Monday, February 15, 2010

The Cavalry Sales Tax comes to the rescue

So what would you say is the biggest thing going on in public finance that will impact your wallet next year?  Assessments?  Maybe, but there will be no change to your property tax bill coming soon no matter. Dave posted this last week almost and I kind of  missed it.  It seems Dave, or as he explains Mrs. Dave, caught something that I am upset didn't occur to me when I saw the original news.

Some may have noticed the big news in Harrisburg last week.  The governor's proposed budget wants to lower the state sales tax rate from it's current 6% to 4% yet somehow increase the revenues the sales tax will generate. Magic?  No, the idea is that the things the sales tax would cover would be increased.  Its something like 70 or so exceptions of things that do not get hit by the sales tax.  So the great increase in coverage will more than make up for the lower rate. The base for the sales tax must be going up by at least 50% for the math to work out.  Dave's back of the envelope suggests the proposal could increase what is hit by the sales tax by up by 75%.

But then there is Allegheny County, which also gets revenue from a 1% sales tax and redistributes it via the Regional Asset District (RAD).   So think about that. If the 1% county tax stays the same and the base of what is taxed goes up by 50%-75% then how much will the RAD tax bring in locally? 

For 2010, the RAD budget was a hair less than $80 million.  With a big expansion of what the sales tax covers, the RAD be looking at a $40-60 mil/year windfall in future years? Could make a lot of local issues look a lot different.  Library funding?  Transit funding?  The share of that which the city will get by statute could go a long way toward closing that 15 mil shortfall that so traumatized us last month.

$40-60mil is kind of small compared to the entire county budget, but when you really parse out the truly discretionary part of the county budget, $60 million would be a huge chunk of new revenue to allocate.  Could almost transform the role of the county in local government.  So a big deal potentially and it might be worth talking about sooner rather than later even if there is only a chance it will happen.

Of course, it is all just a proposal at this point.... That and anything associated with the state budget in Pennsylvania is a morass almost by statute.... or so it seems.  There is an argument that since an election year is coming up for much of the state legislature, they have some incentive to keep the budget process a little quieter this cycle.  We will see...


Blogger BOD said...

Why is there a differential in tax rates between Philadelphia County and Allegheny County? The state has its sales tax of 6% and Allegheny has 1% more and Philadelphia now has 2% more since late last year.

Why does Philly get the additional 1% that Allegheny does not? I realize that Philadelphia County is all urban vs. Allegheny but the populations are roughly the same and share a lot of the same urban/transit issues that are not addressed at the state level in PA.

Tuesday, February 16, 2010 9:58:00 AM  
Anonymous MH said...

Why does Philly get the additional 1% that Allegheny does not?

Most people view that as "We get to pay 1% less than Philly. Go us."

Tuesday, February 16, 2010 10:39:00 AM  
Blogger BOD said...

Yeah, that is one way to view it. The other way is to look at all the infrastructure funding problems that we have and see that we are not on a level playing field with the other primary revenue generating city in the region.

Tuesday, February 16, 2010 11:50:00 AM  
Anonymous MH said...

I lost that view at some point between "Let's extend the T to someplace that is nearly empty except on the weekends" and "We have to build a third sports facility to be fair to all of our millionaires." I’d rather keep the 1% to pay for the extra wear on my tires and suspension.

Tuesday, February 16, 2010 12:01:00 PM  
Anonymous Anonymous said...

The problem with the proposal is that a big chunk of the new revenue would come from taxes on services, i.e. Legal, accounting.
That ain't happening so the potential windfall is much smaller than suggested. And, the RAD has been underfunded for the last two years so any windfall would likely just make them whole. If there is $$$ leftover, you can bet that the convention center will try to lay claim.

Tuesday, February 16, 2010 12:35:00 PM  
Blogger C. Briem said...

I am forgeting the whole history.. wasn't it Florida that first tried to sales tax services and it was litigated to the supreme court as a 1st ammendment issue? I should remember the details. Must have turned out to allow it if they think it has any chance now? but no doubt the lawyers will fight back pretty seriously.

RAD has not been underfunding by anywhere near 50-75%... and the recession will end at some point. It would be interesting if your argument is this won't work state-wide. As for the convention center claim... who knows there. an issue unto itself. I thought the G20 was supposedly bringing a lot new biz to town?

Tuesday, February 16, 2010 12:46:00 PM  
Anonymous Jerry said...

Is there a scenario under which such a change to the sales tax would not be highly regressive? Is there really enough unlevied tax on luxury goods to make up the difference?

Tuesday, February 16, 2010 10:05:00 PM  
Anonymous Cock D said...

New RAD money = Spine Line construction, please.

Wednesday, February 17, 2010 8:00:00 AM  
Anonymous johnnyg said...

(a) The extra one percent in Philly is how they're fixing their pension hole.

(b) I don't know why this issue is getting so much play this year. The Governor has tried to expand the sales tax pretty much every year. And yes, we lawyers have lobbied and defeated it each time.

Thursday, February 18, 2010 1:27:00 AM  

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