A Misguided Proposal to Redirect Liquor Tax Revenue

The stated intent of Pennsylvania House Bill 985 is to divert liquor
tax revenue to provide grants to municipalities with tax-exempt
property comprising 15 percent or more of total assessed value
and with household median income of less than 115 percent of
the state level.

But, “While the intent appears to be useful, the implementation
and constraints of the proposed legislation pose many problems,”
says Jake Haulk, president-emeritus of the Allegheny Institute for
Public Policy (in Policy Brief Vol. 25, No. 21).

And many of the problems are rooted in the fact that
Pennsylvania does not mandate a regular schedule of property
assessments, the Ph.D. economist says.

The main purpose of H.B. 985 is to replace the revenue not
collected from tax-exempt properties. But Haulk says the measure
includes restrictions and procedures that are inherently unfair and
is inherently wrong in using the Common Level Ratio (CLR) to
calculate both taxable and tax-exempt municipal property values.
Haulk says even larger municipalities with median income that is
110 percent of Pennsylvania’s median household income are

likely to have many high-income earners who will benefit from
having liquor tax revenue allocated to their municipality.
“By the same token, a municipality with 116 percent of the state
median income and is ineligible for funds from the proposed
program will have many lower or modest income earners who will
not receive any benefit from the allocation of the liquor tax
redistribution to municipalities.

“This bill should fail on that inequity alone,” Haulk says.
Back to the proposed legislation’s deep flaw in using the CLR to
determine municipal property values:

“First of all, the CLR is calculated based on countywide property
sales, not municipality sales,” Haulk reminds. “The CLR is
calculated as the median value of the assessed value to sales
value of properties that sold in a given year. Many municipalities
are too small to have nearly enough sales to hope to calculate a
meaningful CLR.”

Moreover, the think tank scholar says using county CLRs to
estimate property value for municipalities having vastly different
income and property values across the county in which they are
located is obviously quite wrong.

“Normally, the CLR is used for property assessment appeals
only,” Haulk says. “And it is necessary because Pennsylvania
does not mandate regular reassessments of all properties. If it
did, the flawed formulated CLR would not be needed.”
Pennsylvania is one of only five states that do not require regular
complete reassessments. As a result, Haulk says its residents are

burdened with heavy costs as appeals are time- and resource-
consuming for the counties and property owners.
“In short, the proposed legislation is an unnecessary and poorly
thought-out effort to help municipalities with high municipal tax
rates and median income below state median income,” Haulk
says. “It avoids dealing with excessive spending in many municipalities
that would benefit.”

“And it ignores other state funding and federal grants that are
available to the high-spending municipalities,” he adds.

Haulk says House Bill 985 also fails to recognize the poor return
on education spending, offers no relief to municipalities with
higher than 115 percent of state median income that also have
large amounts of tax-exempt property and fails to recognize or
consider current distribution of state revenues.

Colin McNickle is communications and marketing director at the
Allegheny Institute for Public Policy
([email protected]).