Property Tax Reforms Still Leave Big Loopholes for School District

HARRISBURG — Pennsylvania taxpayers may continue to have little authority over property-tax increases, because a new law didn’t eliminate the most commonly used loopholes that allow school districts to exceed a tax-increase cap and bypass a voter referendum.

“It was the low-hanging fruit,” said David Baldinger, president of the Pennsylvania Taxpayer Cyber Coalition, an alliance of about 60 grassroots taxpayer advocacy groups statewide. “The (seven loopholes) that were eliminated were very rarely used, and the three that remain are the ones that were most frequently used.”

However, Gov. Tom Corbett characterized this reform measure, passed with the state budget on June 30, as “significant property-tax reform.”

The law changed a 2006 property-tax reform law titled Act 1. Under the previous law, school districts could not raise property taxes above a statewide cost-of-living index determined by the state Department of Education. If a district wanted to exceed the index, voters had to approve the increase.

But the law gave school districts 10 exceptions — including building projects, debt, pension payments, court settlements, population increases and special education costs — that could be used to increase taxes above the index, with the state Department of Education’s consent.

Because of the exceptions, property-tax increases rarely went to a referendum. Since 2006, school districts have pushed to exceed the state index more than 1,300 times. Only 12 of those requests have ended with a voter referendum; only five of those referendums were approved.

Under the reform measure, only exceptions for special education costs, pension liabilities and construction debt remain, but they have accounted for 56 percent of exception requests since 2006, according to the state Department of Education.

Even so, Corbett praised the new law as for giving voters a better chance to head off proposed increases by allowing them “to voice their opinion in more than just the election of school board directors.”  

Baldinger described the reform measure as “practically nothing.”

He also said the state Department of Education will continue to approve the exceptions. This past year, the department approved exceptions for 228 school districts, more than 40 percent of the state’s 500 districts. 

Tim Eller, spokesman for the state Department of Education, said the state requires supporting paperwork from districts seeking exceptions. Eller said districts may not receive the full amount requested from the state-approved exception.

Also, districts usually do not use all of the funding from the exceptions. According to the state Department of Education, only about one-third of exceptions are actually used by districts in their final budgets.

Dave Davare, research director for the Pennsylvania School Boards Association, which represents school boards statewide, said districts do not use the funding from these exceptions, so they can have budget flexibility. The exceptions are due to the state Department of Education in January, but districts do not pass their budgets until June.

“When you are doing your budget, you have to try and forecast for a window of 12 to 18 months,” Davare said.

With the elimination of seven exceptions, school districts will have a more difficult time with budgeting and may be forced to eliminate programs or lay off workers, resulting in larger class sizes, he said.

Even with the elimination of seven exceptions, school districts can raise property taxes up to the state-mandated cap, which the state Department of Education calculates with various state and federal labor statistics.

This year, districts can raise taxes up to 1.4 percent without applying for exceptions or going to a referendum, though there are adjustments to the formula for poor districts, which allow some to increase taxes by as much as 2.3 percent. Only three districts qualified for the top level of adjustments this year. Click here to see a full list of all districts.

Baldinger said inflation could drive up the cost-of-living index and give districts greater leeway to raise taxes below the cap. And now that property tax reform has been addressed once this session, he said support for further changes could erode when the Legislature returns in the fall.