By Eric Holmberg | PublicSource | Aug. 18, 2016
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 only to cover certain rising costs, like 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.
What has been driving tax increases? Pensions. A 2010 pension reform law increased how much school districts and the state paid into the underfunded school pension system. That helped the pension fund, but increased the 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.”
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 at least $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 standardized tool has the 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 roughly 4.5 times more frequently 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 more than $26 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.
Pine-Richland raised taxes three times in the six years that it was approved to do so in the past decade. Mt. Lebanon increased property taxes seven times and requested a hike above inflation nearly 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.
“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.
For example, Lower Merion’s median household income is roughly $112,000 and it receives 87 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 $205 million to help poorer districts and growing districts. That’s only 2 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.”
Editor’s note, posted Aug. 18, 12:00 p.m.: A previous version of the story contained several data inconsistencies and a quote from a policy analyst that cited incorrect information. The story has been updated with clarifications and correct data.