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House Bill 1600 (P.N. 2351)

House Bill 1600 (P.N. 2351)
Before the House Education Committee
Aug. 20, 2007

Mr. Christopher Baj,
East Stroudsburg Area School Director

Good afternoon, my name is Christopher Baj and I am a school director with the East Stroudsburg Area School District. I would like to thank Chairmen Levdansky and Nickol, as well as Representatives Siptroth and Scavello, for conducting today's hearing on House Bill 1600 and bringing this hearing to the Pocono region. School directors do not take pleasure increasing their neighbors' taxes anymore than you do. We must constantly seek the balance between what is best for our students and what our local taxpayers can afford. This has often pitted school directors and legislators against each other in a so-called blame game for the property tax dilemma. PSBA and its member school districts believe that the time has come to end this blame game and work together to fashion a lasting, comprehensive solution to property tax reform that recognizes Pennsylvania's duty both to its students and property taxpayers.

Throughout the recent special session on property tax, PSBA consistently advocated for a comprehensive solution to property tax reform. In PSBA's view, a property tax reform remedy should address:

•  Increasing the Commonwealth's share of funding to local school districts, so that it can be a more equal partner in public education funding;

•  Reducing school district expenses, including state and federal mandates, that are often the driving force behind property tax increases; and

•  Reforming the local taxing system in a way that is fair to taxpayers, but allows school districts to remain a viable partner in public education funding.

All of these components are necessary if the General Assembly desires to address high property taxes, school expenditures and the ultimate cause of the real problem - an inadequate school funding system. Omitting any one of these components will result in a band-aid on the issue and would require additional legislation as school taxes and expenses would continue to soar unchecked.

With that said, PSBA believes that House Bill 1600 addresses our third concern, the state's level of contribution. By increasing the state's sales and use and personal income taxes, like Representative Scavello's previous property tax reform proposal (Senate Bill 854 of 2004-05 legislative session), House Bill 1600 would raise additional dollars at the state level through a supplemental personal income tax (PIT) and the sales and use tax (SUT). PSBA believes this would enhance the Commonwealth's financial commitment to public education by financing cuts in property taxes. More importantly, however, the proposed distribution formula for the supplemental PIT would distribute the revenue based on districts' average daily membership. For the East Stroudsburg Area School District, and other growing school districts, increasing state revenue for property tax relief and distributing the money based on enrollment is not only welcome, it is urgently needed.

My school district's student enrollment has increased 77% since 1992 (see attachment B and C), while our state contribution has remained relatively flat, hovering between 21% and 23% (see attachment A), because the state funding formula does not take enrollment into account when determining districts' funding. For example, East Stroudsburg's projected enrollment increase for the 2006-07 and 2007-08 school year is 321 students, but our 2007-08 growth supplement was only $63,900. This is a small fraction of the $ 9.3 million increase in East Stroudsburg's budget for 2007-08 fiscal year, which can be directly attributed to increases in personnel, healthcare, special education and debt service payments for four ongoing school construction projects. As you can see, East Stroudsburg Area School District had no choice but to turn to local taxpayers in order to maintain the educational programs and finance new school buildings.

Ideally, the state's funding formula should account for districts' average daily membership (ADM). It is PSBA's hope that after the costing-out study is released in November that the General Assembly and education stakeholders can work together to design a school funding system that accounts for educational needs in the 21 st century and the number of students in each district. Until that time, PSBA believes that the distribution formula contained in House Bill 1600 for the supplemental PIT funds would be acceptable with one improvement. Instead of using districts' ADM in the third year previous to the upcoming fiscal year, PSBA would recommend that it be the second year previous to the forthcoming fiscal year. School districts' aid ratio is calculated based on a district's market value and income tax valuations from two years prior to the current year. Changing this provision would make your calculations consistent with the calculations used to determine aid ratio. Not only would this change provide consistency in the years used to determine school districts' funding allocations, but it would also distribute the PIT monies to districts based on more current enrollments.

In addition, PSBA supports using the SUT funds to further supplement property tax relief through the Act 1 formula. The formula contained in Act 1 distributes property tax relief based on districts' tax burden. The combination of the proposed distribution formula in House Bill 1600 for PIT funds with the allocations through the Act 1 formula for gaming and SUT funds would provide property tax relief to those districts that are most in need of additional relief.

