EPLC Education Notebook

Friday, October 28, 2005

Pennsylvania Education Policy Activity

Special Session on Property Taxes


• The Senate Committee on Legislation heard presentations on two property tax reform plans on Wednesday. Senator Sean Logan's Stop Taxing Our Properties (S.T.O.P.) proposal would eliminate all property taxes at the local, county and school district levels for primary residences. The tax ban would take effect after passage of a constitutional amendment prohibiting residential property taxes. Businesses and rental properties would continue to be taxed. Property tax revenue would be replaced by a combination of state sales and personal income taxes and gaming revenue. However, a handout distributed by Sen. Logan outlining potential tax combinations that could cover the $7 billion he estimates would be needed to replace funds garnered from property taxes shows his legislation could cause a hole in the current state budget. Logan's bill (Senate Bill 23) would replace property taxes through a 1% increase in the state personal income tax (PIT), a 2% increase in the state sales tax, additional revenue from gaming, and additional revenue from the PIT increase enacted by the General Assembly in 2003. Use of revenue from the already-enacted PIT increase means the state either would have to cut programs currently funded by that revenue or raise taxes to fill the hole. If Logan's proposal becomes law, political subdivisions (including school districts) will be reimbursed annually by the state for the amount of revenue they would lose due to the property tax ban. Districts initially would be reimbursed based on the amount lost for FY 2005-06; in future years, their FY 2005-06 reimbursement would be adjusted by the percentage change in the statewide average weekly wage. The effect on education funding would be a dollar-for-dollar shift from local to state funding of education, with future inflationary increases.
  
  Legislation introduced by Senator Lisa Boscola would mandate that all school districts participate in the state's property tax relief program (The Homeowner Tax Relief Act - Act 72 of 2004), but creates an alternative through which districts can gain approval for a tax increase without seeking approval from voters through a back-end referendum. Act 72 requires that school boards get voter approval for school tax increases that exceed a certain index. Boscola's legislation maintains the requirement that certain tax increases gain outside approval, however, it establishes an independent Property Tax Review Board that could sanction tax increases for school districts. The review board would operate within the Department of Education and consist of three members appointed by the Governor (two of whom are selected from a list of candidates submitted by the PA Association of School Administrators and the PA School Boards Association), four members appointed by each legislative caucus of the General Assembly, and the Secretary of Education (as a nonvoting member). School districts seeking to implement new taxes or tax increases beyond the index set by Act 72 could take their case to the review board. The board would have the power to approve, deny or modify the tax under consideration. If the board approves the tax increase, a district may levy the tax and is not required to seek further approval through a voter referendum. If the increase is denied or modified by the review board, the district may take to issue before voters for a final say. Boscola's legislation makes additional changes to Act 72 that are detailed in the bill summary included in this Notebook.
  
  Summaries of Senator Logan's proposal (Special Session Senate Bills 22 & 23 and Regular Session Senate Bills 717 & 718) and Senator Boscola's proposal ( Special Session Senate Bill 13) as distributed at the Senate Committee on Legislation's October 26 meeting are available at the end of this Notebook.
  
  The Senate Committee on Legislation also heard testimony on property tax relief from representatives of the Pennsylvania State Education Association (PSEA) and the Pennsylvania School Boards Association (PSBA). Tim Allwein of PSBA said the legislature needs to reverse its approach to property tax reform. Allwein said the conversation needs to begin with looking at state mandates and what school districts are required to spend, not begin by telling school boards they are spending too much. He testified that property tax reform must address "a local taxing system that is fair to taxpayers while allowing school districts to remain a viable partner in the funding of public education, cooperation between school districts and the commonwealth in reducing the costs of providing a sound public education, and a recognition that the commonwealth must become a bigger partner in funding public education." To accomplish these three goals, PSBA recommends that the legislature: 1) provide school boards with a menu of taxes from which to choose that provide stable revenue and are based on taxpayers' ability to pay; 2) consider cost saving measures such as providing relief from state mandates, allowing big tickets items to be purchased through state procurement, consolidating school districts, providing group health insurance for all school employees, and increasing no-bid contract limits to reduce administrative expenses; and, 3) increase state funding for education so the state is "an equal partner" with districts.
  
  Eric Elliott of PSEA addressed issues surrounding the distribution of basic education funding and a back-end referendum requirement for tax increases. PSEA believes that dollars should be targeted to districts "that have relatively high taxes" compared to percentage of local income. The association also believes that property tax relief should be provided based on individual need, with those who pay a larger percentage of their income in taxes receiving the greatest relief, rather than all taxpayers within a school district receiving the same level of tax relief. PSEA also cautions against the use of a back-end referendum to approve future school tax increases. According to Elliott, "unless school funding is adjusted in a more equitable fashion and adequacy is addressed as well, referendum will force school districts to trade educational services for tax reduction - a gamble for short-term gains with long-run consequences."
  
