailers and other business options, seeing the potential of reducing or eliminating the property tax.  Not so with the cities.

For many cities the only way to expand their sales or business tax is to take over neighborhoods through gentrification and eminent domain laws resulting in the seizure of properties which, in my opinion, is the real reason we need to put an end to the property tax to begin with.   We want people to feel secure in their property (like the Commonwealth Constitution declares) not turning our local governments into feudal land barons who determine the common good at the expense of our personal liberty and property.

Doing this would call for a Constitutional Amendment which would require that it passes both chambers of our General Assembly in two consecutive session before it goes out to the voters to be approved through the ballots box.  Considering the difficulty we’ve had with getting any property tax bill through any chamber in any single session this is little more than a stalling and diversionary tactic to get us to stop talking a real possibility for a school property tax elimination bill.  I am convinced that both Ward and Fontana know this has a snowball’s chance in hell of passing and they are offering it because they and the interests that they pander too have become so afraid of the passage of SB 76 that they will take any desperate measure they can think of to divert, distract and destroy 76.

The memo goes on to say

While we originally supported Senate Bill 76 because of its goal to eliminate school property taxes throughout the Commonwealth, the legislation ultimately proved to be problematic for our constituents.  It became clear the bill would alleviate tax burdens for some people in some parts of the state while creating much larger overall tax burdens for most taxpayers in areas like ours.  A tax shift is only a tax shift for those who don’t end up paying more.  For everyone else, it’s a tax hike.  Senate Bill 76 would have been just that for the majority of the people we represent.

This is an absolute misrepresentation of the legislation in SB 76.   Yes, it is a tax shift.  It is a tax shift where we eliminate a fowl, corrupt and exploitable system of taxation that unfairly placed a higher burden on the working lower income families and we create a tax that is equally applied to all at the same rate.  It is essentially the common sense logic of a flat tax.   It is the ultimate fulfillment of the uniformity clause of the Commonwealth Constitution when it comes to funding education.

The Ward/Fontana proposal takes a bad situation and makes it worse.  It will grow government bureaucracies and expand their controls over us.   While they will surely promote this as a “local control” legislation don’t be fooled when they use those words.  More often than not, when politicians use the words “Local Control” they mean control over the locals, not in giving you more control over your own choices.

David Baldinger, founder of the PCTA/PTCC, had this to say about this section of the Ward/Fontana memo:

Here are the real numbers:

According to the US Census Bureau the Westmoreland County median home market value is $133,600. Westmoreland County’s common level ratio factor is 0.198. 133,600 x 0.198 = $26,453 median assessed value.

Average Westmoreland County school property tax rate is 79.63 mills. 26,453 x .07963 = $2106 average school property tax for Westmoreland County.

According to the US Census Bureau the median household income for Westmoreland County is $50,736. The increase in the income tax under SB 76 is 1.88%. 50,736 x .0188 = $954 additional income tax under SB 76. Net gain for the average homeowner is $2106 – 954 = $1,152 savings.

Regarding the 7% expanded sales tax, this homeowner would have to spend $16,457 on newly-taxed items and services ($1152/.07) to equal the amount of property tax that has been eliminated.

What are the chances of THAT?

The median household income is the middle of the road meaning that 1/2 of the population in Westmoreland County, according to David’s numbers see substantial savings through SB 76.   Adjusting those numbers upward we still see the substantial savings so her claim that the majority of the people in Westmoreland would have seen a tax increase through the SB 76 shift is not only a misrepresentation…it it unfounded!

While the misrepresentation of the Ward/Fontana proposal in that paragraph is bad the next excerpt is an outright lie.

While no one likes property taxes, the idea of Harrisburg doling out almost all education funding sets up the very real potential that school districts like those in our districts would have seen the tax dollars of its residents shipped to other districts in the state without any local say.

It’s not simply a lie, its fear-mongering.  They ignore the fact that their legislation is the one that will actually be doing this unless you resolve yourself to never ever in your lifetime ever doing anything outside your school district that would require the spending of taxable dollars….even those hideous hidden taxes that businesses seem to prefer over the direct taxation where you know exactly what you are paying for when you get to the register.

The huge box stores have less of a problem with hiding the property tax in their cost to consumer than the small businesses, predominantly family owned.  With less product to sell the cost of those products become more dramatically impacted by ever increasing property tax in the smaller businesses.  The larger business can actually take a slight loss on increasing prices as a result of rising property taxes long enough to allow for their competing small businesses to go out of business and that’s just one way that property tax enables larger business to the detriment of the small business.  The Ward/Fontana bill would only make this worse.  The larger chains can relocate to a far more tax friendly district than the smaller business.  Their bill will only create a scenario where the landlocked and cash strapped cities will see an exodus of their businesses to nearby areas that are more tax friendly.  There is ABSOLUTELY NOTHING free market about this.  This is using taxation to drive businesses to certain wealthier areas of the state while enabling the elimination of competition from their smaller competitors.

