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HARRISBURG – The Act 1 index school districts fear losing as part of a five-month overdue budget deal shields taxpayers from footing the bill for ballooning mandated costs, advocates say.
But it doesn’t prevent all tax hikes – meaning any relief generated by a proposed $2 billion sales tax increase could evaporate in a matter of years, leaving property owners paying more for schools and the things they buy.
“The fear is if we somehow temporarily reduce property taxes that it’s something of a bait and switch game,” said Sen. Dave Argall, R-Schuylkill, who has long pushed for total elimination property tax plans over piecemeal proposals. “And in a few years people would be back to paying property taxes again at the same rate or higher.”
It’s a reality both Gov. Tom Wolf and legislative Republicans want to change, despite the protest from scores of school advocacy groups across the state who say eliminating Act 1 will skyrocket property taxes – or force districts to make “draconian” cuts just to survive.
“Act 1 has done and continues to do what it was intended to do – and it has done this despite the fact that we’ve been seeing some of the steepest increases in mandated costs for school districts, mostly in the form of pension costs, during the same time period,” said Hannah Barrick, director of advocacy for the Pennsylvania Association of School Business Officials. “It is critical that school districts have some ability to increase their revenue annually, as costs, mostly mandated costs, increase every year.”
Neither side of the negotiating table has publicly copped to supporting a back-end referendum that would force school districts to get voter approval for every tax increase, but that hasn’t stopped the state’s Campaign for Fair Education Funding, of which PASBO is a member, from pressuring lawmakers to abandon the idea before it turns into legislation.
“Considering school districts’ current financial conditions, the Campaign for Fair Education Funding considers this idea to be reckless, poor policy and detrimental to the bipartisan efforts you have engaged in over the past year and a half to establish a rational and predictable basic education funding formula,” campaign members wrote in a letter sent to Wolf and other legislative leaders last week. “It will have long-lasting consequences that will jeopardize the ability of all public schools to provide quality educational service.”
Data compiled through the state Department of Education shows, over the last nine years, two out of every three school districts have raised taxes annually – and many did so within the limits of the Act 1 index.
The index, first established in 2006, is district-specific and varies year to year, falling somewhere between two and three percent for most districts. In the 2015-16 school year, three out of four districts who raised millage rates did so by less than 3 percent.
Barrick says in the two decades prior to 2006, property taxes increased each year by an average of 6.5 percent. After lawmakers passed Act 1 during a special legislative session, that rate was cut in half. In the last five years, she says, annual average increases have dropped to 2.8 percent.
The situation, however, presents a catch-22 for districts: the Act 1 index is critical for funding costs “beyond a district’s control,” but it’s not nearly enough. In fact, Barrick says, the gap between revenue generated through Act 1 increases versus pension and charter school tuition costs in 2013-14 was about $430 million.
PDE spokeswoman Nicole Reigelman echoed Barrick’s comments, saying 60 percent of districts report raising property taxes every year “as a result of the cuts to education made by the previous administration.”
It’s worth noting, PDE data for the 2011-12 school year shows that, despite an $860 million loss in federal funding, only one-third of districts raised their taxes above 3 percent – a rate that could require permission from the state.