Almost twenty years after voters approved of a ballot question authorizing homestead exemptions in Pennsylvania there will be a question next month about expanding the exemption threshold, possibly for complete elimination. The 1997 question passed with close to 60% of the vote.
Currently the Pennsylvania Constitution (Article VIII, Section 2(b)(vi) permits “…local taxing authorities to exclude from taxation an amount based on the assessed value of homestead property”. This applies to counties, municipalities, and school districts for homesteads, which, by Act 50 of 1998 (the statute that carried out the language of the ballot question) is defined as “The dwelling is primarily used as the domicile of an owner who is a natural person”.
The limit for a homestead exemption is one-half of the median assessed value of the homestead properties in a taxing jurisdiction. It is a flat dollar amount; for example, Allegheny County offers a homestead exemption of $18,000 for County tax purposes. This lowers the assessed value of the property, whether assessed at $100,000 or $500,000, by $18,000 and the County’s millage of 4.69 is then applied to the assessed value less the exemption. That does not apply to municipal or school taxes. School districts currently offer homestead exemptions via legalized slot machine gaming.
The proposed ballot question would ask “Shall the Pennsylvania Constitution be amended to permit the General Assembly to enact legislation authorizing local taxing authorities to exclude from taxation up to 100 percent of the assessed value of each homestead property within a local taxing jurisdiction, rather than limit the exclusion to one-half of the median assessed value of all homestead property, which is the existing law?”
Approval of the question would allow the General Assembly to pass legislation similar to Act 50 and then would permit local taxing entities to offer greater homestead exemptions, but would not be a tax shift proposal (it does not specifically authorize a source/sources of taxation to pay for the homestead exemptions) and would not eliminate property taxes for other classes of property (commercial, industrial etc.) which is the case currently with the Act 50 exemption. If a taxing body so wished it could provide for an exemption that is greater than is available currently but not a complete elimination.
In an article today describing the state’s transition to a shorter time period for administering the Pennsylvania System of School Assessment (PSSA) there was passage noting that Pennsylvania will begin next year using something called the Future Ready PA Index and will phase out the School Performance Profile.
In two 2015 Policy Briefs we noted the problems with the Profile and its method of assigning scores to districts (here and here). In the latter piece we suggested it was time to revamp or end the Profile. “A performance profile should measure performance, not ancillary factors” is what we noted when looking at the components of the Profile. Though advocates that have been quoted on the design of the Index compared to the Profile seem to be in favor of it, whether it will prove to be a better measurement will be shown in time. This presentation from January details the history of the Profile and the components of the Index.
We’ve written a few times about the City’s newest department of Mobility and Infrastructure (created in 2017, here and here) and how it overlapped and took several functions from the existing Department of Public Works on transportation planning. This year’s budget proposes an even bigger transition between departments, with the Department of Mobility and Infrastructure absorbing more positions from Public Works and Planning and growing its department from 4 employees and a $439k budget to one with 73 employees and a near $6 million dollar budget (see pages 321-323 in the 2018 operating budget).
The Department of Public Works currently (in Fiscal Year 2017) has four bureaus: Administration, Operations, Environmental Services, and Transportation/Engineering with 626 employees in all. In terms of full time equivalents, Administration and Environmental Services are remaining largely unchanged in 2018: the former will increase by 2, the latter will decrease by 2. Transportation/Engineering will go from 62 employees to 0, and Operations from 353 to 269. In 2018, a new Bureau of Facilities will be created, with 90 employees. Overall, Public Works will decrease by 56 employees to 570 in 2018.
The City, as well as Allegheny County, have engaged in reorganizations involving their Public Works departments for some time now. Our 2016 report noted how the County once consolidated Public Works with Parks, then separated them, then more recently spun off part of Public Works into a new Department of Facilities Management.
Today marks the one year anniversary of the Pennsylvania Supreme Court’s decision on the local share assessment (host fee) that casinos pay to the county and municipality that they are located in under the 2004 gaming law. The Court held that the language violated the uniformity clause of the Constitution since casinos had to pay the greater of 2% of their gross terminal revenue or $10 million to the host municipality.
In Fiscal Year 2016-17 $81.2 million in host fees were collected from ten category 1 (horse racing casino facilities) and category 2 (non-horse racing casino facilities) in the state, ranging from $14 million at Parx (Category 1 in Bucks County) to $4 million at Presque Isle (Category 1 in Erie County). During the fiscal year the Supreme Court rendered its decision (September 2016) and gave the General Assembly 120 days to craft a fix (until January 2017). This deadline was extended to May of 2017, which is when the Gaming Control Board data shows was the last month with a positive number for host fees from any casino. In June, July, and August of 2017 (the latter two months are part of FY 2017-18) there are zeroes across the board for host fees.
