The Inherent Inequity of Property Taxation to Fund Education

The following information is specific to Lebanon County but it can be applied in most areas of the Commonwealth of Pennsylvania.  The data is intended to show the current inequities inherent in using property taxation to fund education.

Note: Median Income and house value taken from city-data.org. The median income and house value data corresponds to the U.S. census data.

Lebanon City:

  • Estimated median household income in 2013: $33,485
  • Estimated median house or condo value in 2013: $87,620
  • 19.3 mills go to school property tax ($19.30 for every $1,000 in assessed home worth)

The current school property tax millage for the median house value of $87,620 is $1,690.68 or 5% of the median household income. The school property tax represents 71% of the total property tax bill in the city.   The total property tax on a home valued at the city average of $87,620 would be $2,380.94.   This represents 7.1% of the median household income.

To further demonstrate the regressive nature of the tax. A city household at the median income for the county would be $55,973 according to city-data.com.  Their school property tax on a home valued at $87,620 would be $1,690.68 or 3.02% of the $55,973 county average for household income.

The same priced home for a household at the median household income level for the city of $33,485 pays 1.08% more of their income towards the school property tax.  A family earning below the median income level, say at $30,000 median household income, would pay 5.6% of their household income to the school property tax or 0.6% more of their income towards the school property tax than a household at the median household income level for the city.

This is the truly regressive and inequitable nature of the property tax.  This is compounded by the inequities that exist in the methods of re-assessment or the application of the Common Level Ratio, both of which do little to rectify the inequity problems inherent in those systems.  That, however, is a discussion for a different day.

Even though everyone pays the same millage rate for county property taxes it reflects a higher impact in Lebanon City.  The millage rate for County property taxes would total $288.49 for a home valued at $87,640 which would be 0.86% of median household income.  The same tax levied in nearby Cornwall on the same priced home would still be $288.49 but that represents 0.33% of median household income.

How does this impact the cost of rental properties?

The Property Tax, by necessity, will inflate the cost of rent as landlords must pass that expense on to the renter.  Median gross rent in the city is $656 according to city-data.org.  Median gross rent is $620 for the county or $36 more in the city.  This translates into a cost of $432 more in the city annually where median incomes are lower.  This means, on average, that city residents who rent will pay an additional months rent every 15 months rent compared to elsewhere in the county.

Let’s look at three neighboring areas in the same county.

Cornwall:

  • Estimated median household income in 2013: $85,736
  • Estimated median house or condo value in 2013: $216,927
  • 3512 mills go to school property tax ($14.35 for every $1,000 in assessed home worth)

Total school property tax on median value home: $3,113.16 or 3.6% of median household income for Cornwall.

A home in Cornwall that is assessed at $87,620 (Lebanon City Median Value) would pay $1,257.45 in school property taxes. That would be $433.23 less than in the city even though the median household income is $52,251 more in the Cornwall area.

Annville:

  • Estimated median household income in 2013: $54,054
  • Estimated median house or condo value in 2013: $144,223
  • 13.5094 mills go to school property tax ($13.51 for every $1,000 in assessed home worth)

Total school property tax on median value home: $1,948.37 or 3.6% of median household income

A home in Annville that is assessed at $87,620 (Lebanon City Median Value) would pay $1,183.69 in school property taxes. That would be $506.99 less than in the city.

Palmyra:

  • Estimated median household income in 2013: $54,471
  • Estimated median house or condo value in 2013: $144,223
  • 13.52 mills go to school property tax ($13.52 for every $1,000 in assessed home worth)

Total school property tax on median value home: $1,949.89 or 3.6% of median household income.

A home in Palmyra assessed at $87,620 would pay $1,184.62 in school property taxes.  That would be $506.06 less than in the city.

Taking these three areas compared to the city, Lebanon City households would be paying an average of $482.09 more in taxes annually than their neighboring areas for a home assessed at at the same price of $87,620 (Lebanon City’s average home value).  In just three years this amounts to $1,446.68 more in school property taxes in the city where the median household income is much lower or enough to pay an additional year of school property taxes in the other three neighboring areas.

