Property Taxes – Time to Eliminate?

There have been discussions about eliminating property taxes for decades.

In November 2017, a constitutional amendment passed by substantial margin to allow for the elimination of property taxes. With that amendment, it would only be necessary for legislation to be enacted to rid the Commonwealth of this regressive tax.

The question then becomes what is the status of the bill to eliminate property taxes?

In December of this year, I circulated a co-sponsorship memo in the PA House for a bill which will eliminate property taxes 100% for all properties if enacted.  The objective of the bill is simple – to eliminate all property taxes.  The tricky part is the replacement tax.

That very simple statement will be the subject of eight detailed articles I intend to write explaining the issues in detail to solicit your feedback and to allow the best possible solution to come about as quickly as possible.

The eight articles will include:

1. Critical economic reasons for eliminating property taxes.
2. Problems with the existing property tax system.
3. Unfunded pension liabilities.
4. Funding formulas for school districts under current laws.
5. Property tax elimination and impact on senior citizens.
6. Property tax elimination and impact on working families.
7. Property tax elimination and impact on schools and teachers.
8. Proposed property tax elimination bill.

Eliminating the property tax is critical to the economic survival of the Commonwealth and our citizens!

In my 40+ years as a certified public accountant and expert in helping organizations avoid bankruptcy, I can think of no more complicated problem to the financial survival of the Commonwealth than eliminating property taxes.

The reason this is so complicated is because our current system of taxation and funding schools is so fundamentally flawed that even minor fixes to peripheral elements of the system may have significant unintended consequences.

For example, the funding formulas for the schools result in Palmyra Area School District receiving $1 Million less per year than it would receive under a newly enacted funding formula which will take almost 20 years to fully implement.  This means that Palmyra School District must fund that shortfall from the state by either cutting spending and or with property tax increases.

The Independent Fiscal Office five year outlook provides an insight into Pennsylvania’s stagnant growth and substantial budget shortfalls over the next five years. When combined with declining population for citizens under age 60 and significantly increasing population for citizens over 65, the trends continue to be negative for the Commonwealth.

If we take decisive action now to reform our tax policies for working families, seniors, businesses, and school districts with the fundamental shift in the elimination of property taxes we can reverse these negative trends. I am extremely optimistic if we take the problem seriously.

Efforts in the past to eliminate property taxes have not been successful because of a whole bevy of reasons.

The primary reasons for the failure of prior efforts revolve around the following:

1. The proposed replacement taxes involve funds going to the Commonwealth rather than to local control.
2. The impact of property tax elimination on people who rent rather than own their homes.
3. The perceived lack of stability in school funding under the replacement formula.
4. The expansion of the sales tax base was a problematic for some powerful stakeholders.
5. The proposed replacement taxes were directed predominantly at working families.

The system that I am proposing will address these issues and provide for an orderly phase in so that the schools and the community are able to adapt to a new system with no major disruptions to the educational opportunities of our students.

I cannot emphasize enough how severe the problem is with property taxes. The funding formula itself which is a separate issue is equally problematic and leads to the difficulty in solving this problem. It is critical however that everyone understand that if we do not resolve this problem together the probability of surviving the next economic downturn is limited.

Our financial rescue plan that I proposed when I first got elected two years ago discusses all the efforts we need to turn around the finances in Pennsylvania. We are well on the way to enacting these bills and property tax elimination is a major component of it.

I look forward to your input and comments on the particles that we will be submitting and ask you to please get active in this and provide me the guidance that you feel needs to be included in any legislation. We cannot afford to make a mistake.

A copy of our financial rescue plan can be found at our website www.repfrankryan.com.

Frank Ryan, CPA, USMCR (Ret) represents the 101^st District in the PA House of Representatives.  He is a retired Marine Reserve Colonel, a CPA and specializes in corporate restructuring.  He has served on numerous boards of publicly traded and non-profit organizations.  He can be reached at [email protected].