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Lawmakers Weigh Plans To Ditch Property Taxes

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Efforts to drop property taxes as the chief local source of school funding are brewing in legislatures across the country, as state leaders respond to growing frustration from taxpayers and educators.

Taking their cue from Michigan lawmakers, who last year responded to high property-tax rates by abolishing $5.6 billion worth of local taxes used to support schools, lawmakers from Idaho to South Carolina are considering their own versions of property-tax rollbacks this year.

The most dramatic new evidence of the rush to rethink school finance has come in Wisconsin, where the Democratic-controlled Assembly, on an 81-to-18 vote, last month passed a plan to move away from property-tax funding for schools by 1995.

Hitting a Nerve

"We've hit a nerve,'' said the measure's chief sponsor, Speaker of the House Walter J. Kunicki. "Taxpayers have demanded it, the Governor has promised it, and we can deliver it.''

Since passage, the Wisconsin plan has gotten bottled up in the Republican-controlled Senate. Even so, observers say the tide toward drastic school-funding changes is gaining momentum.

Local school funding, derived largely from local property taxes, accounts for 45 percent of overall school spending nationwide.

Analysts have long seen property taxes as the leading source of funding inequities among school districts, which in many states have vast gaps in spending power because of varying property wealth. Such disparities are at the heart of a wave of lawsuits challenging finance systems in nearly half the states. (See Education Week, Sept. 22, 1993.)

The current movement is far more reflective of voter anger over property-tax bills than of concern over the fairness of per-pupil spending levels. Nevertheless, a shift from property taxes to a statewide system based on income or sales taxes would probably also have the effect of reducing school-funding differences within states.

"There has always been a resentment toward property taxes, which are viewed as the most arbitrary and unfair of all taxes,'' said Pete Sepp, a spokesman for the National Taxpayers Union. "That disdain, combined with the perception that people are not getting much value for their education dollar, has created a pretty powerful consensus for reform.''

Wisconsin's 'Radical Rewrite'

Originally, the Wisconsin bill called for an end to property-tax funding for schools beginning in 1997, with a study committee formed to recommend a "radical rewrite of the state's school-finance system'' in 1996. But lawmakers decided there was no need to put off the move, amending the bill to end property taxes next year, with a study committee to begin work this summer.

Since the bill passed, opponents have raised concerns about the $3 billion gap in school funding it would create. They warn that raising state taxes to cover the amount could wreck the state's economy.

Sen. Michael G. Ellis, the majority leader, has vowed not to allow a vote on the bill during this legislative session, instead offering a plan to freeze school property-tax rates and study the effect of income-tax increases.

Yet supporters and observers alike say the interest in the idea may soon overcome any political hurdles put in its path. Speaker Kunicki recently flew to Mr. Ellis's district to whip up support for the property-tax repeal and is waging a high-profile political fight to allow a vote in the Senate.

"The Senate has the responsibility to the taxpayers to take this bill up,'' Mr. Kunicki said. "It is too important to lock up in committee.''

Similar tax-reform bills are being considered in New Hampshire, Pennsylvania, and South Carolina. A Nebraska group is seeking signatures for an initiative that would repeal school property taxes. The idea has also created interest in Minnesota, where lawmakers have proposed testing the concept in a handful of districts.

In addition, a South Carolina bill aimed at gradual property-tax reduction was on its way to a House vote last week after passing the chamber's Ways and Means Committee. The plan would phase out property taxes for school operations over four years, with replacement funds coming from anticipated growth in state revenues.

The concept has won the endorsement of Gov. Carroll A. Campbell Jr. A Senate aide said the measure is hard to oppose.

"Any politician at this point has an interest in reducing taxes,'' the aide said. "You have to listen to your constituents.''

In Pennsylvania, the House has passed a bill that would allow counties, towns, and school boards to impose a personal-income tax in order to reduce property-tax rates. School districts would be allowed to raise personal-income taxes by up to 2 percent to lower property levies.

