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The School District finally dropped the other shoe last week. It made “the ask.” It went to local and state government officials and said: “We need more money.”
This should not have surprised anyone. The district has been reeling under financial stress for several years. It has had to cut its budget by $750 million plus — slashing school budgets, shedding more than 1,000 employees, eliminating or cutting back art and music programs, libraries, etc.
Still, it is not enough.
It says it will face a $300 million hole in next year’s $2.5 million budget. It wants to fill it by extracting $133 million in wage and benefit concessions from the teachers union; by getting the state to pony up $112 million in additional aid and by having the city chip in an additional $60 million.
I would not bet money on any of this happening. The teachers do not want to make big concessions. Gov. Corbett is not likely to embrace additional aid for city schools. Mayor Nutter, while making generally supportive noises about the schools, has yet to step forward with a plan to provide the additional $60 million. And Council, being Council, is being truculent. Some Council members are miffed at the request. Others feigned surprise that the district needs help.
The district’s political problem is that it wants more money in a year when Council is trying to deal with AVI. It has wrapped itself in a promise that AVI will be ‘hold harmless’ – meaning it will bring the same amount of total revenue it did last year, and will not be used as a back-door way to increase real estate taxes.
So, this year at least, raising the rate on the real estate tax for the schools is a non-starter. It ain’t going to happen. That is a shame, because real estate taxes are the principal way the city supports the schools. Of the $958 million in city aid to the schools, $728 comes from the real estate tax. [The district gets 60 percent of the proceeds from the tax; the city 40 percent.]
The city’s political leadership — I use that term hoping it is not an oxymoron — does have other options if it is serious about helping the district. One has already been mentioned in a preliminary way by Council President Darrell Clarke.
The city has a 10 percent tax on over-the-bar drink sales, the proceeds of which are devoted entirely to the district. The tax currently brings in $46 million a year. Increase the tax to 15 percent and it will yield an additional $23 million.
Passing such a tax is by no means a sure deal. Tavern owners will be crying in their beer about it, saying it will hurt the small businesses that are corner bars. Council, ever attuned to the plight of the little man — even if he is a little drunk man — may be reluctant to increase the levy. But, let’s assume such a bill is introduced, passed and signed into law.
Where will the other $37 million come from?
One place to look is at the Use and Occupancy Tax, the levy paid by commercial tenants based on square footage. All the U&O revenue also goes to the district and brings in $108 million a year. The current U&O rate of 5.51 percent per $100 of market value will have to change, because AVI is changing market values.
The administration wants to invoke the “hold harmless” rule on the U&O and believes the tax rate should be lowered to one percent to achieve that. Councilwoman Maria Quinones-Sanchez also has introduced a bill to exempt the first $2,000 of that tax, a move designed to help small business — think corner grocery store, a neighborhood doctor’s office, a dry cleaners.
So, much like the property tax, it is unlikely Council will want to raise the U&O rate to help the schools.
However, if they fiddled with the rate to make it a bit larger than 1 percent, it could bring in $15 million to $20 million in additional revenue, even if they did exempt the small tenants.
A third possibility is PILOTS — the acronym for Payments in Lieu of Taxes — which are voluntary payments made by entities that are exempt from property taxes. Think Penn, Drexel, Temple, St. Joe’s, etc. There is $30 billion worth of tax-exempt property in the city.
PILOTS have become popular of late among local governments strapped for cash. But, since local government entities cannot force the payments, nor set a rate, they tend to be unreliable sources of money. The trend is for institutions to give for a year or two, then the payments drop off.
Let me suggest another idea. The city’s ‘Eds and Meds’ sector brings a lot of value to the table — all those employees paying the wage tax, to name one.
But, they have another commodity that brings in much less: students.
Students help the local economy through apartments rented, beers bought, food eaten off campus, etc. But many students do not work — and so do not pay the wage tax — yet they do draw on city services, such as fire, police, trash collection, emergency health services, etc. It costs us taxpayers money to live in a town with 90,000-plus students.
Most of them are transient and will leave when they graduate. Forty percent are from out of state. Why not ask them to chip in and pay their fair share through a tax? Let’s call it a “city services fee.” Make it $300 a year for students enrolled in four-year schools or graduate programs. Make it $150 a year for those attending two-year institutions.
Such a fee would bring in $25 to $30 million a year. Combine that with the drink tax and you are close to the $60 million needed by the public schools.
Naturally, the schools won’t like the fact that their students must pay the fee. So, we certainly should give the schools the option of paying it for them.
The schools also are likely to complain that such a fee would place a burden on families already struggling to meet the costs of a college education. That may be true, but that argument hasn’t stopped the schools from raising tuition and fees nearly every year. (This year, Penn bragged that it kept its tuition increase to under 4 percent. Really, it bragged.)
As to fees, Drexel — to use just one example — already charges a $1,715 “general fee,” a $405 lab fee, a $250 to $950 equipment fee, and a $250 student activity fee and a $35 immunization fee. On top of that, Drexel charges $43,215 a year in tuition. Room and board costs another $14,000.
This is a city that has a school district in peril. It’s only fair to ask college students and their schools to chip in to help.