Sharon Ward Testifies Before House Committee on Principles to Guide Property Tax Reform in Pa.

Download Sharon Ward's Full Testimony

In testimony before the House Select Committee on Property Tax, Sharon Ward outlined principles that should guide property tax reform in Pennsylvania. Here are the highlights:

The General Assembly has been debating proposals to address property taxes for at least 15 years, with varying degrees of success. My own observation is that the debate has centered on the claim that the voters will pay less, but any plan that shifts from property to other forms of taxes can’t make that guarantee to all, and it becomes a game of winners and losers. Modest changes are not sufficient, so recent proposals, by both Democrats and Republicans, have called for total elimination of school property taxes, which is probably not achievable and certainly not desirable.

In each of your districts, there will be individual winners and losers and municipal winners and losers. Hence, the stalemate. I would argue that the debate needs to center on a new set of principles, that make sense, seem fair, are clearly articulated and do not center on individual winners and losers.  

The first is to ensure adequate funding for public schools. Pennsylvania has enjoyed reasonably high personal income, low rates of poverty and a lower uninsured rate than the nation. We have lagged in the share of college-educated individuals, which is now one of the key requirements for economic growth. We need good schools and will need them more in the future if our economy is to grow.

The second is that property tax/school funding reform should reduce the inequities between school districts. This can be done through the school funding formula. The most recently-used funding formula drove state aid to higher-poverty, lower-wealth districts; this formula can be improved. 

Third, property tax relief should be targeted to individuals who face true hardship. Often reform efforts are directed most to individuals who yell the loudest, but lower-income people should not subsidize higher-income people. For example, one of the leaders of the property tax elimination group complains that high property taxes prevent him, a retiree with a pension, from opening a winery. A young family of renters shouldn’t be working to subsidize a retiree’s hobby farm. 

The program must be fair, transparent and based on an individual’s ability to pay, which means an income or means-tested program.

Fourth, property tax relief should be directed to those communities where property tax rates impede growth.

To accomplish this, the commonwealth could enact a mix of individual and school district-based property tax relief measures. We would suggest the following:

A. Expand the Property Tax/Rent Rebate program for seniors – Pennsylvania already has the property tax/rent rebate (PTRR) program to address the needs of the poorest elderly Pennsylvanians. Currently, the program provides a modest state subsidy ($250 to $650, based on income up to $35,000 per year) for homeowners.  This program could be expanded to offset property taxes for seniors with limited incomes and for properties up to the median value in a school district – or the payments could be sent directly to the district to offset any tax an eligible senior would otherwise owe. The program expansion could be funded with more modest increases in the state’s personal income tax rate, or a higher tax rate on unearned income. 

B. Enact a “circuit breaker” to target property tax relief to needy taxpayers, regardless of age – These programs compare property tax payments to a family’s income and, like an electrical circuit breaker, the program benefits activate once property taxes exceed a set threshold.  This would be means-tested and accountable – no matter what school district you live in. In 2008, 18 states had some form of a circuit breaker program – whether targeted to seniors or all homeowners. 

C. Create a property tax deferral program – Like a reverse mortgage, property tax deferral plans allow specific groups of homeowners (typically, the elderly) to tap into the unrealized equity of their homes to pay their property taxes. The taxes would be paid when the house is sold. Oregon and Washington currently offer such programs. 

D. Increasing state funding for schools – and sticking with it – Pennsylvania’s larger-than-average dependence on local funds for schools could be addressed by increasing state funding for all districts. This cannot be a promise of convenience for the state, as has been the case in past years. 

E. Develop a new school funding formula that incorporates tax effort as a critical variable – Pennsylvania had a funding formula adopted in statute in 2009, which it has since largely abandoned. That formula could be modified to include a variable that better measures local tax effort and distributes a higher share of state dollars to districts with a high tax effort, as well as areas with high poverty, and other variables.

Read Sharon Ward's Full Testimony.