The Tribune Democrat, Johnstown, PA

William Lloyd

March 11, 2012

William Lloyd | Boost inevitable in state’s ‘no tax increase’ budget

— Gov. Tom Corbett has proposed what he calls a “no tax increase” state budget. Although the governor’s claim is technically correct, his budget is likely to cause an increase in school property taxes.

Because of the weak economy, Pennsylvania has faced serious budget problems for several years. Although the economy is slowly improving, the governor expects state tax collections to fall about $700 million short of last summer’s estimate.

When unemployment is high, state income tax collections are lower than normal.

Unemployment also leads to reduced consumer spending, which means less revenue collected from the sales tax and the corporate income tax. 

To compound Pennsylvania’s problem, the state employee and public school employee pension funds do not have adequate reserves to cover future liabilities. In part, the pension funds have suffered the same fate as individuals who based their retirement plans on an optimistic view of earnings from the stock market.

As a result, both the state and the school districts must cut spending on other programs in order to eliminate the deficits in the pension funds.

Unfortunately, the problem is worse than it otherwise would have been because two Republican governors (Tom Ridge in 2001 and Mark Schweiker in 2002) signed laws to liberalize pension benefits. These benefit increases appeared affordable at the time, but they actually added to the pension fund deficits because of the unanticipated collapse and slow recovery of the stock market.    

Pennsylvania faced similar challenges in 1983. A recession during the Reagan administration produced high unemployment nationwide, decimated the steel industry in western Pennsylvania and caused a state budget deficit. 

Instead of trying to balance the budget entirely with cuts, Republican Gov. Dick Thornburgh requested a small increase in state taxes; a majority of legislative Republicans approved that request.

In marked contrast to Thornburgh, Corbett has stuck with the new Republican orthodoxy and opted to balance both last year’s budget and this year’s budget with no increases in state taxes.

Because of Corbett’s decision, state funding for public schools was cut last year by about $900 million. Not surprisingly, many school boards cut spending, drew down budgetary reserves as much as they considered prudent, and then voted to raise property taxes. 

This year’s cut in state funding for public schools is more modest: About $78 million.

For school districts in Somerset and Cambria counties, that means cuts in the 1 percent to 2 percent range.

Under normal circumstances, a state funding cut of that size would be manageable.

However, these are not normal times. As the Pennsylvania School Boards Association has pointed out, school districts not only face higher charges by the pension fund, but also are collecting less revenue from the local earned-income tax because of continued high unemployment.

A survey by school administrators and business managers reported that Pennsylvania districts responded to last year’s state budget by cutting 14,000 jobs through a combination of layoffs and unfilled vacancies. As a result, 70 percent of the districts increased class size and 44 percent reduced course offerings.

These changes might not have a major effect on student performance in the long run.

However, the legal limits on millage increases will make it hard to add teachers in the future unless state funding grows by much more than expected in the next few years.

Most people can identify spending they believe school directors could cut without harming students. The challenge is to convince a majority of the community to support the same cuts.

While sports or music or art or foreign languages may be wasteful in the minds of some taxpayers, other taxpayers consider some or all of these programs to be essential.

If school directors cannot avoid higher taxes this year, the only option will be an increase in the unpopular property tax. A millage increase will hit all property owners, regardless of their ability to pay.

In contrast, an increase in the state income tax would have a smaller impact on property owners who are unemployed, retired, working for low wages, or running businesses at minimal profits.

Although Republicans call Democrats the party of “tax and tax and spend and spend,” many of the votes for higher school property taxes will be cast by Republican school directors who are convinced that higher taxes are unavoidable.

Once again, Republicans in Harrisburg will have forced Republicans at the local level to do the dirty work.

William Lloyd of Somerset represented Somerset County in the state House of Representatives (1981-1998) and served as the state’s small business advocate (November 2003-October 2011). His column appears the second Sunday or each month.


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