The table below shows the total host fees collected in FY 2016-17:
Many of these casinos have made voluntary arrangements with the counties and/or municipalities that were budgeting the host fee money. The most recent proposal, which is likely tangled up in the budget impasse, was to move away from gross terminal revenue as the measure for determining the host fee payments and to instead make it a percentage of the licensing fee, thus achieving uniformity. This marked a departure from what was argued during the court proceedings, where one party wanted to keep 2% of GTR as the municipal host fee and the other party wanted to keep the flat $10 million.
Earlier this summer we wrote about the concern municipal officials in the communities comprising the Woodland Hills School District had with the state of the District. They expressed “no confidence” in the District and asked for some state intervention; according to a news article it was for a review by the Department of Education and an audit by the Auditor General’s office.
It is not clear if the Department of Education did a review, if one is ongoing, or if it will do one from a search of the Department’s website and, to date, the District is not in financial watch or financial recovery status under Act 141, which would pertain primarily to fiscal issues.
However, the Auditor General’s office, which conducts performance audits of the state’s K-12 school districts, has agreed to begin the next scheduled audit of the District (which was not to begin until late 2018) on October 2nd. The press release on the audit notes that the early start came about “…at the request of local officials and members of the public over disturbances at the district’s high school and other operational issues.” The bumped up audit will cover the period from July 2012 through June 2016 and one of the areas it may include is school safety.
In the boilerplate language of the Office’s school performance audits it is noted that the purpose is to “…determine whether state funds, including school subsidies, are being used according to the purposes and guidelines that govern the use of these funds. Additionally, our audits examine the appropriateness of certain administrative and operational practices at each local education agency”.
On the Auditor General’s website currently there are two performance audits of the Woodland Hills District, one from 2010 and one from 2013 and a “limited procedures engagement” from 2016. The 2013 performance audit had three findings, two related to transportation/bus service and one relating to a memorandum of understanding between the District and the police forces in the communities of the District. The audit period covered December 2009 to August 2012. The limited procedures engagement covered July 2012 to June 2015 and noted that the District had satisfied the findings from the 2013 performance audit.
The Mayor of Pittsburgh submitted the 2018 operating and capital budgets and five year forecast to the Intergovernmental Cooperation Authority (oversight board) on Friday to comply with the requirements of Act 11 of 2004 on the board’s review of the budget.
The biggest news on the revenue side is that there are no tax increases proposed for 2018, including for the deed transfer tax. This tax is levied by the City, the state, and the school district on real estate transactions and there was legislation proposed to increase the City’s share by 1 percentage point to fund an affordable housing fund.
On the expense side, specifically on legacy costs (such as pensions and debt service) the 2018 budget reflects an increase in pension funding (under the Department of Finance, there are two line items for Citywide employee benefits, the pension contribution and the additional pension fund) from $70.4 million to $86.4 million. That accounts for nearly all of the increase of $16.3 million in the five year financial forecast’s expense category of Pensions and OPEB (other post-employment benefits). Debt service is projected to fall $12.5 million. Debt service as a percentage of expenditures will stand at 13%, lower than this year’s 16%.
Overall, the proposed budget expects total revenues of $560 million and total expenditures of $554 million.
Monday’s Brief noted a proposal to take $50 million from the Public Transportation Trust Fund (PTTF) to move it, along with other special fund surpluses, to the General Fund for the 2017-18 fiscal year. Originally, the proposal was to take $357 million from the PTTF, a move that was met with opposition from Allegheny County’s mass transit provider, the Port Authority (PAT), PENNDOT, as well as other parties across the state, due to the impact on projects and agency funds.
What eventually passed the House was a reduced amount of special fund transfers, including a reduction in the PTTF amount from $357 million to $50 million.
At one point in the Brief we noted that it was not clear how transit agencies would react to the reduced amount as proposed. A discussion of the $50 million transfer came at PAT’s Planning and Stakeholders Committee meeting on September 21st, and news coverage of the committee discussion came afterward.
When the $357 million transfer was proposed, PAT noted in a press release that it would result in a decrease of $80 million, about 19% of its total revenue. With the revised $50 million transfer (which is not ironclad, as the Senate rejected the budget proposal put forth by the House and wants to move to a conference committee of both chambers to come up with a budget plan) PAT projects it would affect the agency to the tune of $11.3 million, meaning “less dire consequences, but any change to the 10-year funding plan approved in the state Act 89 transportation bill in 2013 would be a concern” according to PAT’s interim CEO.
