A new report, Aging and the Pennsylvania Economy, from the Independent Fiscal Office gives us some very telling information. The report tells us that between 2010 and 2017 we had a 5.1% loss in population for Pennsylvania residents up to 20 years of age. This amount to a loss of about 163,000 school-aged children. The report projects that this trend will continue and that by 2025 we will see another drop in student population by another 29,000. I, have to admit to questioning this projected number. Trends show a great exodus of population among working aged families and I believe this will contribute to a greater loss of student-aged population than projected.
The report continues stating that we saw a loss in working-aged population (20-65) from 2010 to 2017 by 67,000. The Independent Fiscal Office projects that this will translate into another loss between 2017 and 2025 of 103,000. This is one of the major reasons I doubt the much lower projected student-population decline. The majority are children born are to working-aged individuals. If the Pennsylvania working aged-population declines at a much greater number from 2017-2025 than it did the previous seven years than student-aged population will also continue to decline at a greater rate.
The report also states that senior population is growing. From 2010 to 2017 the senior population (65-75) had grown by 303,000. There’s a slight drop in the retiree-aged population (75-84) of 7,000 but a growth in the over 85 bracket by 27,000 all between 2010 to 2017.
We know that there has been an exodus of out-migration in population away from Pennsylvania over the last several years leading to a decline in total state population. In all those reports that I’ve seen, there is no demographic breakdown of the total loss in population but this report would indicate that the largest demographic leaving the state is the working-aged family. That will contribute greatly to the loss of student-aged population. It will also generate a much higher fiscal responsibility on the remaining working-aged families to provide for the growing program needs of a growing above 65 population.
The Independent Fiscal Office report also tells us that total workforce participation has decreased by 2.1% from 1997 to 2017. In 1997, 64.5% percent of the population aged 20 and over was in the workforce. Today that percentage is 62.4% The decline is in Labor Force participation between the ages of 20 and 44. Not only do we have less working families between the ages of 20-64 fewer of them are in the workforce which tells us that some of the in-migration numbers of people who are relocating to Pennsylvania are also people who are not in the workforce.
For the over 65 age demographics, more seniors are in the workplace than before. In 1997, 10.2% of that age group was still in the workforce. Today 19.3% of the 65 and over age group is in the workforce. Even though many in this age group have already paid for their homes, which makes up the largest debt portion for Pennsylvanians, many of them are forced back in to the work force to provide for the demands of school property taxation. This is also fueling a growing number of seniors turning to reverse mortgages in their attempts to keep their homes.
This information is important if we are to look at the growing problems related to the dependency of school education funding on a property tax.
First, we’ve seen a seven year decline in student-aged population of 163,000 and yet the cost of educating those children has increased during that same time period. The Independent Fiscal Office estimates the future statewide property tax burden to increase $530 million annually, or more than 1 billion every two years, according to an earlier report (School District Property Tax Report, released January, 2018)
It other words, from 2010 to 2017 we saw a growth in the cost of property taxation burden by slightly more than $3 billion dollars. By 2025, we will see an additional growth in property tax burden by almost $5 billion dollars for a total burden of growth that will exceed $8 billion dollars.
In 2010, the cost to completely replacing the school property tax was about $13 billion dollars. In 2025, that cost will exceed $21 billion.
At the same time, we also know that wages in the private sector are not keeping up to the pace of the demands of the property tax burden. We also know that the debt burden in the private sector is growing. The Aging and the Pennsylvania Economy report from the Independent Fiscal Office tells us that housing debt is the largest portion of that debt. The report also discloses that since 2013 there have been 8,549 reverse mortgages filed in Pennsylvania citing another report “The Graying of American Debt,” by the Federal Reserve Bank of New York.
We know that home-ownership is dwindling in Pennsylvania. Fewer working families are purchasing homes with more people turning to rental properties to provide shelter from themselves and their families. Today about 60% of homes are owner occupied with 30% renter occupied and another 10% of the homes vacant (not including designated vacation homes) according to a 2017 report from Penn State University.
Couple this to a declining population and you have a declining taxable base that must meet the demands of the growing education funding mechanisms leaving less disposable income and generating higher debt obligations.