The bill won House approval on a 177-to-19 vote. Its prospects in the Senate are not so bright, but leaders give it a chance.

Idaho: On the Fast Track

In Idaho, meanwhile, property-tax foes were celebrating last week after legislative leaders offered to put a bill ending property-tax funding for schools on the fast track.

A 1992 initiative to limit school property taxes was defeated by voters. But the new plan, which would replace property-tax funds by expanding the sales tax to cover many services, appears more popular.

"Legislators are falling all over each other to identify with it,'' said Ron Rankin, the president of the Idaho State Property Owners Association.

Mr. Rankin said anger over the constantly increasing property tax has pushed many citizens to the boiling point.

"It has gotten to be an outrage,'' he said. "Whenever there's a shortage in school funding, whether it is real or imagined or contrived, we hear that they have to raise the property tax, and they have our children as hostages.''

"The total property-tax bill is out of kilter now, and the main thrust of that is schools,'' he said.

Idaho lawmakers agreed that addressing the tax-reform issue has become more attractive.

"There's a great deal of momentum for this,'' said Rep. Golden C. Linford, the chairman of the House subcommittee that will hold hearings on the bill. "We could always get snagged up because it is complicated, but I am fairly confident it will happen.''

'Create Your Own Crisis'

As the property-tax movement gains interest, it is showing clear differences from past debates. There is no easy partisan identification to the issue, and the traditional finance concerns of school officials are not on center stage.

In Idaho, for example, the inequities most often cited are inequities between taxpayers whose property, according to its classification and location, is taxed at grossly differing levels.

"There is a lot of inequity in the way property taxes are paid,'' noted Representative Linford. "It changes a lot from district to district and from taxpayer to taxpayer.''

In Pennsylvania and South Carolina, a central feature of the debate has been the differences in assessments, which might set the same property at different taxable values from county to county. But analysts' customary focus on tax rates and tax effort by communities has been less of an issue.

The rising property-tax debate also has generated intense political maneuvering and warnings of fiscal chaos for the schools.

"I don't believe we should be funding schools based on property taxes,'' said Julie Underwood, the chairwoman of the department of educational administration at the University of Wisconsin in Madison. "But this should not become a matter like in Oregon and Michigan, of 'create your own crisis.'''

Oregon officials are still trying to find a way to replace property-tax revenues lost as a result of a 1990 ballot measure rolling back local tax rates. Although the measure required the state to make up districts' property-tax revenues, it has not prevented cuts in general state aid, forcing some districts into a severe bind. (See Education Week, Feb. 9, 1994, and News in Brief, page 17.)

In Michigan, where Gov. John Engler, a Republican, made property-tax reduction one of his chief issues, the question was forced by one of his Democratic challengers for re-election, Sen. Debbie Stabenow, who introduced the plan to abolish the taxes. After a marathon session late last year, Michigan lawmakers approved a plan to offer voters a choice of ways to obtain replacement revenues. (See Education Week, Jan. 12, 1994.)

Voters will decide on March 15 whether the bulk of the property-tax funds will be replaced by higher sales or income taxes.

Taking the Second Step

Although their efforts seem to have touched off a national movement, veterans of the Michigan debate say their strategy does not offer an easy solution.

"One of the things we had going for us was that we had tried this so many times and failed that we knew it was time to take a risk,'' said Sen. Dan DeGrow. "But if you are going to get into this, you've got to have a thick skin and be willing to take some heat--be willing to be criticized for being irresponsible.''

Mr. DeGrow said some lawmakers had to learn that in addition to supporting a huge tax cut, they were going to have to write a huge tax increase to balance the scales.

"Unless you go into this with the idea you want to gut the schools, you have got to find replacement funds,'' Mr. DeGrow said. "We definitely found people who loved the first step of cutting property taxes, but didn't have the guts to take the second step.''

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