SB 76 returns to each school district the same revenue they currently collect through the property tax adjusted each year by inflationary cost controls.  They aren’t going to get less money than they get from property taxes now so Harrisburg can send that money elsewhere.

Also, remember that we are talking about funding education here.  We are talking about children who are in a public school system that is controlled by the General Assembly and the Department of Education through the Public School Code of 1949 and Title 22 of the Pennsylvania Code.  These massive regulatory rules create a series of unfunded mandates that have to be paid for at the local level and is currently paid for through the property tax.  Instead Ward and Fontana want to protect the ability to keep passing these unfunded mandates and empowering the Department of Education to do the same but instead of through the local property tax, they’ll do it through a series of taxes that you’ll be asked to vote for approval of through a constitutional amendment before you actually know what those taxes will be.

That’s right, you’ll have to pass the amendment before you’ll know how badly they’ll screw you and that is explained in the last paragraph.

First though, we have to amend our state Constitution through statewide voter approval before the General Assembly can even begin to explore the best ways to locally empower taxpayers with freedom to decide what is best for them.  Our bill will be a joint resolution proposing to amend the Constitution enabling legislation that would ultimately permit any local government, with voter approval, to eliminate the taxes they collect on all real property and replace the lost revenue with the enactment or increase of any of the following taxing options to be levied only within that political subdivision: personal income tax, sales and use tax, or any tax authorized under the Local Tax Enabling Act.

If ultimately approved, this Constitutional amendment will allow the General Assembly to enable property tax elimination in areas that believe it is needed but hold harmless the taxpayers and school districts in parts of the state that don’t think paying more in income and sales taxes is the best answer for them.

In other words, the General Assembly will decide the winners and losers and they have determined they have such a right because they’ve been so good at this in the past.

We’ve had a lot of smoke and mirrors thrown at us over the last 40 years with regards to property tax independence but this last attempt is just running salt in the wounds of the people in this Commonwealth.

First we amend the Constitution so that it will enable the legislators to introduce bills to allow them to call the shots in this expansion of government powers all being wrapped up in the distortions of the claim expanding our local control.  This is always the problem with Constitutional Amendment where you don’t know what you get until after you giver them permission to do it and then, when you find out….well let’s just say that we Pennsylvanians are getting very tired of voter remorse with the legislators who tell us one thing to get elected but forget those promises when they walk in to the Capitol COmplex and become part of the screw the taxpayers mentality that prevails.

Frankly I don’t think either of these legislators came up with this proposal on their own.  It smells too much like the other legislation that was used in the past in the attempts to subvert 76 in the House.  In my opinion it’s being propped up by legislative controlling interests who have long since stopped working for the best interest of the people in this commonwealth as they seek to exploit our taxes in the elimination of any competition to those powerful players who are really in the business of buying and selling legislators.

Let’s be clear.  The Ward/Fontana bill is NOT about property tax elimination because it doesn’t eliminate.  The words of their own memo make that clear.  It’s not about creating a tax replacement that will be equally applied to all making it more connected to ability to pay.  It’s not about equalizing taxation and its not about uniformity.

Publishers note:  As with previous posts regarding Ward, I took no pleasure in writing this.  While she has taken the opportunity to exploit her bully pulpit by dismissing us as nothing more than disgruntled people from the eastern part of the state she’s apparently not talking to her own people in her own district who, so far, have overwhelmingly supported 76 while questioning what’s really behind her jumping ship after 4 years of support.

I mentioned voter remorse in the article.   This is how I sum up the way most constituents I talk to.feel.  The rhetoric of campaign promises quickly becomes dimmed by the reality of candidates who tell is they will do the right thing because its the right thing to do but then go to Harrisburg and only do the expedient thing because they are more concerned about the special interests who will withhold campaign funding from them or promote another candidate who will tell the same lies to get elected and then do the special interest bidding once there.



Homeless Children

We often talk about homelessness in abstract terms.  We understand its a problem but we often don’t really grasp the scope of the problem.  A recent article that appeared in Pennlive(1) put this into a better perspective with regards to the impact of being homeless when it comes to students in our schools.

