Improving the Property Tax

True Reform for the Foundation of

Pennsylvanias Public Revenue System

Eron Lloyd, Director

The Commons Policy Project
JANE ORIE has co-sponsored
legislation to abolish all
property taxes.
 Are You PRO-Property Tax?
Few candidates (if any) run on platform favoring
retention or expansion of the property tax as a
source of public revenue. Few voters express a
desire to support candidates that favor the
property tax.

WHY?
 Property Taxes: A High Priority?
2003, taxes were the second highest source of
dissatisfaction among respondents.
In 2004, taxes were behind only to jobs and the
economy.
In 2005, feelings changed and taxes jumped
ahead as the most important issue.
 Property Taxes: A High Priority?
These sentiments continued into 2006, with
taxes topping both the states list of problems
and voters influencing priority during the
campaign season.
Even after the election, taxes remained the top
issue in 2007 as well when combining the
sources of dissatisfaction among respondents.
IssuesPA.org, (Pennsylvania Economy League and
the Pew Charitable Trusts)
 2003: Back to Prosperity
This report contends that the economic future of a
major rust belt state depends on revitalizing its
demographic mix and curbing some of the nation's
most radical patterns of sprawl and
abandonment.
Executive Summary
 2007: Committing to Prosperity
The key challenges identified in the first report
slow growth, hollowing metropolitan and rural
areas, and economic strugglesstill persist.
Executive Summary
 2010: One Pennsylvania
The project emerged [...] to consider a more
comprehensive, transformative approach to the
interrelated problems of structurally diminishing
tax bases, increasing property taxes, declining
schools and municipal services, and deteriorating
infrastructure.
About, http://buildingonepa.org/about
 Common Themes
1. Urban Blight
2. Suburban Sprawl
3. Economic Stagnation
4. Income Level Disparities
5. Public Funding Disparities
Our system of property taxes may be
the single most insidious, pathogenic
factor contributing to the geography
of nowhere. It is almost impossible
to discuss. It involves numbers and
formulae resembling mathematics,
from which many otherwise healthy
adults shrink in tearful
bewilderment. It implies the
confiscation of one's earnings and
chattels (i.e., one's security and well-
being), which provokes a mindless
terror that no mere talk can
overcome.

-James Howard Kunstler, Geography of Nowhere (1993)

 Principles of Tax Fairness
! Neutral on its influence upon behavioral choices.
! Prevents deadweight-loss on the economy.
! Provides vertical and horizontal equity.
! Easy to administer.
! Simple to understand.
! Stable and reliable.

The property tax 2.0 satisfies these better than

any other tax.
2009 Who Pays? Report (ITEP)
Upgrading to the Property Tax 2.0
1. Perform annual market value assessments
2. Move school property taxation to the state level
3. Phase-in land value taxation at all levels
4. Improve tax hardship protections
5. Improve tax collection practices
6. Leverage policy heavy lifting potential
 Annual Market Value Assessments
[i]nfrequent community-wide reassessments may lead
fully informed voters to believe that property taxes are
too high as well as unfair ... [because] the median home-
owner will not have moved since the last reassessment,
and he will select a tax rate which is just optimal for his
property assessment but is excessive for those who have
moved since they face a higher property assessment.
Hence, a random survey of residents will find that a
significant minority (the movers) consider property taxes
to be too high while no one believes taxes are too low.
Infrequent Assessments Distort Property Taxes: Theory
and Evidence, Koleman Strumpf (1993)
 Annual Market Value Assessments
! Regularly reassess all real estate, at least bi-
annually (see Maryland model)
! Require tax rates to remain indexed to new
values (to avoid windfalls)
! Establish statewide real estate assessment
registry (ala SURE)
! Fully fund state tax equalization board to audit
valuation and resolve disputes
 Annual Market Value Assessments
! Ensure horizontal and vertical equity by
penalizing deliberate over- or underassessment
! Adopt efficiency and accuracy best-practices of
multiple regression, GIS/CAMA, EDI
! Make all assessment data easily available for
public review and scrutiny
 Statewide School Property Tax
The Pennsylvania Constitution states that the
states responsibility is to provide for the
maintenance and support of a thorough and
efficient system of public education to serve the
needs of the Commonwealth. In fact, it is the only
service mandated by the Constitution.
Education Voters PA
 Statewide School Property Tax
! Move school property tax levies from districts to
the state
! Fund education equitably via a general revenue
sharing formula across all districts
! Eliminates school tax enclaves and
intergenerational battle over education funding
 Land Value Tax Shift
In my opinion, the least bad tax is the property tax
on the unimproved value of land, the Henry George
argument of many, many years ago.
Milton Friedman

If all men were so far tenants to the public that

the superfluities (surplus) of grain and expense
were applied to the exigencies (needs) thereof, it
would put an end to taxes.
William Penn
 Land Value Tax Shift
! Gradually decrease tax rate on buildings while
increasing tax rate on land value (5-10 years)
! Apply to all municipal, special districts, school,
and county property tax levies
! Return tax exempt land back to the tax roll (as
much as possible)
! Consider simply exempting certain percentage
of building value each year (ex. 10%)
 Improved Tax Hardship Protection
Why are we saying "STOP!" in Pennsylvania?
Senior citizens losing their homes to back taxes.
Others choosing not to take needed medications, or giving up food to
save enough money to pay their real estate taxes on a home they've had
for many years.
Young families losing their homes because their job was down-sized
and they can't meet both the mortgage and the huge property taxes.
People moving from this area to other parts of the country in part,
because property taxes are lower there.
Seniors deciding to follow their adult children to where they moved to
find a job, because the seniors can own a home more cheaply there than
here.
About STOP, http://www.grandoldusa.com/article9
 Improved Tax Hardship Protection
! Real estate taxes are deductible from federal
income taxes (a major hidden subsidy)
! No credible research has even been done on the
poor widowed homeowner problem
! Instead of losing their homes, many
homeowners experience large capital gains upon
sale or death (largely explaining opposition to
property taxes)
! Great schools create high property values, which
pays owners taxes back in high sale prices
 Improved Tax Hardship Protection
! Good assessments and land value taxation
reduce most home- and farmstead burdens
! Offer a short-term deferral option for injured, ill,
or unemployed homeowners
! Offer a long-term lien option for elderly or
disabled homeowners (like a reverse mortgage)
! Raise tax rates and then rebate low-bracket
property owners
 Improved Tax Payment Collection
! The more levels of government dependent on
property tax revenue, the more serious collection
(and assessment) efforts will become
! Many tax bills paid through mortgage escrows
without notice
! Allow monthly or quarterly installment
payments for those paying directly
! Leverage new powers of Act 90 (Neighborhood
Blight Reclamation and Revitalization Act of
2010)
 Leverage Public Policy Potential
High property taxes discourage blight and
sprawl patterns of land use by correcting the
carrot and stick of development
Prevents speculation by absorbing the
unearned increment of land values
Strategically utilize value creation, value
capture powers (Henry George Theorem): ex.
zoning change, infrastructure buildouts
Allows for untaxing of wages, commerce, and
industry to stimulate economic activity
 Broadening the Property Tax
! Traffic congestion charges
! Market-rate curb parking
! Storm water runoff
! Pollution taxes
! Air lanes
! EM spectrum
! Intellectual property
! Money issuing/transactions/stock offerings