Who Pays for School Property Tax Elimination? An Analysis of School Property Tax Burdens in Pennsylvania

Authors: 
Mark Price
Publication Date: 
April 6, 2017

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Executive Summary

Far from providing relief for working families, recent proposals to eliminate school property taxes in Pennsylvania would increase taxes on the middle class while sabotaging the chance to adequately fund Pennsylvania schools for middle- and low-income families.

This report provides the first estimates of the impact of property tax elimination proposals on families in Pennsylvania. Echoing recent debates about U.S. health care policy, our findings demonstrate that, in the case of proposed property tax elimination in Pennsylvania, the devil is in the details.

Across all Pennsylvania families, property tax elimination would increase taxes by $334 per family. While property taxes would fall by an average of $1,685 per family, sales and income taxes would rise by over $2,000 on average per family.

Moderate-income families (earning between $22,000 and $63,000), many of who live in rural areas, would see the biggest increase in taxes as a share of their income (0.6 percent). In dollar terms, these moderate-income families would see an average increase in taxes of around $300 ($269 to $326).

There are two main reasons that the proposed property tax elimination increases taxes on middle-class families. First, the proposal would shift taxes from corporations to families, exacerbating a decades-old shift of taxes in Pennsylvania away from corporations.

Second, the largest amounts of property tax relief would go to affluent families in rich school districts that have the highest property taxes because those school districts choose to amply fund local schools:

  • Affluent Lower Merion School District in Montgomery County, for example, would receive 22 times as much in state funds for school property tax elimination as the high-poverty Reading School District in Berks County ($23,219 per student versus $1,034).
  • In the 125 most affluent (lowest-poverty) school districts as a group, school districts would receive $10,703 per student in property tax relief, nearly three times as much as the $3,721 on average in the 125 highest-poverty school districts – half of them in rural communities.

In 2015, the legislature achieved a bipartisan, bicameral consensus that any additional education funding should be distributed based on a scientific formula backed by research on the actual cost of a quality education in each district. Yet property tax elimination would distribute funds to districts in roughly opposite proportions to the basic education funding formula. Under the formula:

  • The highest-poverty 125 school districts would receive over four times as much as the lowest-poverty 125 ($12,647 per student versus $3,107 per student).
  • Reading would receive 21 times more than Lower Merion ($26,327 per student versus $1,251 per student).

Adding the additional state funds for property tax elimination to existing state funding for districts, the state would now provide an average of $12,198 per student to the richest quarter of districts, 39% more than the $8,802 per student in the poorest quarter of districts. That outcome fails the fairness test even before you consider the reality that it costs more to educate lower-income students.

The proposed property-tax elimination would also lock in for decades one of the nation’s most unequal state education finance systems. It provides no increase in overall education funding, while increasing Pennsylvania’s income and sales taxes to their highest levels ever, making it unlikely that the legislature would be able raise new revenues for schools for many years. Families in the moderate income rural and urban communities that see the biggest increases in taxes would pay the price again, with their children’s educational opportunities permanently compromised by changes like large class sizes, a lack of full-day kindergarten, and few or no arts or AP classes.[1]

The proposed property tax elimination is a solution for a problem that Pennsylvania doesn’t have – property taxes that are high across the board. As this brief shows, property taxes are comparable to our neighboring states and modest as a share of income in most places. One problem that Pennsylvania does have is inadequate state funding for education – a major cause of current school funding inequities between districts of means that choose high property taxes and moderate income districts that struggle to make up for inadequate school funding. That problem, in turn, fuels a second problem: property taxes that ARE high in certain districts where residents are less able to afford them. Pennsylvania can solve these two problems by raising state revenues in a fair way, not to eliminate property taxes but to better fund schools; and by using some state revenues to reduce property taxes in a targeted way where they are high relative to what people can afford.

 

SEE A WEBINAR PRESENTATION OF THE REPORT FINDINGS BY MARK PRICE BELOW:

 


[1] For a careful review of the challenges facing rural schools see Pennsylvania Partnerships For Children, Spending Impact on Student Performance: A Rural Perspective, March 2017, https://goo.gl/TLA7Kc. For a comprehensive review of the need for more equitable school funding see The Education Law Center, Money Matters in Education Justice, March 2017, https://goo.gl/xHStEu.