Bethlehem businesses could pocket $18.2M under school tax elimination
The proposed and hotly debated state law, HB/SB 76 to eliminate school property taxes, would let large Bethlehem business off the hook in supporting education, school officials said at the finance committee meeting Jan. 17.
Properties that are not homes generate $82.1 million, or 50 percent of the district’s tax base and $18.2 million of that comes from the 20 highest-paying commercial properties, including Sands Casino, Just Born and Lowe’s Home Centers. Under HB/SB 76, the tax burden for this revenue will be shifted to citizens in the form of increased personal income taxes (PIT) and sales taxes. This means 51 percent of Bethlehem’s tax base will not be paying property taxes, nor PITs, explained business manager Stacey Gober.
Tax shift, not elimination
“That’s an awful lot of commercial abatement that will exist in Bethlehem alone,” Gober stated. “The fact is that property tax elimination is not elimination; it is a tax shift.”
PITs under HB/SB 76, also known as the Property Tax Independence Act, will increase from the current rate of 3.07 percent to 4.95 percent and, because it is personal and not earned income tax, the tax will include passive income, such as dividends and interest rates. Sales tax will rise from 6 percent to 7 percent and will expand to encompass staple items from food and clothing over $50, to daycare and diapers, transportation, medicine, funerals, parking, cable, trash and more.
“These are things that are going to impact young, working families,” Gober said. “The question is whether the savings in their property tax is going to be offset by the difference in personal income and sales tax expenses.”
Some taxes remain
Further, even with such a major tax shift, Gober continued, property taxes would not disappear because the proposed law only applies to real estate property taxes. Municipal and county property taxes will remain in place, as will the school district property tax to pay off outstanding debt for things like infrastructure.
The state will take over distributing the education revenue collected through PITs and sales tax, a system with very unreliable timing, Gober said.
Plan starts in July
State plans are for school districts to stop collecting property taxes in July at the same time the state will start collecting higher PITs and sales tax. The revenue would be rolled out to school districts throughout 2018. Even if all goes as planned, Gober said, the district would likely not see any of that 2017-18 operating revenue until the second quarter of the school year.
“That means we’re at June and we have no revenue,” Gober stated. “Where are the dollars going to come from to give schools operating revenue until the new taxes kick in and can be distributed?”
Last year, legislators were unsuccessful at passing SB 76 for School Property Tax Elimination. School districts are worried that the shifting currents in Washington, particularly Donald Trump’s nominee for Education Secretary, Betsy DeVos, an avid supporter of charter schools and voucher programs, could give the bill enough GOP seats to pass.
Bethlehem businesses that would no longer be obligated to support education have a vested interest in helping to ensure that public schools provide them with the high-quality educated workforce they rely on, Gober noted.
“When there’s a need in the community for a workforce, they come to us and say ‘Can you help us develop vocational plans around welding,’ or whatever the need is, and we’re there to respond,” Gober said. “We’re here together with corporate America to help develop a better workforce that meets their needs and the needs of our students for employment when they leave our schools.”
“I would love to not pay property taxes,” said board President Michael Faccinetto, “but the fact is that these business are large parcels in the district that will be completely off the hook in supporting education. It takes a village to raise a child and this is all part of that village.”
Supporters of the law attest that current property taxes make it too difficult for young working families and senior citizens on fixed incomes to own and keep a home. The board came prepared with solutions to these concerns that provide tax relief without scrapping the property tax.
Superintendent Dr. Joseph Roy proposed eliminating the Opportunity Scholarship Program (EITC) that allows businesses to donate to private and parochial schools instead of paying state taxes. This revenue, he said, could be put toward the Senior Citizen Property Tax Rebate program, which provides up to $650 in tax relief to senior citizens. EITC delivers $80-$85 million annually to private and parochial schools and could double, even quadruple, this rebate, he said.
With that, all property tax payers get a discount on their taxes through the Homestead exception, which is paid for with revenue generated from casinos throughout Pa. Either the EITC, or the expansion of statewide taxes, could also be used to increase this discount substantially, Roy said.
Return charter rebate
Roy also proposed a reinstatement of the state’s charter school subsidy eliminated in 2011-12 under Gov. Tom Corbett’s administration that reimbursed school districts for charter school tuition. Districts where 10 percent or more of their budget goes to charter schools should receive this subsidy, he said, while noting 75 percent of all charter students come from only 25 of Pennsylvania’s 500 school districts.
“Twenty-five districts are being disproportionately hit by this,” Roy noted. “Maybe the state doesn’t have to reinstate it for every district, but just for the districts that are hardest hit.”
Roy lastly proposed funding the state’s Basic Education Fund (BEF) Fair Funding Formula over a period of five years instead of 20 or more, which would help the district see more substantial revenues a little faster. The Fair Funding Formula accounts for a district’s demographics, including poverty, the number of English language learners and students attending charter schools.