According to this report, it turns out that there are 25,260 homeless students in the Commonwealth of Pennsylvania.  That translates into 12.702 homeless students out of every 1,000 students in the state. There are homeless students in at least 96 percent of Pennsylvania school districts.  The statics vary from 1.94 for every thousand students in Huntingdon County to 56.5 per 1,000 students in Forrest County.  Those numbers also only reflect students.  They do not take in to account the number of children not yet in the public school system.  A reasonable assumption could be made of another 1/3 of the 25,260 students being homeless who have not yet reached the age of K-12 public education.  It also does not include students who have dropped out.  According to The Commonwealth official report from the Department Of Education on drop out figures, 13,945 students dropped out of education between 2013-2014. (2)

Looking at those numbers gave me a harsh flashback to a statement Michael Woods made during a House Hearing on HB 76 (The School Property Tax Elimination bill).  Commenting on a statement that 10,000 people facing losing their homes every year because they couldn’t keep up with the school property tax he said that 10,000 people a year losing their homes is not a significant enough number to warrant doing anything about it.  Michael Woods represents the PA Budget and Policy Center/Keystone Research Center.

It also brings into clarification the ramifications of Governor’s Wolf’s statement that there is a need to understand the investment that is education. There is a choice, he said, of supporting public education, but it comes with the cost of the taxes and the possibility of losing a home for some.(3)

The Pennsylvania Public School Employees’ Retirement System (PSERS) has boosted its annual surcharge on state and local taxpayers to 30 cents on top of every $1 paid to teachers and other school employees in fiscal 2016, up from 26 cents in 2015.  State income and sales taxes and local property taxes will pay $4.1 billion to keep PSERS assets from falling farther behind future pension obligations in the 12 months starting July 1. This number is four times more than school employees will contribute to their own pensions.(4)

While we’ve been claiming that this is unsustainable, look at what is happening with homeless students in the Commonwealth.  The ever rising cost of the School Property Tax becomes a contributing factor when it comes to homelessness.  In the past 20 years the the school property tax has risen 146 percent greatly outpacing wages and the rate of inflation. This results in more people being unable to sustain the tax resulting in property seizures, foreclosures and bankruptcy for homeowners.

It’s not just homeowners who are impacted by increasing property taxes.  Renters feel the crunch through higher rent.  RealtyTrac analyzed 2015 fair market rental data recently released by the U.S. Department for Housing and Urban Development(5) for three-bedroom properties in 543 counties nationwide with a population of at least 100,000. In the 473 counties with sufficient rental and home price data, the fair market rent for a three-bedroom property in 2015 will require an average of 27 percent of median household income. Contrasting the different data sets for Pennsylvania from this website reveals a stark increase in rent rates over the last 10 years.  It cannot be argued that increasing property taxes has little to no impact on these increases.

In January of 2015 The Commonwealth Foundation reported that Pa residents continued their exodus from Pennsylvania in 2014.  Their report stated that the latest Census population estimates showed that Pennsylvania gained 5,913 in total population between July 2013 and July 2014. This increase was driven by natural causes—13,400 more births than deaths—and international migration (a net of 29,000).  However, on the negative side, the state lost 31,400 residents to other states in net domestic migration. Only New York, Illinois, New Jersey and California lost more. (6)

However, when it comes to the problem of student homelessness, these children are often unable to vote with their feet.  Their parents are not in an economic position to pack up and leave.  While a business may be able to leave the state for a friendlier tax environment or college grads may likewise leave the state for better tax environments and job opportunities, low income families have far fewer options, all contributing to the homeless problem.

As discussed in a previous blog, the regressive nature of the property tax places a much higher burden on those earning less income since the property tax has no real basis on ability to pay(7) resulting in a tax based on an assumed assessed value of worth of the property being taxed manipulated by a mil rate framed around meeting a revenue want with no real regard to the consumers ability to pay.   In cases where the assessed value is higher than the actual fair market value of the home, families are paying property taxes on property they don’t really own.

We are seeing an increase in appeals in Lebanon County following a court-ordered county-wide reassessment.  Homes sold after the reassessment are selling for prices lower than the assessed value giving new homeowners the ability to file an appeal for a lower assessed value.  But what about the previous homeowner who sold that home because they could no longer keep up with the property tax?  There is no compensation to them.  They have lost their home paying higher taxes to a new buyer who will pay lower taxes after a successful assessment appeal.   That initial savings through a lower assessed value will be short-lived because the appeals will generate a revenue shortfall that has to be made up by raising the mil rates.  That is the vicious cycle of the property tax problem.