The average median household income in the three neighboring areas is $64,753.67 or $31,268.67 more than the city median household income of $33,485. As I stated above, this data deals specifically with Lebanon County but the same research can applied in most places of the commonwealth.  It took several hours to compile this data and to do so in every county would take much more time and, more importantly, space than this blog would allow for.

It was necessary to show you the number data in order to make the following summary statements.

This demonstrates the inherent flaw of using estimated property values to fund education.  The inequity in levels of income creates an inequity in ability to fund education that places a higher burden on working families in lower income areas resulting in a greater percentage of their income going to fund that education.  Using property taxes to fund education often results in higher millage rates paid on homes of lesser values translating into a higher tax per thousand dollars of home worth.

This is an inherent flaw that can only be corrected with the complete elimination of the property tax by shifting to a more equitable method of funding education. Until this is accomplished the inequities will continue to grow forcing more school districts into an unstable and unsustainable future.

Many homeowners have already realized this unsustainability as the property tax has led to sheriff sales, while contributing greatly to foreclosure and bankruptcy.

With the school property tax at 70% or more of the current total property tax, Municipalities have had to face serious cuts in services that includes police, fire and safety protections which makes our communities less safe.

As the school property taxes have increased home-ownership has declined.  Rental properties in Lebanon City is above the state average.  To fail to make the correlation in decline of home-ownership and the increase in property taxation is economically foolish.  The U.S. Census tells us that the owner-occupied housing unit rate, 2011-2015, for the city of Lebanon is 42.4%.  That’s down 7.8% from 50.2% in 2000. For the County that rate is currently 70.4%.

As rents increase as a result of property taxation the need for subsidized housing also increases placing greater financial burdens on working families through other forms of taxation.

The choice is clear.  We either continue down this unsustainable path that grows the tax burdens on working families leading to more property seizures, bankruptcies and foreclosures growing the number of rental properties while losing more owner-occupied homes or we change the future.

We have the ability of opening doors of opportunity by transferring to an alternate form of funding for education.  We can open the doors making home-ownership more accessible to more people or we can protect the status quo and close more doors to more people. We can open doors of opportunity for small family owned businesses as well creating more job opportunities for everyone.

Educational institutions in this state want to keep those doors closed in order to protect the status quo.  They insist on doing so in spite of the fact that all evidence shows that the path we are on is unsustainable.

We are watching as the state institutions of higher learning are now finally considering reviewing their policies after a six-year decline in student population at those 14 state funded institutions.   Administrators claim, even after the state has increased funding to these schools by 2.5%, there is a $60 million dollar shortfall in funding for these schools.  What they don’t’ want to remind you is that in December of 2016 the State System of Higher Education approved $77 million in employee pay raises.  Those raises will also place a higher burden for pension compensation on the rest of us.

We have the same problems in our local schools. The 2016-17 enacted state budget included $5,895,079,000 for the 2016-2017 Basic Education Funding appropriation.  This amount is a $200,000,000 increase (3.51 percent) over the 2015-2016 appropriation.  School Administrators and School Boards claim this is a funding shortfall because it doesn’t meet revenue wants even though it is a substantial increase.  Even with the increase, local property taxes continued to rise.

Salary increases, pensions and healthcare that far outpace anything in the private sector are a major factor in driving up local school costs.  While this may open doors for those employed in those institutions, it does so by closing doors of opportunity for the rest of the working families in this commonwealth.  It makes it more difficult for them to provide for their own retirement and, in some cases, it robs them of their very home.

If we protect the status quo we go further down an already unsustainable path for working families in this Commonwealth.   It’s time for a change, albeit a radical change.

For more information on what that change is visit www.ptcc.us and become a part of the movement that will open doors of opportunity for hard working families across this state. Or you can listen to the rhetoric of others who want to keep spending at the current rate to maintain their wants at your peril.  The choice is yours!

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