Wednesday, November 14, 2007
Proposal to Redirect Flood Tax Likely to Sink
There is a proposal in the General Assembly to redirect a tax on liquor that was created to help victims of a natural disaster—the Johnstown flood of 1936—to compensate local governments for the presence of tax exempt property. A lot of officials point to exempt properties as a disaster of the manmade kind since there are no property taxes paid by these entities. The proceeds from the tax currently fill the state’s coffers at a rate of $240 million per year.
The proposal would give money to municipalities as long as at least 17 percent of its property (not sure whether this is land area or total assessed value) is exempt, whether the properties are owned by public agencies or non-profits. The affected municipality could receive up to $24 million from the flood fund to offset its “burden” of exempt property. Pittsburgh, with 33 percent of its assessed value tied to tax-exempt property, would get the maximum amount, which is about one-fifth of what it gets from taxable real estate currently.
Here’s where this proposal becomes predictably sticky: first, only municipal governments will get funds, even though school districts and counties can’t get real estate taxes from the entities either; second, a small town with a 15 or 16 percent exempt amount could quickly undertake a public works project or town hall expansion that would put them over the limit; third, there are a ton of places that would qualify, meaning the money would be spread around and the impact would likely be diluted.
This would benefit places like Gettysburg, which draw huge amounts of tourist dollars and spinoff activity as a result of its 80 percent threshold of tax-exempt property. Closer to home, Findlay Township would be able to benefit from this program due to it being the location of the tax-exempt Pittsburgh International Airport, though it does not really possess the type of burdens one would associate with an older city or town.
As we have pointed out before, having universities and hospitals, though they don’t pay property taxes, often leads to boosts in other revenues collected by municipalities. The state is also likely reluctant to give up on this revenue source, one that should have been phased out long ago. If they redirect the tax, how does that revenue get replaced? And if the state is running a massive surplus, making the reimbursement program a possibility, then why isn’t the Legislature moving to end taxes like the flood tax and other nuisance taxes? There could not be a better time. Extending it as a reimbursement program would only ensure it is in place for an even longer time.
The proposal would give money to municipalities as long as at least 17 percent of its property (not sure whether this is land area or total assessed value) is exempt, whether the properties are owned by public agencies or non-profits. The affected municipality could receive up to $24 million from the flood fund to offset its “burden” of exempt property. Pittsburgh, with 33 percent of its assessed value tied to tax-exempt property, would get the maximum amount, which is about one-fifth of what it gets from taxable real estate currently.
Here’s where this proposal becomes predictably sticky: first, only municipal governments will get funds, even though school districts and counties can’t get real estate taxes from the entities either; second, a small town with a 15 or 16 percent exempt amount could quickly undertake a public works project or town hall expansion that would put them over the limit; third, there are a ton of places that would qualify, meaning the money would be spread around and the impact would likely be diluted.
This would benefit places like Gettysburg, which draw huge amounts of tourist dollars and spinoff activity as a result of its 80 percent threshold of tax-exempt property. Closer to home, Findlay Township would be able to benefit from this program due to it being the location of the tax-exempt Pittsburgh International Airport, though it does not really possess the type of burdens one would associate with an older city or town.
As we have pointed out before, having universities and hospitals, though they don’t pay property taxes, often leads to boosts in other revenues collected by municipalities. The state is also likely reluctant to give up on this revenue source, one that should have been phased out long ago. If they redirect the tax, how does that revenue get replaced? And if the state is running a massive surplus, making the reimbursement program a possibility, then why isn’t the Legislature moving to end taxes like the flood tax and other nuisance taxes? There could not be a better time. Extending it as a reimbursement program would only ensure it is in place for an even longer time.
