SB76: The Retained Debt Myth

I’m going to start to tackle opposition talking points.  Being involved in presentations and speaking in public we always get haunted by the same rhetoric and many of these talking points result in leaving me bewildered how any institution (translate that as lobbyist/special interest) that wishes to retain their own credibility would repeat these claims.

I’m going to start with the most glaring…the Retained Debt Myth.

During the meeting with Indiana/Armstrong Patriots this week a detailed analysis of the working mechanics of the legislation was presented.  This was followed by Rep Dave Reed and Senator Don White and during the Senator’s talk, the question was raised, who is the opposition and why are they opposing us.   Senator White mentioned the Business Chamber and NFIB (National Federation of Independent Business)

As far back as 2013 National Federation of Independent Business (NFIB) sent a letter out that included the following statement as an opposition talking point:

– Lowers school property taxes (but does not eliminate them altogether), giving rise to the potential that rates eventually could rise skyward again.

NFIB is not alone in this talking point.  The claim has often been repeated by other groups and during a Senate Finance hearing where I was asked to offer testimony on behalf of SB 76 (School Property Tax Elimination) the claim was repeated by Senator Rob Teplitz.

Here are the facts:

Most school districts have existing debt.  In some school districts the debt is higher than it is other school districts.  There are, however, a few school districts who have not accumulated debt.  They made frugal choices perhaps recognizing the difficulty some have in meeting the growing school property tax obligation.

As the bill was being crafted the discussion was held concerning what we do with existing debt.   We felt that forcing the residents of a frugal school district with no debt or even those with lower debt levels to pay an increased fee to cover the districts who were not frugal;  Plush state of the art stadiums and lighting, Astroturf….these things may have been wanted by the residents on a particular school district but we felt that it was unfair to punish residents in other school districts making those residents pay for the extravagances of others. We wanted to avoid any redistribution schemes.  We simply didn’t feel that acquired debt of one school district should become the responsibility of other school districts.

The bill was crafted so that existing debt would remain in the school district that created the debt.  For those school districts, the school property tax would remain until that debt would be paid off and then the school district property tax would disappear in that area forever.

In most cases we are talking about an immediate 90% reduction of the school property tax bill with the remaining 10% to disappear as soon as the existing debt was paid off.  There are some exceptions where that debt is slightly higher.  That debt needs to remain the responsibility of the school district that created it.  We call that accountability.

Let’s understand that local school construction, renovation, etc is local.  The construction of state-of-the-art stadiums should be a local option.   While important aspects of the extra-curricular activities of public education those decisions should be made and paid for at the local level.  That decision should be made by the community, not controlled by the whim of 5 members of any school board.   SB 76 restores that through the no-exemption voter referendum.

What happens inside the classroom is something different.  Through Title 22 of the Pennsylvania Code, The Public School Code of 1949, The Administrative code of 1929 and other parts of our Pennsylvania regulatory controls are all set in place through the legislators, Department of Education and other Departments that have direct connection to Public Education (like the Department of Health and Human Services).   Through these state controls we get the myriad of unfunded mandates from the state which drive up the cost of local education.  Eventually those unfunded mandates will be funded and that is through the local property tax.  In other words….your home.

12772049_10206413518436647_2139325532425971387_o

The above picture is a set of books printed directly from the state government website.  These books are used on presentations to demonstrate the controls over our school boards and the many unfunded mandates that come down from the state.   Like the retained debt myth, local control is a myth as well.  I’ve come to believe that local control, when used by most in government doesn’t mean what we might think it means….it means controlling the locals and NOT our control over government.

Your home does not generate an annual income that allows you to pay the school property tax.  In fact, studies have demonstrated that excessive school property taxes actually drive down property values.  The Independent Fiscal Office 2013 analysis of this bill stated clearly that the passage of the bill would cause home values to increase, on average, by more than 10% statewide (Page 23 of that report).

The bill, in very clear language, states that once SB 76 is enacted the school district can no longer use your home as a revenue source.   It removes that option from the school district.   It does provide for other options like a local income tax for special projects.   Those special needs can only be achieved by explain the purpose of the debt to the residents, providing a sunset date for the payoff and finally, through a no-exemption voter referendum where local control would really be restored to the people.  It would be the members of the community who would decide, not five members of a local school board.

The notion that the bill allows school districts to continue using the school property tax with regards to existing debt to add new debt to it, expand the debt payments or whatever is unfounded but you don’t have to take my word for it…..it’s in the bill.  This is from the most recent printer’s version of the bill which was from 2015.  We are in 2016 and the bill, when introduced again, will reflect a 2016 date.

CHAPTER 11

LIMITATIONS ON

SCHOOL DISTRICT TAXATION

Section 1101. Authority to levy taxes and effect of future

Abrogating authority to impose certain taxes.–

The authority of any school district to levy, assess and collect any real property tax under the Public School Code of 1949, or any other act shall expire, subject to the provisions of section 1102, January 1,  2015.

What part of expire is so difficult to understand?

Chapter 12 of the bill deals with Indebtedness

It reiterates what was stated in chapter 11 but it goes even further.  The bill states that each school district, including a school district of the first class, shall identify the outstanding amount of all electoral debt, lease rental debt or non-electoral debt of the year preceding the passage of the bill.  That debt must be audited for accuracy.  It is that debt and that debt alone to be retained until the debt is paid off.

There is ZERO possibility that school district can use a property tax to alter that debt to increase it in any attempt to sneakily pull one over on the tax payers.  Unlike your current property tax which can continue to increase above the Act 1 limits without voter referendum because of the exceptions, SB 76 puts a stop to that.   It places the controls at the local level through no-exemption voter controls.   If the school board wants to expand their spending they must make the case to the public.  They must clearly identify the cost, the future debt incurred and the local income tax that will be applied.   It will never again use the seriously flawed mechanisms of the property tax to do so and, best of all….the voters decide.

There is a possibility that a school district may want to refinance their existing debt. Unlike the retained debt myth, the only way they can do so to expand that debt is to do so through a local income tax and doing so would require the approval of the voters in that district through the no-exemption voter referendum.

There has been some discussion of a possible amendment that would allow the existing debt issue to be changed but only if it lowers the interest on that debt to reduce either the time frame for repayment or the amount being repaid.  In either case, it lowers the debt burden, not increases the property tax as implied by the memo from NFIB and has been repeated by others.

The claim that the existing debt can lead to runaway property taxation without eliminating it is simply not true.

The truth is if your school district has debt you will see an immediate reduction of the school property tax of 80% to 90%.  The school district must report on that debt.  The debt reported by the school district will be audited to make certain it meets the requirements.  A sunset date for that debt must be established and once that debt is paid off those school districts will see all of their property tax eliminated.

If your district has no debt you will see a 100% elimination of your school property tax.

This then begs the question of why this retained debt misinformation is being perpetuated in the first place.  It can‘t be the real reason if It’s not a reason at all.  There has to be something else.  We’ll talk about some of the other claims over the coming weeks and you will find that most of these claims are as unfounded as the retained debt claim.

I will add that last year the Senate offered the opportunity for the opposition to meet with them and discuss any problems with the legislation and possible amendments to fix those problems.   This issue was never once mentioned during those meetings.  In fact, those most notorious for perpetuating this claim chose not to participate.

 

 

 

 

 

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3 thoughts on “SB76: The Retained Debt Myth

  1. Pingback: SB76: The Myth Of Local Control | On the Edge of the Precipice

  2. Pingback: SB76: The Sales Tax Myth | On the Edge of the Precipice

  3. Pingback: SB76: The Reassessment Myth | On the Edge of the Precipice

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