When new legislation passes, PSBA is seen as the leader in analyzing it and helping members make sense of it.

Recent PSBA Testimony - SB 854, Tax Reform

January 2006

Good morning, my name is Lou Ann Evans. I am the 2006 President of the Pennsylvania School Boards Association and a member of the school board in the State College Area School District.

Allow me to begin with a statement on which I believe we all are in firm agreement: School property taxes in Pennsylvania are too high. Yet, in my eight years on my local school board, neither I nor any other school director I have met takes any pleasure in raising property taxes. Without exception, the 4500 volunteers who serve on our state's school boards detest raising taxes as much as you do. Unfortunately, because of increasing costs due to state and federal requirements, an inadequate system of state funding and an over-dependence on the property tax at the local level, we often are faced with little choice if we are to accomplish our primary mission, which is to provide the best possible education for our children .

In fashioning a comprehensive solution to the problem of rising school taxes, it stands to reason that over-dependency on the property tax, state mandates and the commonwealth's system of funding public education all must be addressed.

PSBA believes the current version of Senate Bill 854 is a more reasonable way to deal with financing public schools than either the existing method or Special Session Senate Bill 30 as approved here in the Senate last month. As revised by the House of Representatives, Senate Bill 854 addresses the over-dependency on real estate taxes by providing a replacement source for a substantial part of those revenues. It also enhances the state's financial commitment to public education by using funds from an expanded Sales and Use Tax and a small increase in the state's Personal Income Tax as the main sources of financing major cuts in school property taxes.

The approach taken by the House is notable, too, because it makes an effort to address the lack of equity in school funding - that is, the tendency for the amount of money available for public schools to be related to the wealth of the communities in which they are located. This problem would not be corrected and may actually be exacerbated by simply shifting between local property taxes and local income taxes, because communities that have poor property tax bases typically have limited income tax bases as well.

Voters clearly are asking for more than a mere shift in their local taxes; they want property tax relief that is meaningful. If they simply wanted to move from one tax to another at the local level, they would have pressed their school boards to opt-in to Act 72. As you know, most school boards decided not to take that action - typically, because their own residents told them in community meetings and surveys that they were not interested in that law. In any event, voters had the opportunity in the recent Municipal Election to tell us what they thought about the decision of most school boards not to opt-in to Act 72, and the answer is that they didn't seem upset in the least. A PSBA analysis of recent election results shows that the turnover rate for board members in districts that did not opt into Act 72 was essentially the same as for the districts that opted in. Additionally, voters and others repeatedly told PSBA at 13 public meetings our association conducted in cooperation with the bipartisan House Local Tax Policy Caucus throughout the state in the fall that they want significant property tax relief -- not just a shift in local taxes.

The House version of Senate Bill 854 also is preferable because it includes some much-needed improvements to the exceptions for back-end referendum. While PSBA remains strongly opposed to the use of back-end referendum, especially if no provisions are adopted to assist school boards with rising costs, the next best thing is to improve these exceptions. It will be difficult for school districts to find the revenue to pay for dramatic increases in the cost of major budget items such as special education, retirement or health care that they essentially have no real power to control. The changes to the back-end referendum exceptions made in SB 854 are fair and necessary and have been approved by over 90% of House members. If these improvements to the exceptions are not included in the final version of a property tax reform bill, a number of valuable student programs may be at risk.

Despite our preference for Senate Bill 854, it is not a perfect bill. The timeline in the legislation, which must now be modified, calls for school districts to develop preliminary budgets in less than four weeks' time. That is not only impossible, but the imposition of such a requirement is irresponsible. No entity, public or private, can be expected to prepare and adopt a multi-million dollar budget in such a short period. Where public funds are involved, it becomes even more important to allow for the development of a responsible spending plan.

PSBA also has some concerns with Section 3112, which deals with the optional local Personal Income Tax. Specifically, the bill would require school districts that wish to adopt this local tax to pay the Department of Revenue for the relevant data. Additionally, it is not clear that school district get to retain the revenue from the current Earned Income Tax should they choose to convert that tax to a Personal Income Tax.

Most importantly, SB 854 does not address a major cause of increasing property taxes: state and federal mandates. Comprehensive tax reform must focus on expenditures as well as revenues. And while Senate Bill 854 is a good start in fixing the revenue problem, it does little to resolve the expenditure side of the equation.

Simply allowing voters to approve certain school tax increases does not remedy the expenditure issue. What is the point of asking voters to approve spending that school boards either are required by law to make or which they cannot effectively control? Many mandates have been on the books for years and now are an embedded part of the educational program. PSBA has cited these in numerous white papers over the years, but we still are waiting for the General Assembly to conduct a thorough examination of what is driving school district spending and then to work with school boards to help address this problem. Ask any school business manager, superintendent or school board member across the state what those costs are and they all are likely to tell you pretty much the same thing: special education, charter and cyber schools, health insurance and pension costs, to cite just a few. In each one of those areas, PSBA has offered constructive ideas to provide meaningful relief. Rather than go in to detail now, I've attached a copy of PSBA's recent Blueprint for Comprehensive Local Tax Reform that addresses these and other issues.

We also want to take this opportunity to commend Senator Wenger, whose proposed amendment to Senate Bill 30 acknowledged the issue of mandated expenses for school districts. PSBA believes this language can be refined and added to the final bill in a way that will offer much needed relief from mandates while at the same time providing the property tax relief we all are seeking.

In conclusion, school boards alone cannot accomplish much in the way of tax reform. Providing alternatives to the property tax, reducing the level of mandated programs, and increasing the state's financial commitment to public education only can be accomplished by the General Assembly. This is our best chance to achieve meaningful property tax reform. The school boards and citizens of Pennsylvania need you to be bold and courageous, and the Pennsylvania School Boards Association stands ready to help make that happen. Thank you.