Senate
of Pennsylvania
Democratic Committee
Bill No.: SB 100- PR. No.
1110
Sponsor: Senator Jubelirer
Committee: Finance
Date: July 22, 2003
The bill amends the Public School Code by adding a new Article VI-A (Taxation by School Districts) to be known and cited as the Taxpayer Choice Act. Click here for text of bill
House Amendments and Action.
The House amendments removed the current language in the bill and replaced it with language that is described in the analysis section below.
Existing Law
The Public School Code of 1949.
Analysis
A new Article is added to the Public School Code. ArticleVI-A (Taxation by School Districts) is added to the Code and shall be known and cited as the Taxpayer Choice Act. The legislation provides funds to school districts for property tax reductions using the homestead exclusion up to the maximum amount permitted by the Pennsylvania Constitution. A minimum increase in the local income tax would be required to qualify for state distributions from the Property Tax Relief Fund. The state distribution and the minimum local contribution are intended to provide, on an aggregate statewide basis, up to five dollars in property tax reduction for each dollar of the minimum local contribution. The maximum amount of State distribution a school district can receive is 50% of its residential property taxes and the minimum amount if 15% of its residential property taxes.
In order to qualify for State distributions from the Property Tax Relief Fund, a school district must increase its local earned income tax by one-tenth of one percent. Additional options to finance further property tax reductions, such as a higher earned income tax rate or the conversion of the earned income tax to the personal income tax, are available at the discretion of the school board and subject to the approval of the voters of the school district. A school district is authorized to enact a resolution imposing the one-tenth of one percent earned income tax. Failure by a school district to enact the minimum threshold by resolution will require that a referendum be placed before the voters to determine how to meet the minimum threshold for qualifying for the state distributions.
After meeting the required increase in the earned income tax of one-tenth of one percent in order to qualify for the State distribution, a school district would be required to submit a referendum to the votes at the November 2003 municipal election. The referendum question must provide to voters the option of obtaining additional property tax reductions by further increasing the local income tax levy. The referendum must provide for a homestead exclusion that is at least 50% of maximum homestead exclusion permitted by the Pennsylvania Constitution. In order to generate the funds necessary for property tax reductions via the referendum, the school district could propose to increase the rate of the earned income tax (EIT) or convert the EIT to a personal income tax (PIT). Whichever the school district chooses to place before the voters, the EIT or PIT rate would be capped at the rate necessary to fund the homestead exclusion at 100% of the amount permitted by the Constitution. If a school district imposes a PIT, it shall relinquish its right t o impose an EIT and shall convert its existing EIT to a PIT. School districts of the first class A, distressed districts, empowerment districts, and districts that reach at least 50% of the maximum homestead exclusion using the state distributions would be exempt from the mandatory referendum, but could elect to seek additional property tax reduction beyond the amount provided by the minimum local contribution and the state distributions.
If a school district fails to take action at any point to either enact the minimum threshold for the local match or place the required referendum on the ballot, the amendment provides for a series of steps for mandatory ballot questions for which the county board of elections would be responsible for ensuring it be placed on the ballot after notification by the Department of Education that the school district has failed to take action. School districts that fail to implement referendums approved by the voters face the loss of state distributions for property tax reduction.
A referendum would be required for property tax millage increases in excess of the average of the percentage increases in the statewide average weekly wage and the employment cost index for elementary and secondary schools. Certain exceptions would apply relating to emergencies or disasters, implementation of court orders, federal or state administrative orders, debt incurred prior to the effective date of this section, electoral debt (debt approved by voters), debt incurred for school construction projects which have received Plan Con A approval prior to the effective date of this section, response to conditions posing a threat of physical harm to students, staff or residents, special purpose tax levies approved by the electorate, to pay costs attributable to an increase in the sum of selected school expenditures where such expenditures exceed the sum of selected State allocations, school districts growing by more than 10% in three years, and to compensate for a one-year decrease of 10% or more in the school district's real property tax base.
Municipalities that are limited by statute or by agreement to the portion of the Act 511 EIT will remain subject to that limitation. School districts may exempt any person whose total income from all sources is less than $10,000 from the per capita tax (current law provides that a school district may if the income is less than $5,000) and the EIT.
