Apr 30, 2014 By Steve Esack the Morning Call 5 min read

HARRISBURG — Like a lot of Pennsylvanians, Jeff Krystopa dislikes paying property taxes, which are the primary way local school boards pay for public schools and charter schools under state law.

Property taxes are eating into the 45-year-old man’s bottom line and he is worried that if the tax doubles every 10 years, he would not be able to live in his Amity Township, Berks County, home when he retires.

“Property taxes are the biggest wild card in my financial future,” Krystopa said.

So he and dozens of other residents packed a state Senate hearing Wednesday in support of an amended bill from Sens. David Argall and Mike Folmer that would replace property taxes with higher personal income taxes and increased sales taxes on many items and services sold in the state.

“If you want to eliminate school property taxes and finally establish, after decades of unsuccessful efforts, a fairer way to fund our public schools, here is your chance with Senate Bill 76 and this amendment,” Argall, R-Schuylkill, said before a standing-room-only crowd during the Senate Finance Committee hearing.

The committee did not vote on the bill, which is the latest in a decades-long quest to eliminate property taxes.

As in years past, the bill has plenty of detractors, including other lawmakers, school officials and business groups. Add in the state’s declining revenue of more than $40 million from existing sales taxes this fiscal year, and the bill stands almost no chance of becoming law, especially in an election year, even though it has 26 Senate supporters and the backing of the Pennsylvania Association of Realtors.

A similar bill in the 203-member House failed with just 59 supporters last year.

“The personal income tax and the sales tax are revenue streams that fluctuate dramatically with the economy,” said Todd Brysiak, spokesman for the Pennsylvania Chamber of Business and Industry.

“Shifting away from the property tax and toward higher levies of these taxes could lead to significant funding shortfalls in the event of a future economic downturn, which would likely force employers to make up the difference through even higher taxes.”

Under the bill, school districts would not be able to levy property taxes unless they are carrying existing debt. Most have such debt. But once that debt is paid off, the property tax would go away.

To make up for the lost property taxes, the state’s personal income tax would go up from 3.07 percent to 4.34 percent. The sales tax would go up 6 percent to 7 percent in most of the state. It would be higher in Philadelphia and Pittsburgh, as it is now.

The bill would not place taxes on medical items purchased by hospitals, which currently are tax-exempt nonprofits. In fact, all nonprofits — from Little League to churches — would not face a sales tax. Certain internal business transactions also would be exempt.

The bill would not tax food, clothing and shoes below $50. Currently, those items are exempt from all taxes.

Under the bill, no school district would lose revenue, Argall said. It is a dollar-per-dollar match, he said.

But Steve Miskin, spokesman for the House Republican Caucus, isn’t sure.

School property taxes generate about $12 billion for public schools. At its current rate, the state’s current income tax generates about $4 billion for each percentage levied — for a total of about $12 billion for state coffers. The state’s sales tax brings in about $1.5 billion at its current rate.

That existing revenue would have to stay with the state budget, Miskin said. If Argall’s and Folmer’s bill brought in an additional $4 billion in income taxes and about $1.5 billion in sales taxes, it would leave a $6 billion hole for public schools, he said.

“Someone is going to be paying that,” said Miskin. “It’s not free.”

During the hearing, Folmer, R-Lebanon, said the bill would generate more income for schools because people would have more money to spend if they were not saving for property taxes. However, he said, shifting the tax burden would create winners and losers, but the alternative of someone losing their home because they cannot pay property taxes is worse.

But Sen. Rob Teplitz, D-Dauphin, said he is focused on a possible lawsuit that could arise if the bill became law.

School districts currently pay per-pupil costs largely with local property taxes, causing some districts to spend more than others based on local property values, he said. So the Lower Merion School District — in a wealthy Philadelphia suburb — pays $15,500 more per student than Harrisburg, Teplitz said.

Eliminating the property tax would not fix the inequity, he said. The state would pay out the sales and income tax money at the same rates Lower Merion, Harrisburg and ever other school district currently receives.

That method of direct payment could be a violation of the state’s constitutional amendment to fund a “thorough and efficient” system of public education, Teplitz said.

“How can the state fund the richest districts and poorest and without being susceptible to a constitutional challenge,” Teplitz asked.

Sen. Scott Hutchinson, R-Venago, agreed with Teplitz’s concerns and asked how school districts would be able to pay future construction costs.

Steve Esack may be reached at steve.esack@mcall.com