It has often been said that the property tax is a stable form of tax.  Those who repeat this mantra are using a thinly-veiled excuse of an argument.  What they are really saying is that it is stable for the tax collector because of the lengths and sacrifices homeowners will go to in order to hold on to their property.  Stability for the tax collector is based on the same principles of extortion.   How much would a parent pay to have their kidnapped child returned to them?  That’s the same logic behind the stability excuse.

The stability for the tax collector creates an instability for the property owner.  For homeowners it can mean sacrificing on food, medicine or other healthcare choices as they struggle to keep their homes.  For renters the rising rent as a result property tax increases results in the same issues or contributes to families doubling up resulting in over-crowded home environments.

All of this contributes to the lack of job availability for career jobs with businesses leaving the state or refusing to relocate here because of the tax environment.  That contributes to the lower paying jobs which results in more homes (whether owned or rented) being lost to the tax collector.  That contributes to the rise of the homeless.   It’s the simple process of cause and effect; A simple process that the collective Harrisburg lobbyists and many legislators refuse to admit.  Of course if you don’t like business competition contributing to lower prices for goods and services you would not want to see tax policies that actually might generate that competition, especially if that competition is coming from small family-centric entrepreneurial business entities who might actually challenge the corporate cronyism so prevalent in this Commonwealth.

The concept of a truly free-market, like everything else, begins at the local level.  The most local entity of that market is the property owner.   Rather than encouraging home-ownership in the commonwealth, the property tax became a punitive tax that has held home-owners hostage and accountable to tax policies making the homeowner a servant to government instead of the government being a servant of the people.  It has become a ridiculous method of funding education that is resulting in an increase in homeless children…the very children the public schools are supposed to be so concerned about.

The facts tell a very different story and this homeless student fact is a sore and festering blemish on the face of all proponents of the status quo when it comes to property taxation.  It doesn’t end with students.  While tracking homeless data is difficult it is known that while the homeless problem decreased nationally it increased in Pennsylvania.  As with the student homeless issue, it’s varies across the state but overall statewide statistics show an increase made only harsher by a national decrease.

The website on their facts on homelessness shares that nearly 1/4 of the homeless population is children.   If that’s the case, then the homeless population in the state would exceed 100,000 people.

Keystone Crossroads released a report looking at the homeless plight in PA.  The reports disclosed that Pennsylvania had the third-largest increase in the number of unaccompanied youth who are homeless in 2014 from 2013, the first year that sub-population was counted; 45 percent of people experiencing homelessness in Pennsylvania were part of a family unit, higher than the 37 percent national number-Bucks County (63 percent) and Scranton (59 percent) were higher.(8)

Newspaper articles often tell us about the connection between Homelessness and alcohol/drug issues or mental illness but Housing Alliance of PA tells us that the issues of affordable housing and homelessness are intricately connected. While circumstantial factors vary, homelessness occurs when people or households are unable to acquire and/or maintain housing they can afford.(9) Perhaps it’s time to start looking at the possibility of losing a home leading to drug and alcohol related issues.

How can housing remain affordable when property tax increases are by far outpacing the growth of wages and inflation?

The following chart comes from the Independent Fiscal Office’s analysis of the Property Tax Independence Act (HB/SB 76).   As long as this trend continues more and more people will be unable to keep up with the demands of the property tax.  That will continue to contribute to the plight of the homeless adding greater needs for more revenue from other government programs intended to help the homeless; a problem that is, in fact, partially needed because of the way the Commonwealth chooses to fund education and the pensions of public sector employees.


Cumulative Growth Chart

There are homeless camps in many of our major cities.  Pittsburg, Philadelphia, Scranton all have seen homeless camps but other cities in the Commonwealth have seen them as well.  Bristol, Allentown, Reading and other places across the state have had to deal with issue as well.  Often times the solution is to simply force people to vacate the premises. When this happens the homeless simply other places to live making it even harder to track the actual numbers.   Frankly, at least for me, it’s hard to imagine any sense of the word civility in a society that would tax people out of their homes or apartments and respond to homelessness the way it is often handled.

Housing Alliance of Pennsylvania tells us that there are hundreds of thousands of blighted or abandoned buildings are spread across Pennsylvania, impeding community and economic development programs and conveying images of old, worn out communities. (10)  It raises the question of what causes a homeowner to either neglect their property or to walk away from it completely.  To ignore that the property tax is a major contributing factor is simply delusional.   Money that could be used to do necessary upkeep in their own home or to go so far as to simply keep that family in their home is diverted from the homeowner in the form of a property tax, a large portion of which is simply to provide for the pensions of those in the public sector.  How can we reach a point in society where we would prevent someone from doing necessary repairs on their homes so they can provide for the retirement of others?  To add insult to injury, how can we justify a system that would evict them from their home or apartment because they can’t keep up with the retirement demands paid for through a local property tax?

