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WILKES-BARRE — While stressing that his organization analyzes data but does not make policy recommendations, Matthew Knittel of the Commonwealth’s Independent Fiscal Office ran through property tax elimination proposals before a small crowd Friday and offered mixed expectations.
During a luncheon set up by the Pennsylvania Economy League at the Westmoreland Club, Knittel hinged many observations on an analysis the IFO did regarding Senate Bill 76 of 2013, a proposal that gained widespread support with a promise of completely eliminating school property taxes. That bill failed, but similar proposals have resurfaced.
In a nut shell, school property taxes would be replaced with increases in personal and sales taxes, and in an expansion of what the state sales tax covers. Knittel did review a few other ideas, including plans that would reduce but not eliminate school propriety taxes through similar means, and bills that would let local school districts replace property taxes with local income taxes or business taxes.
An independent office launched in 2011, the IFO is tasked with offering general fund revenue estimates, five-year economic and budget outlooks, actuarial review for pension legislation, and special studies at the request of the state General Assembly.
Knittel pointed out that property tax impact varies substantially depending on the district a person lives in. Statewide, it makes up 44.5 percent of public education budgets, but it can range from 19.3 percent to 65 percent among the state’s 500 districts.
One reason the impact is so substantial: The bills that are put forth offer districts the amount of money they currently get plus increases connected to inflation. They don’t account for changes in enrollment, even though projections show a statewide decline in student population of 2.9 percent in the next five years. For some districts, the decline is projected at a steep 12 percent.
Line charts showed the volatility of relying on sales and income taxes, which dropped dramatically at the start of the Great Recession in 2007, while property taxes dropped far less.
State Rep. Eddie Day Pashinski, D-Wilkes-Barre, said that is one reason the Legislature has started talking about setting up a reserve in any new system, though the amount of such a reserve, and where the money would come from, haven’t been settled.
Knittel also displayed charts that showed sales tax and property tax burden on residents are both a bit below the national average. Another chart showed that per-person debt in Pennsylvania for mortgages and other home-related costs skyrocket when people turn 65, from a per capita debt of $6,238 at age 55 to $14,689 at 65.
“We’re not sure why this happens,” he admitted. Most people have their home paid off by then, but he speculated older people may take out home equity loans to pay for various expenses — particularly health care — as their savings run out.
While there were a lot of variables in most calculations, one showed that businesses would likely benefit more from the elimination of property taxes than homeowners. IFO estimates suggest that, statewide, individuals would save about $8 billion in property taxes but pay about $10 billion in increased sales and income taxes.
Businesses, on the other hand, would save only about $3.4 billion in property taxes while paying about $1.3 billion more in sales and income taxes — a net savings of almost $2.1 billion.
