Colin McNickle: Revised homestead exemption faces hurdles
Pennsylvanians voted last fall, 54 percent to 46 percent, for a measure that will amend the state Constitution to allow for a 100-percent homestead exemption. But numerous hurdles will make drafting enabling legislation tedious and difficult, say Allegheny Institute for Public Policy scholars.
The measure allows (but does not mandate) local taxing bodies — counties, municipalities, school districts — to exclude up to 100 percent of the median assessed value of each owner-occupied homestead, up from the current 50 percent. But there are significant obstacles to implementation, say Eric Montarti, a senior policy analyst, and Jake Haulk, president of the Pittsburgh think tank.
“The underlying purpose … is to allow taxing bodies to make major reductions in homeowner tax burdens, or possibly eliminate them altogether,” they say. “Of course, absent dollar-for-dollar cuts in spending, that means the loss of tax revenue … must be made up by shifting the burden to other taxes and/or taxpayers.”
And therein lies the enabling-legislation challenge: Given pressure to find more revenue because of rising pension, compensation and other costs, it’s improbable that most school districts can cut expenditures in any meaningful way. Any homestead-exemption revenue loss would have to be made up by shifting taxes to other sources, primarily on income. Which means renters and their landlords would incur added tax liability with no offsetting property-tax reduction.
Also problematic is government jurisdictions’ relative paucity of interest in the existing homestead exemption or in shifting taxes.
“It is easy to understand the wishes of homeowners to want relief from property taxes,” Montarti and Haulk note. “On the other hand, schools, municipalities and counties need revenue to provide services. Efforts to shift a large share of the burden to other revenue sources must of necessity create political opposition from those for whom the tax burden would be increased.”
Among additional challenges for lawmakers, the old flat-dollar exclusion moves to an equal-percentage exclusion. Whereas some wealthier property owners under the existing system might believe they get too little of a break, homeowners with lower valuations might, under the new regimen, feel owners of higher-valued properties get too much of a break. Additionally, given how grossly outdated homestead valuations are in many counties — because of failure to reassess regularly — percentage-based exclusions could exacerbate taxation unfairness. And how might the new law stymie long-running efforts to eliminate all school property taxes?
“If an appreciable number of school districts were to adopt a significant exclusion and shift taxes to income or other permitted taxes, the elimination of school taxes statewide would become even more cumbersome than it is already,” Montarti and Haulk say. “All these and doubtless many more hurdles to passage of legislation to adopt the provisions in the constitutional amendment point to a very long, contentious and arduous road ahead.”
Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (email@example.com).