This is a system of taxation that levies an annual tax on property that has every potential of taxing that property more than it is worth over a lifetime.  If we did treat our wages and our purchases the way we treat people’s homes, no one in the state would have any income at all and yet we still have many who think the property tax is a just form of taxation.

For the homeowner, the property does not generate any real tangible income.  The homeowner does not receive an annual check at the end of the year for any equity their home may have accrued making it possible to meet a property tax obligation.  Certainly for the renter, there is no income generated in renting an apartment and yet they face the distinct possibility of rent increases directly related to the tax increase.   The landlord must compensate for their revenue loss or face losing the home, either way, the renter faces losing the place where they live.

We have created a tax climate in the Commonwealth that spurns jobs, contributes to non-family sustaining employment and makes it impossible to make ends meet for many.   Then we increase the property taxes eventually leading to eviction of both home owners and renters contributing to the possibility of homelessness.  To combat this, we create a greater revenue need through taxation in the name of helping the very people that taxes have evicting from their homes.   That is bitter a bitter pill to swallow only made more bitter when so much of the increase in taxation is about meeting the pension demands of the public sector.

The Pennsylvania Department of Education cites the following on their website: Pennsylvania’s Education for Children and Youth Experiencing Homelessness Program was established to make sure homeless youth have access to a free and appropriate public education while removing barriers that homeless children face. Its goal is to have the educational process continue as uninterrupted as possible while the children are in homeless situations. Some of the other main objectives of Pennsylvania’s Education for Children and Youth Experiencing Homelessness Program are to inform local school districts of their responsibilities to homeless children and youth, to increase awareness about the needs of homeless children, explain current laws and policies, and provide practical tips for working with homeless children. (10)

I commend the Department of Education in addressing a problem but once again I fear we are treating the symptom while ignoring the cause of the need for more new government programs.  It is, after all, the Department Of Education that essentially rubber stamps the school districts who apply for no-voter referendum exemptions to the Act 1 limits that results in higher property taxes contributing to higher rent leading to a growing problem of homeless students.   For me that’s like attempting to appear to be humane by claiming to want to treat the wounds and bruises of a victim you’ve just pummeled.

You don’t solve problems by creating them in the first place.  You solve problems by eliminating the cause of the problem.

Is it possible that the homeless plight is a symptom of another disease?  How many jobs could be salvaged or even generated if we shifted from taxing real estate by increasing the PIT and Sales/USE tax?  We know that KOZ’s (Keystone Opportunity Zones) actually work as long as the property tax exemption remains creating jobs and tax revenue for the state through the employee’s PIT and their sales taxable purchases.  Unfortunately, when the exemption expires, the jobs often expire as well.  Imagine if that became permanent.

How many more families would have to face losing their homes or being evicted from their apartments if the property tax was eliminated?  Instead of artificially raising their rent through taxation and then building government programs to provide rent rebates what if we eliminated the property tax and shifted the collection of that revenue through a PIT and Sales Tax?

It is the property tax that has created the need for so many of these government programs to begin with.  From Clean and Green to the homestead exemptions to the KOZ’s and LERTA’s while we grow government bureaucracies we place a higher burden of taxation to fund government as a result of an unfair and antiquated tax on a assumed worth of property values manipulated by mil rates that have nothing to do with an ability to pay.

It’s long passed the time to pull our heads out of the sand and realize that property tax has become the root cause of many of the problems this state faces.  It is not a symptom of the disease…it is the source of the disease and we won’t be able to truly fix the spending problems, the pension problems, the inequity problems in education funding, prevailing wage or even worker’s rights until we remove the cancer that creates the other problems.  That cancer is the Property Tax.  With removing the cancer, the other problems will just resurface if we attempt other fixes in different places with new symptoms.   Property taxation is the cell that allows the other issues to exist.

HB/SB 76 is a start.  It shifts education funding through the property tax to a more equitable PIT and Sales Tax.  It makes the state, which loves their unfunded mandates, responsible to find the funding before they can pass any increased cost down to the local level.

Most importantly, it takes a major step in helping to alleviate the problem of homelessness in a way that doesn’t require numerous costly government bureaucracies and would, in fact, begin to render some of those already established bureaucracies unnecessary or, at the very least, reduce their size and scope.  If we really want to reduce the size of government we should be shrinking the need for the bureaucracies that operate behind the scenes and become necessary only because our legislators are unwilling to fix diseased and broken tax policies.