In the 10 year cycle from 1987 to 1997, the Pennsylvania Economic Growth statistic was 2.5%. Over the next 10 years (1997-2007), Economic growth in Pennsylvania dropped to 2.1%; from 2007 to 2017 economic growth dropped to 1.3%. At the same time, the burden of property tax grew dramatically and yet finding a report correlating the above-inflationary rate of growth in property taxation to the decline in Economic Growth is next to impossible. Maybe that’s just one of those dirty little secrets we simply do not want to admit.
You simply can’t keep increasing the tax burden on working families and not expect negative consequences, nor can you keep increasing the tax burden on the business communities and not expect to see the negative consequences of fewer jobs, less expansion and even less inwards migration of new industry in the state. There is a reason Pennsylvania is at the bottom of the barrel when it comes to attracting new businesses to the state. While Right To Work legislation would help attract jobs to the Commonwealth, 21 other states do not have Right To Work Laws and still manage to attract more businesses to their state than Pennsylvania. It’s time we start asking why.
It’s true that Pennsylvania has the second highest corporate tax rate, second only to Iowa but even Iowa attracts more business to its state than Pennsylvania. It’s also true that while Pennsylvania has the second highest corporate tax rates, it also has the second highest amount of corporate welfare and yet Pennsylvania still can’t attract more business to the state. Pennsylvania is resource rich and ideally located as a center on the East Coast, and yet we still can’t attract more businesses to the state. So what’s the problem….it couldn’t be the corporate tax rate coupled to the rising costs of school property taxation…or could it?
Even though state income through PIT and Sales tax is not growing the way it was 20 years ago, it still grows naturally without the need of tax increases. Even though the population in the state is declining, we have added to the revenue through the natural growth of PIT and SUT revenue in the state without increases taxes.
The property tax simply doesn’t work that way. In order to generate more revenue, they must raise the taxes because property taxation does not grow naturally with the economy. Those property tax increases produce economically damaging results. When the Pennsylvania population declines, the PIT and SUT revenue still increases without tax increases but when student population declines, the revenue demands increases and those demands require tax increases.
Those property tax increases than generate less personal spending statewide because of less disposable income so spending drops resulting is less revenue generated through the SUT tax. Higher business property taxes results in slower wage growth and less job creation result in slowing the PIT revenue generated to meet state funding needs.
The property taxes increases also contribute to the growing problem of blight in our communities. With less disposable income, there is less money to re-invest in home maintenance or improvement.
As population declines the need for new home construction slows as well. According to the Penn State study, Pennsylvania Facts 2017, Pennsylvania ranks 6th among states and the District of Columbia in the proportion of housing units built in 1939 or earlier (26.7%). That means that 43 other states have higher numbers in new home construction to meet population demands than Pennsylvania. Could that be because our population demands are declining while other states aren’t faring as poorly.
The fact of the matter is that unless Pennsylvania changes it course of action, things are not going to get better in Pennsylvania. While we may a have a state slogan that says “You’ve got a friend in Pennsylvania”, for those of us still living here we can say “Yes, but we have many other friends in many other states who used to be our neighbors in Pennsylvania.”
There has been a recent amount of chatter about replacing the school property tax for homestead only with a PIT only increase. Looking at the above data, I see this as a recipe for disaster. While 19.3% of the senior population is still in the workforce, the remaining 80.7% are not and Pennsylvania does not collect PIT revenue from retirement income.
To me, this is an unsustainable option that puts the burden of state education funding on a shrinking number of working families in the state. I see this as a plan that will accelerate the out-migration of working-families while growing the senior population as well as the in-migration of more younger families who do not participate in the labor force. Neither results would be part of a plan that looks to the future prosperity of the state. It is, in my opinion, irresponsible.
Forcing more working families to consider leaving the state may reduce student population but that demonstrates no historical record of reducing the overall cost of education.
We have to get off this course of action that keeps expecting the working families in this Commonwealth to give more and more towards failing policies in this state. We should be working to attract more working families to the state, not less. That’s done through making Pennsylvania a better place for family sustaining jobs. While the reliance on property taxation to fund education remains a dark blot of Pennsylvania’s economic future, going to a PIT only replacement for Homestead only does nothing to attract new industry to the state and discourages in-migration of working families while encouraging out-migration of the same demographic.
Then again, this is Pennsylvania so what else would we expect from a General Assembly that has continually kept Pennsylvania on a path of negative economics results. To those legislators who have fought to restore Pennsylvania working for common sense solutions to our financial problems, I say thank you. A PIT replacement for homestead only school property exclusion, however, is NOT one of those common sense solutions!