  To date, the Special Session has focused heavily on how revenue to replace property taxes would be collected, but little discussion has occurred on how those dollars would be distributed back to school districts. Some Committee members have expressed the opinion that property tax reform and education funding are separate issues that should not be mixed during the Special Session. However, property taxes are the largest source of funding for education in the state of Pennsylvania, making the two issues intrinsically linked.
  
  It is simply irrational and irresponsible to seriously consider wholesale changes to the source of funding for public education without consideration of the distribution of funding and the impact on educational services purchased with the funds. Obviously, it is easier to deal with the politically popular subject of property tax reduction. But lawmakers need to address the tougher questions as well, such as 1) how will the state funds be distributed, and 2) what will be the impact on available educational services for children in the 501 school districts.



• The House Special Session Finance Subcommittee on Local Control Initiatives held an organizational meeting on Wednesday. The Committee will meet next on November 2. For more information, contact the office of Subcommittee Chair Stan Saylor at (717) 783-6426.



• The Education Policy and Leadership Center previously identified Criteria for Evaluating Education Funding Proposals/Budgets that can serve as a guide for assessing proposals made during the Special Session on Property Taxes. Learn more about the eight key questions that the Governor, every legislator, school district officials, parents and taxpayers should ask at www.eplc.org/fundingcriteria.html.



Proposals to Limit State Spending


• The Senate has adopted legislation that would limit growth in annual state appropriations. Senate Bill 884 would restrict state appropriations through a constitutional amendment. Senate Bill 4 would place the limit in statute. In any fiscal year, growth in the state budget would be limited to the prior year's General Fund total, adjusted by the lesser of either: 1) the average percentage change in personal income in PA for the preceding three calendar years, or 2) the average percentage change in inflation for the preceding three calendar years plus the average percentage change in population for the past three years. Both bills also were amended to refer to state "appropriations" rather than "state spending" that was referred to in the initial versions. The legislation contains provisions through which the General Assembly can override the spending limit to respond to a gubernatorially or presidentially declared emergency, or by a vote of two-thirds of the members of the House and the Senate upon the request of the Governor for funds that exceed the index. Annually, any surplus revenue would be distributed equally between the Budget Stabilization Reserve Fund (Rainy Day Fund) and the newly established Taxpayer Fairness Fund. Similar legislation has been passed by the House Appropriations Committee (House Bills 2067 and 2082). Senate Bill 4 and Senate Bill 884 now go to the House for consideration.



• On Monday, the House Appropriations Committee adopted House Bill 2067, which restricts state spending to the rate of inflation through a constitutional amendment. Companion legislation that would set the spending limitation in statute, House Bill 2082, was passed by the Appropriations Committee last week. Both bills include exceptions through which the state could spend beyond the limit for spending mandated by federal law, spending that is the result of a court order, required state pension payments, interest owed on state debt, and funding needed to respond to an emergency or disaster declared by either the governor or President (however, disaster funding must be approved by a three-fifth vote of members of the House and Senate). Additionally, taxpayers could approve spending beyond the rate of inflation via referendum through a majority vote. Unencumbered surplus operating funds would be refunded to taxpayers annually through a pro rate state income tax credit. Both bills await further consideration by the full House.



• On Tuesday, the House Finance Committee approved legislation that would gradually reduce the state personal income tax over three years. The phase-down in House Bill 1586 would reduce the rate from the current 3.07 percent to 2.8 percent in 2008. HB 1586 has been placed on the House Tabled Bills Calendar.



Other Senate Actions


• The Senate Education Committee amended and reported two pieces of legislation at its Tuesday meeting:
  
  Senate Bill 414: Establishes the "Science Technology Partnership Program," which permanently places the "Science in Motion" program into state law. Science in Motion focuses on improving science instruction by providing state grants that make scientific technology available to students, supplement science curriculum, and provide professional development to science instructors through partnerships between higher education institutions and public and non-public schools. Both the House Education and Rules Committees have passed similar legislation (House Bill 1512) that is currently on the House Tabled Bills Calendar. SB 414 has been re-referred to the Senate Appropriations Committee.
  
