A proposed amendment to the Pennsylvania Constitution will open up new possibilities for tax laws, but state lawmakers will have to pass legislation before municipalities can adjust tax rates.
Pennsylvania policy wonks Marc Stier and Bob Dick don’t agree on much these days, but there are at least two points where they can find common ground.
The first? Property taxes in Pennsylvania are painfully high.
Second, neither man knows quite what to think of a proposed amendment to the state constitution, which would give municipalities the power to abolish or greatly reduce school property taxes.
That amendment will go to public referendum in the Nov. 7 general election. Both Stier, director of the left-leaning Pennsylvania Budget and Policy Center, and Dick, an analyst at the conservative Commonwealth Foundation, say that their organizations haven’t taken official stances on the ballot measure.
That’s due in part to the uncertainty that will remain if the amendment passes.
If it does pass by majority vote on Nov. 7, it would create a constitutional path for lawmakers and local taxing authorities to reduce or eliminate school property taxes.
But since the amendment also doesn’t compel legislative action, it could have no practical consequences at all.
Nationally, Pennsylvania has one of the biggest disparities in per-pupil spending between its poor and wealthy districts, due in large part to its dependence on property taxes to fund schools, according to a report from the University of Pennsylvania Graduate School of Education.
Many tax experts and public education advocates agree that the state needs a new school funding formula. Lawmakers seem to think so, too: the amendment passed through the state legislature in 2016 and 2017 with near unanimous bipartisan support.
But changing the constitution is only the first step in a long path to improve school funding in Pennsylvania, said David Davare, director of research at the Pennsylvania Economy League. Even under an amended constitution, lawmakers at the state, county and local levels would have to do the hard work of balancing their budgets.
“Voting for this is really an issue of how much faith you have that the governor, legislators, school boards and municipalities will continue to work on this and get it right,” Davare said.
WHAT IT COULD CHANGE
Essentially, the amendment would allow legislators to broaden the Homestead Act, which currently lets school districts exclude up to a portion of a homeowner’s property value from taxation.
The Homestead Exclusion grants tax relief based on the median property value of a jurisdiction. In Harrisburg, the median home value is close to $70,000. Under the Homestead Exclusion, taxing authorities in Harrisburg are authorized to take half that value—$35,000—and exclude it from everybody’s property tax assessment.
Pennsylvania’s constitution caps the Homestead exemption at the current 50 percent of median value. The amendment would eliminate that cap entirely.
Lawmakers could legally pass a new Homestead Exclusion allowing local municipalities to exclude up to 100 percent of each home’s value from taxation. The owner of a $100,000 home would have $0 of property in the eyes of the school board tax collector.
No district would be required to take advantage of an expanded Homestead Exclusion. But if a school district wanted to, they could eliminate school property taxes all together.
POTENTIAL LIMITATIONS
By theoretically easing the tax burden on property owners, the amendment signals a shift in how the commonwealth conceptualizes school funding. But municipalities will lose revenue if they don’t tax property, and tax experts aren’t sure they could compensate for it with other revenue sources.
Dick and the Commonwealth Foundation say that schools need to cut spending to accommodate school property tax cuts. According to Stier, the Pennsylvania Budget and Policy Center would propose offsetting the cuts with higher taxes on income and wealth, including taxes on capital gains and investment dividends.
Davare, the researcher at the non-partisan Pennsylvania Economy League, said that reducing property taxes won’t help schools without a corresponding raise in other tax rates. But a clause in Pennsylvania’s constitution could make that difficult.
The state’s Uniformity Clause requires taxing authorities to tax personal incomes at a uniform rate, regardless of a person’s income. Everyone in the state—whether they make $50,000 or $500,000 a year—gets taxed at the same rate of 3.07 percent.
Municipal governments and school boards in Pennsylvania also can’t tax business income, Davare said. Without a mechanism to raise taxes at the local level, school districts with low income tax bases – such as Harrisburg – would likely not be able to grant property tax relief.
“Suburban school districts would have the resources to enact [a property tax reduction,] but urban centers would have a hard time generating revenue,” Davare explained.
WHY ALL THE UNCERTAINTY?
If the amendment passes, it could lead to sweeping changes in school funding or no changes at all. That ambiguity is by design rather than by flaw, according to Stier.
“It’s not the purpose of constitutional amendments to make policy,” Stier said.
Instead, they dictate what laws legislators can and cannot pass.
Since amending the constitution is a long and difficult process, he said, the document ought to be broad to accommodate changing social mores.
Such is the case with the amendment on the Nov. 7 ballot. The new language in the constitution won’t change tax rates; rather, it will open up new possibilities for tax laws. State lawmakers would have to pass legislation to take advantage of those possibilities, and then local taxing authorities – school boards, city councils, and county commissioners — would have to authorize new tax rates on their constituents.
“It’s appropriate that this amendment does not do much itself, but instead provides an opportunity for people with different views to propose policy under it,” Stier said.
As a result, it could be a long time until residents see practical changes to their tax bills.
Since the passage of the amendment is still riddled with conditionals and what-ifs, Stier said that voters ought not view it as a referendum on school funding in Pennsylvania.
“A yes or no on this amendment isn’t an endorsement or a repudiation any one policy,” Stier said. “And it won’t determine the future of how we fund our schools. What determines that is future legislation.”
