April 1 2003

Governor Rendell's Plan for a New Pennsylvania looks like the proverbial kitchen sink.

On first glance, Governor Rendell’s Plan for a New Pennsylvania looks like the proverbial kitchen sink. It is crowded with a multitude of proposals designed to stimulate Pennsylvania’s economy, lower residential property taxes by shifting some of the burden to the state income tax, make a major new investment of state funds in basic education - including early childhood education, student achievement, and rewarding performance - and promote increased accountability in public education. The Plan, by any reckoning, is aggressive, complicated, and not the way Pennsylvania usually does things.

The debate on it hasn’t really started. When it does, we can expect that each part of the Plan will generate vocal advocates, critics, and at least 45 alternative proposals. But now is a good time to take a quick look at the issues behind the governor’s proposal.

Reducing school property taxes. Although Pennsylvanians’ total property tax burden is actually lower than the national average (see scorecard), this state comes in second to no other in its disdain for the tax. Part of the reason arises from administrative problems: assessment practices in most counties have led to major tax inequalities among even similar properties, and many jurisdictions endure inefficient tax collection practices. But the major reasons for the tax’s unpopularity are its diminishing relationship to the ability to pay, especially for individuals on fixed incomes, and the rapid escalation of tax bills in school districts experiencing population growth. Part of the pressure on the local property tax is caused by the...

Decreasing state share of the cost of education. Pennsylvania’s share of public school funding has declined to 36% from its all-time high of 50%. Why? Increases in state funding to local school districts have not kept up with increases in school spending. The result? Local property taxes have been raised to fill the gap. Because property tax revenue is dependent upon an area’s tax base, communities with declining real estate markets have not been able to raise as much for their schools as have wealthy areas. The combination of local spending decisions, local property tax capacity, and decreasing state share of total education funding has led to serious funding equity problems (scorecard) and gaps in what school districts can afford to spend per pupil.

Shift to the Personal Income Tax. The governor’s Plan proposes using the state Personal Income Tax as the logical replacement for, on the average, 30% of the school property tax (except in Philadelphia, where the new funds would be used to reduce the hated Wage Tax on residents and commuters). Because the PIT is based on income and not presumed wealth, it has more relationship to ability to pay than does the property tax. At a 2.8% rate on earned and unearned income - especially with exclusions for retirement income and low-income families and individuals - Pennsylvania’s PIT has one of the lowest effective rates in the nation. Even when the local earned income tax (usually 1%) is added in, Pennsylvania’s average total income tax rate is still in the middle of the pack ...unless you live or work in Philadelphia.

Improving the state’s competitiveness. Pennsylvania’s economic competitiveness has been a source of concern for years. If we compare Pennsylvania to competitor states and the nation, we find that, since 1990, Pennsylvania’s employment grew by 10% -- half the national rate. Our population grew by less than 4% -- the nation’s grew over 3 times as fast. Our job creation rate put us in the lowest 10% of all states. While many of Pennsylvania’s 2600 municipalities have done well in the last 10 years, at least that many have not done so well - urban, rural, small, large, and even some suburbs. Our demographic picture reveals that - unless something major changes -- our workforce population will grow by only 0.3% in the next 20 years while the nation’s will grow by over 11%. Growing, job-producing business wants not only an expanding workforce, but also a well-educated one...

Which leads us back to the issues of public education. In today’s knowledge-driven economy, people who can think, reason, and compute are essential to making 21st century companies successful - and a state competitive. Evidence demonstrates that children who are "ready" when they enter elementary school generally succeed at higher educational levels - and save public money in the long run through lower costs for remedial education, welfare, and the criminal justice system. Pennsylvania is one of only nine states in the country that does not have a state-funded pre-school program.

Pennsylvania has put into place numerous mechanisms to gauge and share school performance results with the public; but Pennsylvania still faces numerous challenges in teacher quality and specialization, student competency, measurement of teacher and student performance, accountability in our educational system, and the fact that performance has little effect on how much money a school district receives from the state. The governor’s Plan attempts to address pre-school education and accountability with new state funding and support.

In a nutshell, those are the major issues behind Governor Rendell’s proposal. Let the debate begin.