The per capita, occupational privilege, and occupation assessment taxes along with any other school district imposed taxes would be maintained, but the rates could not be increased in any year by more than the average of the percentage increases in the statewide average weekly wage and the employment cost index for elementary and secondary schools, subject to any rate caps currently imposed. If a school district desires to exceed the rate increase in any year by more than the index, the school district must present a referendum to the voters for approval to exceed the limit of the index. No new taxes can be levied without approval of the electorate. A school district would still be permitted to place a referendum on the ballot under Act 24-2001 (Optional Occupation Tax Elimination Act).
School districts are permitted to offset costs in administering the new provisions of this act in the first year only. The amount available to offset costs would be equal to 2% of the new income tax revenue raised under this legislation, excluding any existing income tax revenues.
School districts are required, on two separate occasions, to notify property owners by mail and provide them with appropriate forms and instructions for filing to receive the homestead exclusion. These notices shall be sent by December 15, 2003, and January 31, 2004. The existing application and appeal process is maintained. The county is required to notify owners of property currently qualified as a homestead of the date by which they must resubmit an application to maintain the status of a homestead. The notification to property owners must include the rate of additional EIT or PIT approved and the estimated dollar amount of property tax relief for each homestead accompanied by a statement that the actual dollar amount of tax relief may be affected by the total number of applications received and approved.
State distributions to Philadelphia from the Property Tax Relief Fund must be used to reduce its wage tax. Philadelphia's State distribution is not subject to the 50% maximum of residential property tax. The amount to be used for residential wage tax reductions is calculated as the State distribution equal to no more than 50% of residential property taxes. The amount available for nonresident wage tax reductions is calculated as the additional State distribution over and above 50% of residential property taxes. School Districts are reimbursed an amount equal to the local income tax revenues lost due to the crediting provisions for the Philadelphia nonresident wage tax.
State distributions to school districts are calculated by a formula utilizing an index derived from the following four factors: (1) market value/income aid ratio; (2) personal income per average daily membership; (3) school tax ratio; and (4) equalized mills. This index is then multiplied by the school district's average daily membership. This product is multiplied by a factor in order to drive out the available funds in the Property Tax Relief Fund, subject to a maximum amount per school district of 50% of its residential property taxes and a minimum amount per school district of 15% of its residential property taxes.
The new school district EIT or PIT rate would take effect beginning on the first day of the school district's first school year commencing after December 31, 2003. Homeowners would see the reduction in their property tax bills for that same first school year commencing after December 31, 2003. The dollar amount of the State distribution to school districts will vary every school year based on the amount of monies in the Property Tax Relief Fund.
The act would take effect immediately.
Fiscal Impact
The bill would require a minimum local EIT effort of $173.5 million in order for all school districts to receive the State distributions from the Property Tax Relief Fund. It is estimated that a total of $1 billion will be available for State distributions from the fund in the first year. Assuming all school districts levy the minimum 0.1% local EIT and the fund has $1 billion to distribute, given the State distribution maximum of 50% and minimum of 15% of school district residential property taxes, the statewide average amount of property tax reduction per school district would be 20% of school district residential property taxes. The average homestead rebate amount would be $287 per homestead. The amount of the homestead exemption can be increased up to the maximum homestead exemption permitted by Constitution by each individual school district with the approval of the electorate of the school district.
Non-recurring costs of $50,000 are estimated for the Department of Community and Economic Development in the first year for developing and maintaining a register of all EIT and PIT taxes levied under this act. Additionally, it is estimated that the Department of Education would incur costs of $50,000 to implement the provisions of this act. School districts would incur additional costs as they are required to notify their residents of their potential qualification for a homestead exemption. The bill further provides school districts with the ability to retain 2% of the new taxes collected from the income tax to pay for the administrative costs of implementing this act in the first year of implementation.
Prepared By: ___Vicki Kirk
Senate Democratic Research Office • 56 East Wing • Phone: 717-787-3613 • Fax: 717-787-1174