Issue: Tax Reform, Act 1 of 2006

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School Funding Reform:
Useful terms and phrases

•  Comprehensive Approach to School Funding Reform
PSBA believes Pennsylvania taxpayers deserve more than easy-selling quick fixes. Both our local tax laws and state education funding laws already reflect decades of “BandAids and duct tape” tinkering, which is much to blame for the current over-reliance on local property taxes to fund public schools. That history is coming back to bite us now, and more of the same will make the problem worse. A comprehensive approach to school funding reform is sorely needed, and can be devised only after a full, honest and inclusive discussion of both the problem and potential solutions.

•  The Three-Legged Stool
A workable school funding approach has three critical components that must be addressed: community investment, reliable and predicable state contribution, and cost containment . Any attempt at funding reform lacking one or more of these is doomed to failure, will harm children, and would provide only illusory relief for taxpayers.

•  Cost containment
Arguing that restrictions on school district spending are the solution for high property taxes is like saying that too much family income is to blame for the high cost of food, housing, fuel and clothing. There can be no workable way to address high property taxes that does not also address the alarming growth in the cost of educating our children.

But school boards already have limited discretion about where tax dollars must be spent for school district operations. Making school boards a convenient scapegoat by claiming that their “unrestrained spending” is the cause of high property taxes actually harms taxpayers because it misdirects attention from the real problem and thus assures that the real problem won't be addressed. Elected school board members hate raising taxes, do everything they can to avoid it, and do so only when they have no other responsible choice.

The real problem is a dramatic increase in education costs, including the steady and unchecked growth in new unfunded state and federal mandates, and spiraling costs of things like fuel, equipment, facilities, construction, textbooks, health care insurance, retirement system contributions and special education requirements, not to mention the immense power of employee unions to hold children and their working parents hostage to salary and benefit demands. It is aggravated further when funding for existing programs is eliminated as a way of trimming state or federal budgets, while leaving in place the mandate that local schools provide such programs. To address school spending and taxes, you must address those things, and most current tax reform proposals propose absolutely nothing about cost containment.

•  Tax shift vs. Balanced mix of taxes
All education funding, including the state and federal contribution, ultimately comes from taxpayer pockets. The goal must be a fair allocation of responsibility among all segments of the economy, balanced between the local tax base, the statewide tax base and the national tax base, and with an appropriate and fair mix of taxes at each level. Simply shifting taxes around is not an acceptable solution.

No financing system should require over-reliance on a single tax. Current over-reliance on property taxes is the result of lack of a consistent, predictable state funding mechanism, combined with a handcuffs on local ability to devise a balanced tax mix, leaving property taxes as the only remaining revenue source school boards can turn to that offers sufficient flexibility to plug unpredictable fiscal gaps.

Trading over-reliance on locally-determined property taxes for total reliance on a statewide consumer tax set in Harrisburg would be just a shell game creating only the illusion of tax relief . It also relies on fuzzy math that does not add up even when the economy is good. Unlike property taxes, sales taxes do not generate reliable and predictable revenue from year to year, and are especially prone to falling short during economic swings.

•  Fair allocation of responsibility among all segments of the economy
There are only a few primary categories of things that state and local governments can tax for the revenue they need: income (e.g., taxes on wages, profits, capital gains, etc.); accumulated wealth (e.g., taxes on real estate, personal property, etc.); consumption (e.g., sales or other transaction taxes); productivity (value-added taxes, gross-receipts taxes, etc.). A funding system that does not draw on each of these areas to some degree inevitably allows one or more segment of the community and its economy to get away without shouldering a fair share of support for essential government services, including education.

•  State-local partnership
It is time to restore a true state-local education funding partnership as the keystone both to cost containment and to equitable and reliable funding.

•  Community investment
Community investment is a critical element of the partnership, and reflects the quality a community wants for its schools. Without the means to make significant local contributions , communities no long will have a meaningful say about things like programs, transportation, class-sizes and a host of other aspects of what communities demand from their public schools.

The community investment leg also permits funding and tax balances to be tailored at the local level , to each community's unique needs, economic strengths and revenue capacity. Elimination of this element results in one-size-fits-all approaches that often fit no one.

A system relying on a statewide tax doled out by a new Harrisburg bureaucracy as the primary source of public school funding effectively results in a state-run school system controlled from Harrisburg and makes every school district a w ard of the state.

•  Reliable & predictable state contribution
A reliable & predictable state contribution is just as important. Unfortunately, the Commonwealth has been unable for more than a decade to devise a consistent funding mechanism after abandoning a previous formula that had never been fully funded. Instead of something a budget could be built upon, school districts instead wait annually for 11 th hour announcements of state funding allocations contained in an ad-hoc patchwork of across-the-board percentage increases, “hold harmless” provisos and special supplements that rarely are the same from year to year.

The result is shot-in-the-dark budgeting for local school boards, unsure until the last minute what the state will contribute, unable to engage in effective strategic budgeting , with little or no flexibility about major cost-centers, and with constraints on most kinds of local taxing authority that prevent adjustments of the local balance forcing boards to turn to property taxes in order to plug unpredictable fiscal gaps .

•  Reasonable review of local decision-making
Reasonable and effective review of local decision-making already exists, but that does not rule out other possible mechanisms. Community-level management of public schools, by a locally elected board of unpaid volunteers , has been a cornerstone of Pennsylvania education and grass roots democracy.

It is our custom and belief in the Commonwealth that the most important decisions about a community's schools, including the community's fiscal investment in them, should be made by people that are your neighbors, your co-workers, Little League coaches or scout leaders; people whose children attend the same schools or grew up in the neighborhood; people whose names tend to be listed in the phone book, who you see at church, in the grocery store or at gas station; whose meetings are just down the road; and who might win or lose re-election by a handful of votes.

Compare that with how it would work under a state-run school system, where decisions are made hours away mainly by officials unfamiliar with the community and who rarely lose re-election bids.

Local management indeed may be the only way that individual taxpayers really can have an effective say. Unlike many state-level offices, the power of the ballot box in school board elections is significant, and it is not uncommon for school board membership to change dramatically from one election to the next, often on the issue of taxes.

Nonetheless, a comprehensive approach to school funding reform could include reasonable review of local taxing decisions , so long as it is objective and fully informed, and so long as the process does not aggravate fiscal uncertainty and force budgeting guesswork .