There’s no real certainty on what would be reduced, but under both the $357 million and the $50 million transfers, PAT’s reduction amounts to 22% of the total amount (according to this article SEPTA receives 65% of the PTTF) that would be moved from the PTTF.
As we wrote about earlier this year, Washington County put into effect its reassessment, the first since the 1980s. Along with new values (the County was using a pre-determined ratio of 25% of the 1981 base year, and moved this to 100% of the 2015 base year) the three taxing bodies (county, municipal, and school district) had to recalculate millage rates to comply with state laws and the new values.
Obviously there were going to be people who were unhappy with their new values and the resulting taxes, depending on how that ended up affecting them. Just recently we wrote that there were not a lot of appeals because people saw that the impact was not that bad.
But a recent article stated that folks who are not happy are taking their frustration out on their elected officials. Not too much of a quibble with that, but apparently some of the frustration is going to County Commissioners (responsible for carrying out the reassessment) over school taxes (school directors are not responsible for carrying out a reassessment). As the County’s solicitor noted, “Obviously, if a person’s assessment was tax-neutral from the assessment’s point of view, they would have gotten an increase in their school tax bills that had nothing to do with their assessment…For a particular taxpayer, their taxes could go up greater because of an increase in their assessment, or they could go down lower because of a decrease in their assessment”. One of the Commissioners even pointed out the difference in enacting tax increases following the reassessment as noted in the Brief linked above.
In two years before the reassessment in Washington County (2013-14 and 2014-15) 13 of the 14 school districts increased millage rates–did people who were furious go and complain to their school directors, or the municipal manager?
If the people who were upset about a big increase in their value compared to the rest of the taxing body (county, municipal, or school district) then had a school increase tacked on to that it probably indicates where their property value stood for a long time without a reassessment. As we noted way back in 2009, “Getting assessments as accurate as possible is about ensuring fairness. To the extent assessments are erroneously high for some properties and low for others, increases in school or municipal millage rates exacerbate the unfairness of frozen inaccurate assessments. When assessments are accurate, the tax burden, at whatever level, is shared equitably.”
On September 20, S and P lowered PA’s bond rating to A+, a drop from AA- taking it to the third lowest rating of all states except Illinois and New Jersey. This has happened because of the irresponsible enactment of a spending bill for FY 2017-18 that did not have enough revenue to cover expenditures. The legislature and the governor who did not veto the bill are to blame for this.
What’s worse, the governor has failed to take remedial actions to freeze pay and/or order layoffs across state departments.
Spending has continued at the elevated pace called for in the spending bill, no employee has a missed a paycheck or had benefits reduced. Indeed, pay raises and the attendant benefit costs have gone into effect.
To be ranked anywhere close to Illinois is a sad occurrence. That state is swimming in deficits with $16 billion in unpaid bills. Illinois is taxing businesses and citizens to the point that people are heading out because of the complete lack of fiscal responsibility. Politicians are no doubt hoping to call on the federal government to throw them a life line. Good luck with that.
PA has allowed its poor choices regarding public sector pensions and it inability to do much to curb the growth in required outlays to cripple the state financially. Public sector unions with the right to strike are anathema to good governance or a healthy private sector. Prevailing wage laws raise the cost of public construction well above what it should be. Binding arbitration rules that substantially favor unions have contributed as well.
And finally, the anti-free market, private sector driven economy mentality that pervades much of the electorate and their chosen representatives are deterrents to strong growth in jobs, income and the state’s tax base.
This all fits together. Voracious appetites for spending and economy strangling policies and taxes combine to keep revenue growth anemic creating perpetual budget crises. Nor will this situation be remedied any time soon, if ever.
We blogged last week about Altoona (Blair County) being released from a relatively short stay in Act 47 distressed status (the official note on the rescission has been posted on the Department of Community and Economic Development’s website) and the date of release from the recovery status was September 13th.
Just one day prior to that good news for Altoona was the official declaration of distress for the City of Hazelton (Luzerne County). At the present time, 19 municipalities are declared distressed, and since the passage of the law thirty years ago 13 have been released from distressed status. Three of those former Act 47 communities are in Luzerne County.
Hazelton met two criteria under Act 47 (Section 201), specifically number 1 and number 2 pertaining to a deficit over the previous three years and expenditures outpacing revenues. The City applied for an emergency loan under the terms of the statute and it was also found that there has been a 5% decrease in the assessed value in the City since 2011. The municipality will be guided by the revised guidelines of Act 47 made by the General Assembly in 2014.