  Senate Bill 676: Makes comprehensive changes to school health services. Controversy arose over a change that would lower the school nurse to student ratio to one nurse for every 750 students. Currently, districts must employ one nurse for every 1,500 students. Bill sponsor Joe Conti estimates hiring additional nurses to meet the 750:1 ratio could cost between $20 million to $24 million. Some Committee members expressed reservation at the cost, while others voiced concern that some school districts already have trouble finding qualified nurses and that increasing staffing requirements may place an additional burden on those districts. The 750:1 staffing ratio is a federal recommendation that Conti said is negotiable. Senator Jeffrey Piccola offered a narrowly-defeated amendment to maintain the 1,500:1 staffing ratio. Piccola suggested that the federal government should make funding available to hire more nurses if it supports reducing the staffing ratio. Though most Committee members voted for the legislation, some voted in the affirmative with the caveat that a closer look be taken at the staffing issue before the legislation moves forward. Among the other changes, SB 676 requires that students have physical examinations upon entry into school and in 4th, 8th and 11th grades, rather than upon school entry and in 6th and 11th grades as currently required. SB 676 awaits further consideration by the full Senate.



Other House Actions


• Legislation that allows homeschoolers to participate in extracurricular activities in their district of residence is on its way to the Governor. The House concurred in changes to Senate Bill 361, which establishes participation criteria that require home education students to meet criteria equivalent to students who attend the district's schools. Unless the Governor vetoes SB 361, the bill will become law.



• The House Children and Youth Committee passed an amended version of House Bill 1617 on Wednesday. HB 1617 mandates that teachers complete a child abuse education training course at least once every five years. School entities must offer such a course at least once a year. The course must be approved by the Department of Public Welfare in consultation with the Department of Education and may be provided via CD-Rom, distance learning technology or in person. Completion of the course would count toward educators' professional development requirements. The bill awaits further consideration by the full House.



• On Wednesday, the House Labor Relations Committee unanimously reported out House Bill 194, related to the Dormitory Sprinkler System Act. The bill requires that low-interest loans provided to colleges and universities for the installation of sprinklers in student housing include all costs associated with the project, including costs of modifying water supply sources and plumbing, necessary renovation work, necessary asbestos abatement, and costs associated with integrating the smoke detection and fire alarm system. HB 194 awaits further consideration by the full House.



• The House Veterans Affairs and Emergency Preparedness Committee approved legislation that allows State System of Higher Education campus police to carry a firearm if they have completed certain firearms training. House Bill 509 has been placed on the House Tabled Bills Calendar.



State System of Higher Education


• The Pennsylvania State System of Higher Education is experiencing record enrollment for the fourth straight year. A record 107,251 students are taking classes at the 14 PASSHE universities this fall, an increase of 1,349 students over Fall 2004. PASSHE also reached a record 11,177 for minority student enrollment (10.4 percent of all students).



• The State System of Higher Education Board of Governors has extended the contract of ten system university presidents through June 30, 2008. Extensions were granted to: Dr. Jessica Kozloff (Bloomsburg), Dr. Angela Armenti (California), Gruenwald (Clarion), Dillman (East Stroudsburg), Dr. Tony Atwater (Indiana), Dr. F. Javier Cevallos (Kutztown), Dr. Keith Miller (Lock Haven), Dr. Francine McNairy (Millersville), Dr. Robert Smith (Slippery Rock), and Dr. Madeline Wing Adler (West Chester). Of the four other PASSHE universities, three are currently headed by interim presidents and the president of Edinboro has announced he will retire in June 2007.



All legislation from the Pennsylvania General Assembly, including bills cited in this Notebook, can be found at www.legis.state.pa.us/cfdocs/legis/home/session.cfm.


Other


• Register Now! The Education Policy and Leadership Center will host an Education Finance Symposium on November 14-15 at the Wyndham Harrisburg-Hershey. Participants will learn about finance reform efforts in other states, as well as reform proposals currently in the works in Pennsylvania. Registration materials and hotel information are available now at www.eplc.org/financesymposium.html.



• Next week...SPECIAL SESSION COMMITTEE MEETINGS - The House Special Session Subcommittee on Local Control Initiatives meets Wednesday (November 2) in Harrisburg. The House Special Session Subcommittee on Property Tax Reduction meets Wednesday in Harrisburg to review special session bills 2, 3, 7, 9, 10 and 11. The House Special Session Subcommittee on Sales Tax Initiatives meets Thursday in Harrisburg to review special session bill 12. The House Special Session Subcommittee on Alternative Revenue Sources meets Thursday in Harrisburg.
  
