Pennsylvania legislators about a decade ago passed a law to protect homeowners by limiting property tax hikes to the rate of inflation. Has the law, known as Act 1, worked?
Not for some homeowners. Exceptions were built into the law so school districts could raise property taxes as much as they needed to cover certain rising costs, like pensions.
The Legislature has put more money toward education in recent years, however, a lot of that new money has paid for pensions.
As a result, school districts have increased property taxes $465 million above the rate of inflation in the past decade and requested raising property taxes much higher.
For the average Pennsylvania homeowner, that’s equivalent to a $1,000 tax increase, according to James Paul, senior policy analyst at the Commonwealth Foundation, a free-market think tank in Harrisburg.
CLICK HERE to use our searchable table to find out if your school district requested property tax increases and how many times.
What has been driving tax increases? Pensions. A 2010 pension reform law, which increased the state’s contributions to the underfunded school pension system, helped the pension fund, but increased the immediate burden on schools. The result?
The state’s contribution to school pensions doubled from roughly $500 million to $1 billion from 2010 to 2012. It doubled again to $2 billion by 2014. And doubled again to $4 billion this year. Over the next two years, pension costs are expected to slow and only increase about 15 percent.
In general, wealthier school districts have dealt with mounting costs through property tax hikes while poorer districts have not raised rates as often, according to a PublicSource analysis of financial data from the Department of Education.
Poorer school districts that stand to garner less money through property tax increases may have instead eliminated programs, reduced staff, or balanced their budget in some other way.
Ron Cowell, president of the Education Policy and Leadership Center in Harrisburg, said art and foreign language education are often on the chopping block in some school districts. Other school districts have increased class sizes or cut support services such as nursing and counseling.
“This is not just about money,” he said. “It’s about impact on students.”
Pensions are becoming a greater burden on schools
School pensions are funded by employees, investment income and by state government. The state splits its payments with local school districts. See how much more the state and schools have paid in recent years:
School employees have contributed roughly the same amount to their pensions each year for the past decade…
…while investment income has varied with the ups and downs of the stock market…
…but, mandated contributions by school districts and the state have skyrocketed.
Who is using Act 1?
In the past 10 years, most school districts in Pennsylvania — 384 out of 500 — requested to raise property taxes above inflation at least once.
In total, the Pennsylvania Department of Education approved $1.6 billion worth of these requests, known as Act 1 exceptions, over the past decade.
Districts were approved for about $540 million in property tax increases to fund pensions and $510 million for special education costs.
School districts don’t always end up raising taxes because they find another way to pay.
Whether a school district qualifies for an exception or not is determined by a mathematical formula.
This tool, that on paper appears to be standardized, actually has had an unintended consequence of furthering the gap between richer and poorer school districts in a state that is already challenged by such inequality.
Over the past 10 years, the 25 wealthiest school districts asked to raise property taxes 4.5 times more than the 25 poorest school districts.
Wealthier school districts can raise more money by increasing property taxes. Increasing property taxes by one mill — or a $100 increase in property taxes for every $100,000 of property value — generates more money when properties are worth more.
For instance, one mill in the Pine-Richland School District is worth about $2.7 million compared to $250,000 in the Sto-Rox School District, which is west of Pittsburgh, according to their 2016-17 budgets.
In suburban Philadelphia, the Lower Merion School District, one of the wealthiest in the state, requested to raise its property taxes more than any district in the state — $42 million over 10 years. It raised at least $27 million, including what it plans to collect this school year.
In Allegheny County, 35 of the 43 school districts requested and were approved for an exception in the past 10 years. The Mt. Lebanon School District was approved for $17 million in exceptions, the most of any school district in the county. It was followed by the North Allegheny and Pine-Richland school districts. All three are among the state’s 40 wealthiest school districts.
However, those districts also demonstrate the differences between how often the exceptions are actually used.
Even though Pine-Richland was approved to raise property taxes above inflation six times in nine years, it increased its property tax rate three times. Mt. Lebanon increased property taxes at least six times and requested a hike above inflation every year.
State funding can’t keep up
When former U.S. Secretary of Education Arne Duncan visited a Philadelphia school last year, he called Pennsylvania’s schools the most unequal in the nation. Pennsylvania spends roughly a third more per student in its rich districts than its poor districts.
“The state of Pennsylvania is 50th, dead last, in terms of the inequality between how wealthy school districts are funded and poor districts,” Duncan said.
Wealthier districts get more of their money from local taxes, while poorer districts receive more of their money from the state.
“The state of Pennsylvania is 50th, dead last, in terms of the inequality between how wealthy school districts are funded and poor districts.”
For example, Lower Merion’s median household income is roughly $111,000 and it receives 86 percent of its revenue from local taxes. The Reading School District has a median household income of $27,000 and gets 18 percent of its money from local taxes.
Property taxes can be increased as needed, but state funding doesn’t increase as fast as costs, hurting poorer districts that rely on state aid.
The new fair funding formula has applied $350 million to help poorer districts and growing districts. That’s only 3 percent of the basic education money that’s been distributed to schools over the past two years. As the Legislature puts more money toward schools, the proportion of money using the fair funding formula will continue to grow.
The state only provides about a third of total school funding, which is one of the lowest percentages in the country, according to the National Center for Education Statistics.
“The statewide [education] system is supposed to level the playing field,” said Cowell of the Education Policy and Leadership Center. “And when there has been an insufficient amount of money put in by the state…it is less effective in leveling the playing field.”