How to pay for schools?

After yet another proposal to cut property taxes was pummelled at the polls, lawmakers are trying to figure out what's next.

"The first thing voters and decision-makers need to realize is the debate really isn't about property taxes -- it's about how to pay for public schools," said Beverly Cigler, professor of public policy and administration at Penn State Harrisburg.

"Other states have taken the responsibility for paying for public education from property owners, which results in lower local property taxes," Cigler said.

"You would never do what Pennsylvania does, which is tell the locals, 'Here's some options,' and hope people don't reject them," Cigler said. "What they should be saying is, 'What is the state's role in financing education?' because if you go to each individual district, we'll never get reform."

Voters on Tuesday rejected lawmakers' latest offering -- a referendum in each school district asking whether to swap income tax increases for property tax cuts. According to the state's unofficial vote totals, only nine of the state's 501 school districts appeared to accept the offer. Similar attempts failed in 2005 and in 1998. "Three times, they've tried the same approach. It failed each time," said G. Terry Madonna, a political science professor at Franklin & Marshall College in Lancaster. The governor and the Legislature "have got to make up their mind on what they're going to do: raise the sales tax or raise the income tax. There's no property tax relief that doesn't involve one of, or both of, those."

Pennsylvania's per-pupil spending ranks eighth nationally, according to the U.S. Census Bureau. But the state ranks 46th in the percentage of that spending coming from the state. Most of the tax burden falls to school districts, and the only tax Pennsylvania school districts have much control over is the property tax.

"Property taxes, on their own, are not a bad tax," Cigler said. "The tax is an equitable way to pay for municipal and county services, but a home's value should have little to do with the education of a child living there," she said. "They're a terrible way to pay for schools. Lawmakers risk their careers when they increase taxes, and they'd have to raise billions of dollars to deliver significant property tax cuts. Compounding the problem, the state's tax structure is based on a manufacturing-based economy that collapsed decades ago. Lawmakers responded with piecemeal fixes, giving different-sized cities and towns different taxing powers. The result is a messy patchwork of tax laws and temporary solutions," Cigler said.

"The world changed. Our tax structure didn't," she said. In many states with similar problems, the courts had to force legislators to act, Cigler said.

A 1988 lawsuit in Kentucky, for instance, resulted in the state Supreme Court's forcing lawmakers to change how schools get their money. "In 1990, the Kentucky legislature raised the sales tax 1 percentage point, increased income taxes and developed a formula for distributing the money to school districts," said Lisa Gross, spokeswoman for the state's Department of Education.

"The formula sets a minimum grant to each of the 175 school districts, then adds more money based on three things: how many students they serve, the percentage of those students who have special needs, and the geographic size of the district. The last one is so schools can cover transportation costs," Gross said.

"This education reform that happened was a bipartisan approach," Gross said. Lawmakers "far exceeded anyone's expectation on this." Despite the tax increases, no lawmaker lost re-election because of the education funding reform, she said.

"One of the reasons it was so successful was it was a statewide mandate. It was do or die," Gross said.

"A lawsuit being decided by Allegheny County Common Pleas Court Judge R. Stanton Wettick could force Pennsylvania lawmakers to retool the state's school tax system. The suit challenges the constitutionality of Allegheny County's base-year property assessment system. If Wettick deems the system, which is used by all 67 counties, unconstitutional, the General Assembly might revamp school funding to stave off court- ordered reassessments of every property in the state," analysts have said.

"Otherwise, voters will have to make it politically dangerous for lawmakers who fail to overhaul the tax system," said Robert Strauss, professor of economics and public policy at Carnegie Mellon University.

"That happened in Michigan in the early 1990s, when the state doubled its share of education funding in response to large property tax increases," said Jan Ellis, a spokeswoman for the Michigan Department of Education. Michigan now ranks 7th in the percentage of school budgets paid by the state, according to the Census Bureau. There's some action in Harrisburg. "Gov. Ed Rendell has proposed a higher sales tax to be used mostly for property tax cuts," said Chuck Ardo, Rendell's spokesman. Two lawmakers said last week they plan to offer their own tax-shift proposals.

State House Majority Leader H. William DeWeese, D-Waynesburg, wants to raise the sales tax by 0.5 percentage points. That would pay for an estimated $712 million in property tax cuts.

State Sen. Sean Logan, D-Monroeville, wants to eliminate all property taxes on owner-occupied homes -- even the taxes imposed by municipalities and counties. The cuts would be made up for in part by a 1-percentage-point sales tax increase.

The rest would come from a graduated income tax boost, with increases ranging from 1 percentage point for those making more than $100,000 to 4 percentage points for those making more than $400,000 a year. That would require amending the state Constitution, which prohibits different levels of taxation.