  PENNSYLVANIA EVENTS - The Pennsylvania Department of Education hosts a special forum on new research on "The Cost Savings to Special Education from Pre-Schooling in Pennsylvania" on Monday (October 31) in Harrisburg. The Pennsylvania Athletic Oversight Committee holds a public hearing on Tuesday in Harrisburg. The Pennsylvania State Board of Education holds a series of public roundtable discussion and public hearing on proposed changes to Chapter 49 and proposed changes to Chapters 4, 11, and 12 as they pertain to early childhood education on Tuesday in Harrisburg and on Wednesday in Pittsburgh. The House Education Committee meets to consider House Bills 1085, 1421, 1675 and Senate Bill 151 on Wednesday in Harrisburg. The Pennsylvania School Boards Association, with support of the legislative Local Tax Policy Caucus, hosts public meetings on property tax reform on Wednesday in Red Lion and on Thursday in Mars. Communities in Schools of Pennsylvania holds its conference on November 3-4 in Philadelphia. The Pennsylvania School Employees' Retirement System Board of Directors meets Friday in Harrisburg. EPLC's Education Policy Fellowship Program meets Friday in Harrisburg for the third session of the 2005-06 class.
  
  NATIONAL EVENTS - The Lumina Foundation and the James B. Hunt, Jr. Institute for Educational Leadership and Policy host a forum on "College Costs: Making Opportunity Affordable" on Wednesday in Washington, D.C. The National Middle School Association holds its annual conference on November 3-5 in Philadelphia. For information on these and other upcoming events, see www.eplc.org/calendar.html.

• Proposes an amendment to the Constitution of Pennsylvania that would set forth a prohibition for any political subdivision that currently levies a tax on real property from levying the tax on homestead property.

• Enacts the Homestead Property Tax Elimination Act.



• Prohibits political subdivisions from levying or collecting any tax on homestead property for any purpose after June 30 of the calendar year immediately following passage of an amendment to the Constitution of Pennsylvania by the electorate that would establish the prohibition against levying a tax on homestead real property.



• Establishes the Homestead Property Tax Elimination Fund.



• Enacts an additional 2% tax upon each separate sale at retail of tangible personal property or services as defined in Article II of the Tax Reform Code of 1971, the proceeds of which are required to be deposited into the Homestead Property Tax Elimination Fund. Maintains existing exclusions.



• Enacts an additional 1% tax on each class of income as defined by Article III of the Tax Reform Code of 1971, the proceeds of which are required to be deposited into the Homestead Property Tax Elimination Fund. Maintains existing poverty exclusions.



• Requires that the revenue generated from the Commonwealth's existing personal income tax rate from 2.8% to 3.07% be deposited into the Homestead Property Tax Elimination Fund.



• Transfers all revenue deposited in the Property Tax Relief Fund pursuant to Act 71 of 2004 to the Homestead Property Tax Elimination Fund.



• Requires that each political subdivision calculate the amount of revenue that the political subdivision will lose in the upcoming fiscal year based on eliminating property taxes for homesteads to the State Treasurer.



• Permits the State Treasurer to reimburse each political subdivision for the total amount of revenue lost by the political subdivision; also requires the State Treasurer to annually adjust the political subdivision's certification of lost revenue each year by the change in the Statewide Average Weekly Wage.



• Effective date is predicated on the passage of an amendment to the Constitution of Pennsylvania by the electorate that prohibits any political subdivision from levying a tax on homestead real property.



• Repeals the Homeowner Tax Relief Act (Act 72 of 2004) in its entirety.

• Imposes the Homeowner Tax Relief Act (HTRA) on all school districts in Pennsylvania. This means:



• All school districts will receive funds from Act 71 to reduce property taxes, except Philadelphia, which is still required to reduce its resident and non-resident wage tax.



• All school districts, except Philadelphia, are regulated by the "back-end referendum" provisions of Act 72.



• Removes the requirement that school districts must impose a 0.1% earned income and net profits tax (EIT) in order to receive state funds for property tax reduction. Any district which has already opted in to the HTRA is no longer required to collect it, although it is unclear whether a school district is still permitted to levy, assess and collect this tax.



• School districts may still reduce property taxes through an increase in the EIT or a local personal income tax through referendum. However, the required "front-end referendums" are removed and the decision to conduct all future "tax shifts" is left to the discretion of the school board.



• Institutes a new Property Tax Review Board.



• The board is composed of three members appointed by the Governor, two of whom are required to be selected from a list of candidates submitted by the Pennsylvania School Boards Association and the Pennsylvania Association of School Administrators, and four other members who are appointed by each of the legislative caucuses in the General Assembly. The Secretary of Education also serves as a nonvoting ex officio member of the Board.



• The board would be permitted to review tax increases that exceed the index or new taxes and approve or disapprove such increases.



• If the tax increase or new tax is approved by the board, the school district would not be required to go to referendum and would be authorized to levy the tax.



• If the tax increase or new tax is not approved by the board, the school district would be required to seek approval to increase the tax or levy the new tax from the electorate through referendum.



• Eliminates the requirement that a minimum amount of homestead and farmstead property tax relief be offered in a school district.



• Removes the provisions allowing a school district to ask the district's voters if they want to get out of the HTRA after 4 full years of participation (through referendum).

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