The Star Beacon; Ashtabula, Ohio

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May 16, 2014

States continue to grapple with unpopular property taxes

State Sen. David Argall thinks Pennsylvania’s law to fund schools with property taxes, which dates from the 1830s, has outlived its usefulness. He is pushing a bill that would eliminate property taxes levied by school districts and replace the revenue with higher state income and sales taxes.

For the first time, his idea is gaining some traction.

Argall, a Republican, has tried before to scrap the property tax collected by school districts, but this year he got more than half the state senators to co-sponsor his bill. He said the problem with property taxes is that “the tax has very little connection to the ability to pay.”

“It can literally make people homeless,” he said. “It can drive seniors on a fixed income out of a home that they may have built 50 or 60 years ago. It’s incredibly unfair.”

Property taxes stick in the craw of taxpayers not just in Pennsylvania but in many other states. Homeowners on fixed incomes, in particular, loathe the tax because it rises with property values, while their income does not. Retirees are very vocal in their opposition to the property tax, and they tend to vote in higher numbers than younger people.

According to the Tax Foundation, an anti-tax research organization in Washington, D.C., the percentage of state and local revenue collected through property taxes ranges from a high of 63 percent in New Hampshire (which has no income tax) to a low of 16 percent in Delaware and North Dakota. The national average is 33 percent.

In addition to Pennsylvania, other states also are grappling with how to lower property taxes or make them fairer. But replacing property tax revenue is not easy, and the tax also has defenders - usually the constituencies that would pay more taxes if they went away.

In New York, Democratic Gov. Andrew Cuomo and lawmakers agreed to $1.5 billion in property tax relief, under a plan that incentivizes local governments to reduce spending by sharing services.

In Connecticut, a bill that would have added nonprofit entities to the property tax rolls died in the state Senate amid fervent opposition from colleges. House Speaker J. Brendan Sharkey, the Democrat who authored the bill, made a last-ditch effort last week to pass a compromise but the Senate declined to take it up before the session ended.

In Texas, large commercial property owners have used a quirk in the property tax assessment law to file hundreds of successful lawsuits, resulting in hundreds of millions of dollars in lost revenue for localities. According to Michael Amezquita, chief appraiser for the Bexar County Appraisal District, which includes San Antonio, the law has allowed the San Antonio Marriott, for example, to reduce its appraisal by comparing itself to inferior hotels. Texas lawmakers examined the appeals process when they last met, declining to eliminate it but permitting binding arbitration in appeals cases.

In California, the “parcel” tax arose from the ashes of Proposition 13, the groundbreaking property tax-limiting ballot measure approved by voters in 1978. The state Senate has passed a bill to restore localities’ ability to levy parcel taxes at rates based on land classification - commercial, residential or industrial - after a state court struck it down in 2013 as unclear.

The bill now goes to the Assembly, where it faces strong opposition from Republicans who argue it would hurt working families and prompt businesses to leave the state, according to Senate Republican Leader Bob Huff. Democratic Sen. Lois Wolk argued the levies were essential to meet local needs, noting 322 parcel taxes have been approved in 584 elections as a way to circumvent Proposition 13.

Supporters of the property tax argue it is a relatively “good” tax, since revenue from it is controlled locally and pays for things like schools and public safety that people can readily see. David Brunori, a professor at George Washington University and an expert on state and local taxation, described Argall’s proposal to scrap it as “asinine.”

“Every public financing expert in the world says it’s the ideal tax for public services and he wants to eliminate it? It’s efficient, effective and it’s generally a very good tax,” Brunori said.

Argall’s proposal would replace the revenue currently raised by the property tax by upping the personal income tax to 4.34 percent from the current 3.07 percent. His measure also would increase the sales tax to 7 percent from 6 percent, and subject some additional items to the sales tax - for example, clothing that costs more than $50 and dry cleaning - which have been exempt.

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