A controversial Pennsylvania tax-reform bill that would allow school boards in the state to finance education through a local income tax instead of property taxes will probably be killed or radically amended when the state’s House finance committee votes on the measure this week, according to the committee’s chairman.
Republican Representative Benjamin J. Wilson said recently that the legislation, which passed the state Senate by a 2-1 margin in October and is described by school-finance experts as unprecedented, is unacceptable to a majority of his 24-member committee.
C. Kent McGuire, a school-finance expert at the Educational Finance Center of the Education Commission of the States, said no state currently allows school districts to use an income tax as a primary source of school revenue. And he said he knows of no other state that has such legislation pending.
Property and Income Taxes
Representative Wilson said that if the House finance unit does vote to send a bill to the full House, it will probably amend the Senate legislation with its own tax-reform package that would allow school districts to levy both property and income taxes.
Members of both the House and the Senate agree that the current system of funding schools in the state through property taxes is inequitable, primarily, they say, because it does not accurately reflect an individual’s ability to pay taxes.
The House finance committee package, interviews suggest, has support among some of the state’s education and business organizations, but it is strongly opposed by members of the state Senate, who insist on ending the funding of schools through property taxes. It had reached the floor of the House of Representatives, but has been returned to the committee, without being voted upon, to be reconsidered in light of the Senate version.
According to figures from the state department of education, local funds provided 46.9 percent of the state’s total 1979-80 education budget of approximately $4 billion.
The Senate bill, sponsored by John Stauffer, a Republican and majority whip, would allow the state’s 501 school districts to replace property taxes with an income tax of up to 3.5 percent phased in over two years. If after two years, districts found they did not like the income-tax option, they would be permitted to return to the property tax.
Business property taxes, under the Senate legislation, would be replaced not with a business income tax, but with a “use-and-occupancy tax.”
The House finance committee’s tax-reform package would allow school boards to levy both property taxes and an income tax of up to 2 percent.
‘Nuisance Taxes’
The income tax would be used, committee staffers say, to replace revenue from a variety of so-called “nuisance taxes,” which would be abolished under the committee’s legislation.
Representative Wilson, who is the chief sponsor of the House tax package, contends that offering school boards the ability to levy both property and income taxes provides them with much greater flexibility than would the Senate bill. The ranking minority of the House finance committee, Bernard Dombrowski, a Democrat, said he supports the Wilson bill.
The Pennsylvania State Education Association and the Pennsylvania School Boards Association (psba), support the “flexibility” in the House version. Both organizations have lobbied strongly against the Senate bill.
“A shift away from a property taxes would not help school districts,” said Albert F. Unger, director of government relations for the psba “The property tax is much more stable than the proposed business use-and-occupancy tax, because it is much easier to collect.” Both the House and Senate bills propose to complement a personal income tax with a business use-and-occupancy tax.
Opposition to Tax
The Pennsylvania Chamber of Commerce is also opposed to the use-and-occupancy tax. It too argues that a tax on real-estate users is vastly more difficult to enforce than the traditional property tax. “The right to place a lien against a delinquent taxpayer’s property is lost with this tax,” said Nevil A. Schall, director of research for the chamber. “As a result, those users and owners in a school district who do pay their taxes will be taxed at a much higher rate to compensate for the revenue lost through lower collection rates.”
Representative Wilson contends that collection can be assured by requiring property owners to collect the user taxes.
The state’s secretary of education, Robert G. Scanlon, is opposed to the elimination of the school-district property tax. Although he has not endorsed the House bill, Mr. Scanlon supports its provision for allowing school boards to levy a mix of income and property taxes, according to a spokesperson.
However, Senator Stauffer said that he is adamantly opposed to new legislation that allows for both property and income taxes unless there is a limit set on the level of property taxes.
“A mix of taxes is no more than an increase in taxes; it will only promote wasteful spending, and the Senate will not support it,” he said. “There is no relationship between ownership of property and school taxes. By insisting on a mix of taxes, the House will shoot down the possibility of getting anything done on school tax reform at all.”
The Senate defeated by a vote of 43 to 6 an amendment to Senator Stauffer’s bill that would have allowed school districts to levy both income and property taxes.
