Senator Ray Musto
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Senator Ray Musto |
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Act 72 will provide significant property tax relief throughout the commonwealth assuring the largest local tax reduction in Pennsylvania’s history. Every school district will be able to reduce its reliance on residential property taxes by a minimum of 10%. Based upon estimates that new gaming revenues will eventually provide $1 billion annually in state funded tax relief, the average homeowner will receive $333 in property tax relief each year.
The General Assembly enacted Act 72 by combining the Governor’s plan to use $1 billion in state funds generated through the legalization of gaming to fund property tax relief, with a reenacted version of the Act 50 plan to fund additional property tax relief by increasing local earned income taxes, while placing controls on the future ability of local school boards to raise taxes.
To receive state funds for property tax relief, school districts must impose an additional 0.1% (.001 of wage income) local EIT. All of the funds generated by the increase in the local EIT will remain within the community to fund property tax relief. The amount of property tax relief a district gets from the state is calculated on a four-part formula that takes into account local wealth, and the level of tax burden on individuals within the school district.
Communities can reduce their property taxes even further by opting via a referendum to further shift from property to local income taxes to fund their schools. Districts have the option to ask voters during the 2005 municipal elections if they want to approve additional wage tax increases to fund property tax relief.
During the 2007 municipal election school districts are required to hold a referendum asking voters to approve a shift that would provide a sufficient amount of property tax relief to use at least 50% of the school district’s allowable homestead exemption. Regardless of the referendum outcome, districts must impose an additional 0.1% EIT prior to receiving state-funded property tax relief, except for special provisions for school districts not currently imposing an EIT.
The total amount of money raised from the slots revenue that will be available for property tax relief will be distributed to those school districts that “opt in.” School districts have only one chance, by May 31, 2005, to make the opt in decision. If they do not opt in (and make the other necessary commitments), they will not receive any part of the slots revenue.
Funds for property tax relief cannot be distributed until $400 million is set aside in a reserve fund and at least $500 million is available for property tax relief. This is not likely to occur before the 2007-08 fiscal year.
Backend referenda requirements will apply to all future school district budgets beginning in January 2006 for the fiscal year 2006/07 school budgets. Districts must decide by May 30, 2005 to elect to accept the state funded tax relief when it becomes available, and become subject to the new referendum requirements. School districts must alter their budget processes to enable communities to vote on increases in millage rates above certain thresholds.
Every school district will be able to raise property taxes up to an inflation adjusted index amount without seeking voter approval. As a result, school boards will retain control of decision-making for tax increases that are in line with typical increases in costs and residents’ ability to pay. The rate of inflation is calculated by averaging the increase over the last year of two inflation factors: the statewide average weekly wage and the cost of salaries and benefits for educators nationally.
The bill also recognizes that different districts have different needs. Poorer communities may have more trouble raising enough revenue locally, and at the same time often have the greatest need to invest in their schools. This legislation gives poorer school districts more flexibility in raising millage rates. Districts with an aid ratio above .4000 (about two thirds of all districts), have more room to raise millage through an adjustment in their inflation index for millage increases and referendum exceptions. The adjustment inflates the index on a sliding scale for qualifying schools by a range of 115% to nearly 160% of the index.
In addition to the allowable index, other exceptions are provided for school districts to protect them from rising costs due to circumstances beyond their direct control. Among the most important exceptions are two provisions that were not included under the referendum exceptions provided under Act 50. The first of these provides that “instructional” spending per student keeps pace with the inflation index. This exception will ensure that all districts can maintain their educational programs in fast-growth school districts, by allowing them to proportionately increase spending as their student population grows. The other exception insures that the school district’s overall revenue keeps pace with the inflation index. This exception ensures that revenue from property taxes, earned income and personal income taxes, and the state basic and special education subsidies have grown at the rate of the allowable index.
The legislation attempts to strike a positive balance between funding a quality education and guaranteeing taxpayer rights, by adopting some spending controls to ensure that property taxes will stay down once the property tax relief plan takes effect. At the same time, it provides flexibility to school districts that need to generate additional revenue.
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