Expert: Impact of eliminating school property tax would vary

Proposals to eliminate school district property taxes would benefit retirees but could cause problems for rental tenants, according to an independent expert.

A number of bills have circulated throughout the House of Representatives over the past few years, focusing on eliminating school property tax altogether or in part, according to Matthew Knittel, director of the commonwealth’s Independent Fiscal Office.

Knittel gave a presentation to the Pennsylvania Economy League at the Williamsport Country Club Friday afternoon. He addressed the possible impacts of eliminating school district’s’ property taxes and what they would be both on the districts and residents.

“Depending on which school district you’re in, the elimination of property tax could have a much different impact,” Knittel said.

The Independent Fiscal Office is a nonprofit, nonpartisan group that reviews fiscal, economic and budgetary issues in the state.

To offset the decrease in property tax revenue, most proposals increase income and sales tax, according to Knittel. Going back about 15 years, he added that across the state, property tax has steadily increased with the market, however sales and income taxes have dipped and risen depending on various economic events such as the 2008-09 recession or the recent presidential election.

The demographic expected to benefit the most from these proposals are retired seniors who own property, Knittel said. As individuals are living longer and the senior population increases with the Baby Boomer generation continuing to approach retirement, a push for property tax relief is growing larger.

But Knittel said there are winners and losers with the proposals, and while retirees may be seeing the highest advantage, rental tenants may see the worst effects.

While the level of the effect depends on the individual district markets, some may also fall back on landlords who will see a cut in their property’s taxes but would then be expected to pass that savings along to the tenant.

“It’s going to vary considerably depending on your local market conditions,” Knittel said. If landlords need to stay competitive in the local market they should lower their rates, but that will depend on other landlords in the area and the competitive market, he added.

One possible benefit may be that young people will decide to buy a home rather than rent, which would stimulate the housing market, Knittel said.

For seniors who own a home, Knittel said mortgage debt has increased substantially over the past decade.

Reducing property tax could add value to the home, increasing it by $15,000 or $20,000, in what Knittel said would stimulate capitalization in the district.

But some concerns lies with the assurance that school districts will be able to bring in as much with sales and income taxes as they were with property taxes. Knittel said projections with income tax are fairly reliable, but sales tax is a more difficult source of revenue to predict.

The state pension system also poses a concern.

“None of this means anything unless the state addresses the pension problem,” said Vince Matteo, president and CEO of the Williamsport/Lycoming Chamber of Commerce, adding that it is on the verge of collapse.

According to state Rep. Jeff Wheeland, R-Loyalsock Township, there are a number of property tax-related bills in the House and Senate. But gathering enough votes to pass a school district tax elimination bill will be difficult, he said.

Knittel said this office has not been asked to review any bills relating to the tax during this session.

“It’s at a bit of a respite right now,” Knittel said.