Local tax options take shape as lawmakers address property tax reform
Another state fiscal reform idea trying to mount a comeback this year is letting individual localities decide what, if anything, to change about how they tax residents and businesses.
And one midstate lawmaker has an even more local twist on the perennial idea of property tax reform: Give just York County the right to make changes as a way to get the ball rolling somewhere.
Rep. Seth Grove, R-York County, circulated a memorandum last month seeking co-sponsorship for a bill that would allow the county to raise the sales tax assessed within its boundaries by 1 percent.
It also provides for enacting or raising local income taxes to lower property taxes, he said.
The sales tax increase and a 0.5 percent hike in earned income tax could mean several times the individual tax relief that comes from the state taxing on casino gaming today, Grove said.
Part of the money raised from taxing the relatively new casino industry goes to reduce local school district property taxes through homestead exclusions. But it's not keeping up with the increasing number of people signing up for exclusions for taxes paid on their primary residences, Grove said.
Moving away from property taxes can be a fairer tax formula, he argues.
The tactic draws money from people who are making and spending money, Grove said. Right now, property owners who have lost their jobs still owe the same amount in taxes regardless.
Property taxes are the most stable form of income for local governments, but their growth rates are the slowest, Grove said.
Earned income tax also is fairly stable, whereas sales tax revenue can go up or down but provides the best opportunity to grow income, he said.
At its core, the proposal is about letting communities decide what might work best to meet their revenue needs, Grove said.
Previous attempts, including his, tried to give counties and the taxing entities within them more control over how they raise revenue and where the money comes from, he said.
But there is less of an appetite in Harrisburg for a one-size-fits-all approach to property tax reform for all counties, Grove said. In some areas, people are happy with the status quo.
The idea to propose the enabling legislation for only York County is an attempt to get around that problem this session, Grove said.
York County has shown itself receptive to the idea in at least one respect.
Tourism stakeholders had worked out a deal to spend revenue from a higher hotel tax. Officials backed the idea because state tourism funding has dwindled considerably in the previous several years.
The idea went before the General Assembly in the 2011-12 session but did not pass.
Grove and York County Commissioner Doug Hoke, a Democrat who worked most closely with the hotel tax issue, said the problem was in the details of a planned county grants program.
It's not a good measure of how receptive the legislature could be to the general idea of a state-enabled but locally controlled York County taxing authority this session, Grove said.
Lawmakers did allow hotel tax increases elsewhere in the state last session, such as in neighboring Adams County.
Hoke said he still wholeheartedly advocates for raising the hotel tax and supports the idea of no longer relying on county and local real estate taxes.
But letting just one county change its sales tax rate might not be the best way to go about it, he said.
With the hotel tax, the county was asking for a 5 percent rate that would put it on par with its neighbors, Hoke said.
But a sales tax increase allowed only in York County could put local businesses at a disadvantage compared with the rest of the midstate.
People throughout the midstate might be willing to go to other communities to do their shopping, Hoke said. They already do in some cases.
Rep. Mike Sturla, D-Lancaster County, has reintroduced statewide local tax-enabling legislation as House Bill 69 and House Bill 70.
Adding a 1 percent sales tax to the current 6 percent state rate would reduce the burden on property tax payers and support core government operations, such as police and fire protection, Sturla said.
The bills provide two separate road maps for how to distribute an additional 1 percent sales tax.
Officials wouldn't be allowed to use the money for "fluff" spending projects, he said.
Sturla said he also favors an approach that enables changes in more of a statewide manner, but he commended Grove for thinking of a way to try to get around opposition.
In general, local governments need better options across the board to keep up with the costs of basic services.
Sure, people's taxes might stay lower in Pennsylvania in the current fiscal environment. However, the same people travel to other states where taxes are higher — but where the roads are much better, Sturla said.
Lower taxes that result in a much lower level of government services isn't something people like either, he said.
There's no getting away from tax increases in one form or another, and in general an extra 1 percent sales tax likely wouldn't make a great deal of difference to business, said Jim Lewin, co-owner of The York Emporium. The York-based store sells used books and curiosity items.
From an outsider's perspective, there doesn't appear to be much difference in what type of tax goes up, he said.
But if policymakers do what they say they will with the money and believe it could shore up long-term government finances, then Lewin could see merit in the idea.
Rep. Grove's plan
Higher sales and income taxes levied only in York County to offset property taxes would have to be allowed by the state legislature and enacted by local elected officials, said state Rep. Seth Grove, R-York County.
The plan would let the York County Commissioners vote to add 1 percent on the sales tax collected in the county. The money raised would go to lower school district property taxes, first through homestead exclusions.
It also would provide for all local governments and the county to either raise or enact earned income taxes.
The income tax rates could go as high as the amount of money needed to give the maximum amount of homestead exclusions allowed in the state.
The amount of these property tax reductions that homeowners can get for their primary residences is capped by the Pennsylvania Constitution, Grove said.
If a jurisdiction would hit the threshold, it could put sales and local income tax money toward millage rate reductions to lower property taxes for everyone, Grove said.
A school district could, for example, increase the earned income tax to cover homestead exclusions and put its entire share of sales tax revenue toward millage reductions, he said.
And, if more money comes in from the set earned income tax rate because of natural economic growth, it also could go toward millage reductions, Grove said.
If the taxing entity eliminates property taxes, it then could put the revenue toward new spending.
Rep. Sturla's plan
Two bills propose two plans for distributing an additional 1 percent sales tax if counties choose to go with the idea under House Bill 69 and House Bill 70 recently introduced by Rep. Mike Sturla, D-Lancaster County.
House Bill 69 would require participating counties to use at least 60 percent of the revenue they receive for property tax relief and the elimination of so-called nuisance taxes.
Municipalities must put 60 percent toward property tax relief and offsetting the impact of tax-exempt properties.
Money would also go into a fund governed by a Municipal Collaborative Efforts Board for collaborative services.
House Bill 70 provides an alternative roadmap that gives 50 percent of the revenue toward school district property tax relief.
Another 25 percent would go to municipalities for core services, property tax relief or both, or to fund pension obligations if the distressed level is high enough.
The county would get the remaining 25 percent for core services, property tax relief, or both.
Late last year, commissioners in Cumberland County unveiled a plan and support for allowing counties a 1 percent sales tax increase for property tax relief.
The projections were for more than $42 million in relief in Cumberland County.