Act 1: A Rewrite?

One of the items that came out of the Governor’s budget presentation on Tuesday was a possible change to Act 1 of 2006, the law that is aimed at providing school property tax relief through gaming money, tax shifts, and, if applicable, taxpayer referenda on tax increases that exceed a predetermined index. Many have opined that state level cuts to education will simply force tax increase at the school district level: one representative stated "it’s a no-state-tax budget, but it will not be a no tax budget at the end of the day for most Pennsylvanians. School taxes will have to go up".

To stave off what has been the norm for school districts in the past few years under Act 1-design a budget and, if a tax increase is included, either increase it to a level just under the index or seek one or more of the ten exceptions available under Act 1 from either the PA Department of Education or the courts-there might be a proposal to tighten the Act 1 requirements. Voters have had little, if any, opportunity to vote a school tax increase up or down on a ballot. The Pennsylvania School Boards Association does not have any hard data, but officials there counted about 12 referendums, none of which were successful. There were 2 approvals on 5 ballot questions on school construction. Contrast that with PDE data that shows just for FY2010-11 133 districts "sought and were granted approval" for referendum exceptions under Act 1.

Some officials fear that voters will choke off funding to schools if they get to vote on tax increases without exceptions. Another representative was quoted as saying "we have to make sure our school districts run as efficiently as possible, but I’ve got great concerns about placing those types of issues on the ballot". Why? Could it be because school officials would have to make a case for justifying their tax increase without getting a pass?

Just because there is referendum power does not mean that an increase will be automatically rejected. The Education Commission on the States showed that in 2008 eleven states put thirteen statewide education funding referenda questions on the ballot: seven passed, six failed. Nearby states have various forms of taxpayer say over tax increases. If education advocates believe in their cause and feel that there can never be too much invested in teachers, facilities, classrooms, and programs, why not make the case to the voters in Pennsylvania’s districts?

Reverend Presents a Good Tax Policy for Pittsburgh

Reverend Burgess, a Pittsburgh Councilman, has proposed amending the City Charter to require a voter referendum on all property tax rate increases. What a wonderful idea to launch the New Year. The Allegheny Institute has been recommending voter referenda for tax increases for many years.

The premise is very simple. Many legislative bodies and executives are heavily biased toward spending, ultimately necessitating more tax revenue to feed the insatiable spending appetite. Giving voters the power to approve or reject tax hikes provides a strong deterrent to imprudent spending. Taxpayers who vote are likely to be much less inclined to raise their own taxes to enable continued irresponsible behavior by spendthrift legislative bodies.

So, congratulations to Councilman Burgess for proposing the voter referendum. It is a ray of sunshine in a very dreary stream of awful legislation coming from Council recently. Let’s hope his fellow Council members don’t scuttle the plan. It would be politically smart for them to get on board with the Reverend’s idea as soon as possible.

More Choices on the Tax Menu

The real estate tax; the wage tax; the Local Services tax; the realty transfer tax; the parking tax; the poured alcohol tax; the gross receipts tax; the parking tax; the mechanical devices tax; the amusement tax…

You get the idea: there is a plethora of tax sources available to local government in Pennsylvania. That’s why it is always surprising to hear calls for even more sources of tax revenue, particularly when there is a call for layering more taxes upon the existing ones instead of phasing them out.

Just last week the PA League of Cities and Municipalities called for counties to get an additional 1 percent on the sales tax (except in Allegheny County and Philadelphia, which already have local add-ons) for "easing school property taxes (remember Act 1?) and helping county government and municipalities pay their expenses".

Or counties could get a poured alcohol tax like Allegheny County has or, failing those options, the state could just hand out revenue to offset the presence of tax-exempt property (which often generates much of the taxable activity that is captured by one of the many taxes listed above.

Maybe a better option-in light of the massive state budget shortfall, the looming problems with the two statewide pension systems, and the impact of legacy costs at the local level-would be to try and control the spending side of the equation with a spending cap that is tied to inflation and/or population, referenda on tax increases and creation of new tax sources, and a movement to a defined contribution system of pensions for new employees. Otherwise there might not be enough room in the local tax code to list all of those tax sources.