In keeping with our belief in comprehensive property tax reform, PSBA recommends that the Generally Assembly help school districts control costs in conjunction with increased state support for property tax relief. Addressing the mandates and programs will probably be the most difficult task if Pennsylvania wants to achieve substantial and comprehensive property tax relief as every educational mandate and program comes complete with its own advocates and supporters. However, to ignore the cost side of the balance sheet and solely focus on the revenue side in the fourth attempt at property tax relief in nine years would be a mistake.

PSBA, as most of you know, has been an outspoken advocate for relief from state mandates on public schools. We are all familiar with those that are the most expensive; special education, prevailing wage, charter and cyber charter schools, school employee pensions, and the list goes on. East Stroudsburg Area School District's taxpayers have not been immune to these mandates or their price tags. East Stroudsburg's special education student population increased from 605 to 1,465, an increase of over 135% since 1997 (see attachment B). The increased cost of this program since 1997 is $14,995,650, thus contributing to increasing property taxes. Additionally, cyber charter school expenses have increased $509,855 between the 2004-05 and 2006-07 school years. For the 2007-08 school year, we have budgeted $813,570. Cyber schools represent 1.39 mils that were not required of districts ten years ago.

With regard to construction, East Stroudsburg has obviously had to invest a significant amount of money in new school buildings due to our rapid enrollment growth. In fact our debt service per student is currently four times the state average. While we have attempted to save money by accommodating student growth by adding two pre-engineered steel buildings at two school locations and 52 relocatable classrooms throughout the district, we cannot keep students in these relocatable classrooms forever. Therefore, we are expanding and renovating two of our six elementary schools, continuing renovation and expansion on one of our two high schools, constructing a new elementary school and looking into the process of expanding an intermediate school and the other high school. The total cost of our current projects is $170,470,518, while the projected cost of our upcoming construction projects totals $82,100,000. In total, East Stroudsburg's debt service, including principal and interest, totals $313,853,297. Our average Commonwealth reimbursement for sixteen bond issues is 10.4%. This means our property taxpayers are financing almost 90% of the cost of all of our construction projects. Additionally, our local municipalities required my district to pay $1,279,707 for road improvements for 3 of our construction projects.

The combination of inadequate state funding, mandates, student growth, healthcare, and pension expenses consistently result in large property tax increases like we've seen in East Stroudsburg. Therefore, to solely increase state taxes for the support of public education without addressing school districts expenses, as proposed in House Bill 1600, would only result in a tax shift from the property tax to the SUT and PIT. It would not reduce the cost of education for Pennsylvania's taxpayers.

Finally, PSBA believes that any proposal providing further property tax relief to taxpayers should not have additional procedural requirements for the adoption of homestead/farmstead exclusions. Section 901(b) of House Bill 1600 requires districts to adopt resolutions providing for qualified taxpayers' homestead/farmstead exclusion with the supplemental PIT funds. However, school districts are already required to adopt resolutions providing for homestead/farmstead exclusions with gaming funds. Is the intent of House Bill 1600 to require school districts to adopt a separate resolution on that portion of the homestead/farmstead that is directly attributable to the increase in the PIT contained in House Bill 1600? PSBA believes that is much simpler for school districts to adopt one resolution taking into account funds school districts receive from gaming and from the tax increases provided for in House Bill 1600. After all, property owners are interested in only one thing, the exemption itself. If a separate accounting is important, there is no doubt that the Departments of Revenue, Community Affairs and Education can print out the total amount of property tax relief available in each district and how much of that tax relief is attributable to gaming revenues and to the supplemental funding provided under HB 1600. The procedure for authorizing and implementing the homestead/farmstead exclusions should remain consistent and as simple as possible for school districts to avoid confusion for taxpayers.

School districts alone cannot reduce property taxes for our taxpayers. That is the lesson learned from Act 72 and Act 1. Simply using local revenue to provide property tax relief will not result in the type of reduction that our citizens are seeking. Therefore we support the provisions of HB 1600 that generate additional state funding for the purpose of reducing local property taxes. PSBA believes strongly that an even greater level of property tax relief can be available to taxpayers by reducing the level or costs of mandated programs and increasing the state' financial commitment to public education. This can only be accomplished by the General Assembly. PSBA appreciates the commitment of the sponsors of House Bill 1600 to increase the Commonwealth's support for public education. On behalf of all 501 school districts, I would like to thank you for inviting me to testify today. I will be happy to answer any questions at this time.