Reform Of Local Tax System Is Subject Of Discussion House Finance Committee Members Will Be In Tredyffrin Today For Presentations Concerning The Financing Of School Districts.

Posted: February 09, 2001

State lawmakers are once again opening up the Pandora's box known as tax reform.

From 10 a.m. to 1 p.m. today, members of the House Finance Committee will meet in the Tredyffrin Township Building in Chester County to hear what residents have to say about the issue. The event was organized by State Rep. Carole Rubley (R., Chester), a member of the committee.

"The purpose is to hear local concerns and ideas on how to change the local tax system to make it more fair," said Mark Ryan, executive director of the committee. "We're out there to listen."

They are likely to get an earful.

Eight individuals have been invited to give presentations before the panel, including Colin Hanna, chairman of the Chester County Commissioners, and Nancy Mohr, chairwoman of the Chester County Local Tax Reform Task Force. Both have criticized existing tax laws.

"I think there is some interest in looking at the bill we introduced originally," Mohr said. That bill was far different from the measure Gov. Ridge signed into law in May 1998.

The law, known as Act 50, allowed school districts to levy a higher earned income tax in exchange for a reduction in property taxes, and the elimination of so-called nuisance taxes.

According to the measure, voters had to approve every step of the process, and if a district adopted a higher earned income tax and lowered real estate taxes, it could not then raise property taxes without voter approval.

The law contained a provision called the homestead exemption, which required residential property owners to apply to their county assessment offices, which calculated the value of the exemption. Property owners who did not apply did not receive the benefits.

That piece of the legislation has proved so complex, labor intensive, and expensive that the state has been subsidizing counties' assessment offices to offset the costs, officials said.

Currently, school districts are permitted to collect an earned income tax of 0.5 percent. Act 50 allows districts to raises that cap to 1.5 percent. Counties and municipalities were excluded from the measure.

A coalition of farmers, organizations representing retired people, and legislators from both parties came together in support of the legislation and lobbied around the state for its passage.

Now, more than two years later, just three of the state's 501 school districts have adopted Act 50. Many more, perhaps as many as 75 percent of the districts, have looked at the law and rejected it, said David Davare, director of research services for the Pennsylvania School Boards Association.

"The judgment of the communities is that they don't feel Act 50, for a whole variety of reasons, will be beneficial to their school districts," Davare said.

In the Central Dauphin District, near Harrisburg, where voters approved the change last year, households with income of more than $33,000 a year pay higher taxes than they did under the old method, he said.

Further damping enthusiasm for the 1998 law, Davare said, was a report issued in July by Moody's Investors Service, a municipal credit research firm.

The opinion warned that though the effect of the law may be neutral at first, that could change if a school district had to borrow money for construction projects, or if a district's economy suddenly went south.

Moody's said it saw two problems with the law's effect on a school district's credit rating: It limits a district's flexibility and ability to repay bonds, and it replaces a stable source of revenue, the property tax, with a volatile one that depends on a local economy.

"School districts will, in effect, be securing their future debt with a limited tax pledge," the analysts wrote. New debt taken on by a school district could therefore receive a lower credit rating, making it more expensive to borrow money, the report said.

Because of Act 50's restrictive nature, Moody's predicted that few districts were likely to adopt it.

The address of the Tredyffrin Township Building is 1100 DuPortail Rd., Chesterbrook.

Nancy Petersen's e-mail address is npetersen@phillynews.com.

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