Property tax plan collapses, imperiling Pa. budget

HARRISBURG - A historic plan to cut property taxes statewide teetered near collapse Sunday, imperiling with it the tentative budget deal struck this month by Gov. Wolf and leaders of the Republican-led legislature, according to officials familiar with the negotiations.

Without the property-tax reduction - a key plank in the $30 billion state spending plan - "the whole agreement fails," said one high-ranking Democratic official, speaking on the condition of anonymity.

Republicans acknowledged the new hurdle but strove to paint less of a doomsday scenario. "We are going to continue to work on the other segments of the agreement and hopefully bring it to closure," said Drew Crompton, the Senate's top Republican lawyer.

The budget framework outlined by Wolf and GOP leaders had called for a hike in the state sales tax from 6 percent to 7.25 percent. The $2 billion it would generate was expected to boost school funding and offset a reduction in property taxes - for decades the primary funding source for school districts. But neither side has released details about how the education funds will be distributed, the form of property-tax relief or other key concepts in their deal - reshaping the state's pension system and sales of wine and liquor.

In a letter to his Democratic colleagues Saturday, House Minority Leader Frank Dermody (D., Allegheny) said Republican leaders told Wolf late in the week that they could not muster the votes among their members to pass the property-tax plan.

"By failing to deliver the votes for the framework they agreed to, the Republican leaders would effectively kill the property-tax relief envisioned as part of the framework," the letter said.

The setback marked a stunning turn in a contentious budget season that finally looked as if it had been settled. After a five-month impasse that left schools, nonprofits, and other agencies relying on loans and credit to stay afloat, the two sides hailed what they said would be a historic agreement to help fund schools and shift away from the long-term reliance on the property-tax burden.

Representatives for Wolf and GOP leaders declined to discuss the new obstacle or what might salvage the deal. The governor is scheduled to speak Monday at a monthly press luncheon in Harrisburg, and is expected to address the issue.

Strains in the agreement became apparent - and may have been exacerbated - last week, when the Senate unexpectedly signaled its intention to vote on a bill that would eliminate property taxes altogether. Its sponsor predicted it would pass.

Some in the Capitol questioned why the chamber would consider such a bill when its leaders said they already had an agreement on a property-tax reduction plan.

Rep. Jim Christiana (R., Beaver) said rank-and-file legislators in the GOP caucus were always skeptical of the so-called framework, but said that skepticism turned into opposition for some when it became apparent that the Senate was on the verge of passing a bill to eliminate property taxes altogether.

"The conversation changed drastically," he said Sunday. "I would say that there's many of us on both sides of the aisle who would prefer to eliminate property taxes over a potential reduction."

The Senate vote is set for this week. It would replace the property-tax money with new funds from a hike in both the state sales and the personal income tax.

Rep. Scott Petri (R., Bucks) said GOP leaders told members of his caucus their budget framework called for reducing property taxes "a minimum of 20 percent and a maximum of 40" percent from current rates.

"I was never for any of the proposals that we discussed," Petri said. "I was trying to figure out who was."

Although the Senate bill has bipartisan support, it is not clear whether there are enough votes for it to pass the chamber. And a similar measure has failed in the House in the past.

Rep. Mike Vereb (R., Montgomery) said he supports scrapping property taxes altogether.

"The people who reach out to me overwhelmingly want elimination," he said in an interview Sunday. "They don't want to hear the word reduction."

Still, he said it's premature to declare the budget framework dead.

"They're light-years ahead of where we were a month ago," Vereb said.

Several legislative officials said one alternative now being examined closely as a way to raise new money is expanding the list of items that would be subject to the sales tax. As it stands now, there are dozens of exemptions to the sales tax.

But that will not necessarily appease the Wolf, a Democrat who campaigned last year on a pledge to provide significant property-tax relief - and made it a central theme of his first budget address. In the spending plan he introduced earlier this year, the governor had proposed hiking both the sales and income taxes to boost funding for public schools as well as lower property taxes statewide.

Wolf also wanted to impose a new tax on natural gas drilling, but ultimately agreed this fall to take it off the negotiating table.

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