Oct 21, 2017 5 min read

Citizens beware! All that glitters may not be gold.

On the ballot Nov. 7 is a referendum, something to which most people pay very little attention, but which can profoundly affect their lives and well-being.

The referendum asks: “Shall the Pennsylvania Constitution be amended to permit the General Assembly to enact legislation authorizing the local taxing authorities to exclude from taxation up to 100 percent of the assessed value of each homestead property within the local taxing jurisdiction, rather than limit the exclusion to one-half of the median assessed value of all homestead property, which is existing law?”

Wow, you may say, who wouldn’t want their property tax to disappear? Pennsylvanians have argued for decades that property taxes present an unfair burden to senior citizens and low-income property owners. Why, many ask, should I effectively rent my house from the government?

Lowering or eliminating property taxes is a cause that politicians can, and do, jump on with glee. It’s motherhood, apple pie and all that. It’s always popular with voters.

If the proposed amendment is approved, enabling legislation would have to be put forward in order to implement it. Implementing legislation provides the mechanism for local government, school districts and county government to replace the revenue lost by not collecting real estate taxes.

In 1997, after Resolution 1 was approved, which allowed local governments to reduce property taxes on primary residences by up to 50 percent, the Legislature passed Act 50, which included the implementing mechanisms for Resolution 1. This legislation provided a method for school districts to make up lost revenue from enacting Resolution 1’s homestead exemption. School districts, but not local governments or counties, were allowed to tax earned income 1.5 percent or less in exchange for reducing property tax if the voters approved the income tax in a referendum. If the current proposed amendment is passed, similar implementing legislation would have to be passed.

So, what are we really being asked to approve or disapprove? We are being asked to allow the legislature to pass legislation that would allow local municipalities, school districts and county governments to exclude up to 100 percent of the value of primary residences from property taxes. We are being asked to allow them to do that with absolutely no mention of how those revenues will be replaced or how expenditures will be reduced to offset the loss in revenue.

On the surface, the proposition may seem attractive, but let’s look under the covers.

The first, and most obvious, question is who benefits from this? To benefit, you have to own a primary residence and pay property taxes. The more taxes you pay, the more you conceivably will benefit. Renters, for example, will not benefit because they pay no property taxes and the owners of apartments do not receive the tax exclusion, so they have no benefit to pass through even if they are so inclined. Areas with low property values would benefit much less than areas with high property values. All of this will, of course, generate discussion about inequality of benefits between classes of people and areas.

The next question is how the revenue lost from property taxes will be replaced in municipal, school district or county budgets. Municipalities typically generate about a quarter of their revenue from property taxes. For school districts, property taxes are a major source of revenue. Probably the only viable sources of revenue available to local government and school districts are some types of personal income or per capita taxes. This could be substantial, possibly in the area of 3 percent to 5 percent of income. Not only that, but it would also apply to everyone, regardless of whether they benefitted from the property tax exclusion. That will not be an easy sell.

Other types of taxes have been proposed, but each comes with problems. The basic problem, and economic rule of thumb, with any tax is that if you tax something, you get less of it. Increasing sales taxes may cause people to spend less. Increasing income taxes may cause people to work less or work elsewhere. Increasing property taxes is less likely to cause people to sell property, up to some point. Researchers for the Organization for Economic Cooperation and Development found that taxes on real estate created the least drag on the gross domestic product per dollar raised of all taxes.

The basic problem with this proposal is the same problem that plagues the current state budget – the spending is in place before the discussion of how to fund it. The voters would be asked to approve eliminating a funding source before any discussion about how it will be replaced. If recent experience with the state budget has taught us anything, it is that our legislators are very poor at finding ways to generate income.

Secondly, as with the budget, the process should start with greatly reducing the spending side of the equation. Once spending has been reduced, then, and only then, talk about how much real estate taxes might be reduced in a revenue-neutral environment.

What this proposal really is, unfortunately, is a backdoor attempt to resurrect Senate Bill 76, that deservedly failed last year. That proposal would have eliminated property tax entirely, replacing it with statewide income and sales tax increases, thereby giving Harrisburg complete control over vast sums of money and over our education spending programs, ultimately damaging our economy.

It is a shame that this is being snuck through in what will be a very low-turnout election, with probably 20 percent of the commonwealth’s voters determining a major policy change mostly without understanding what they are voting for.

This poorly thought-out referendum deserves a definite no vote, no matter how much it glitters. It is definitely not gold.

Ball is a councilman in Peters Township and the vice chairman of the Washington County Republican Party.