Preparing Communities for Act 72

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Preparing Communities for Act 72
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Act 72 in a Nutshell

• Act 72 creates a statewide property tax reduction
  program.
• Districts that choose to participate in the
  program will receive a share of new state
  revenue, which will be generated by expanded
  gaming.
• District participation is not mandatory, nor is
  it automatic.
• Districts that choose to participate in to the
  program must adopt a resolution to impose a new
  income tax.

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Act 72 in a Nutshell

• A districts share of state gaming money will be
  combined with revenue from its new local income
  tax to create a separate fund.
• This new fund will replace some of the property
  taxes currently paid by homeowners by off setting
  district revenue lost from implementing the
  homestead/farmstead exclusion.
• Participating districts cannot increase future
  taxes above an indexed amount without voter
  approval.
• To accommodate the potential referenda, school
  district budgets must be developed much earlier
  in the fiscal year.

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Opting in the State Program

• In order to qualify for a share of state money
  for property tax relief, school boards must pass
  a resolution to levy a 0.1 earned income tax
  (EIT) by May 30, 2005.
• Districts must ask voters if they would like to
  further reduce their property taxes by further
  increasing the local EIT or levying a personal
  income tax (PIT). This front-end referenda may
  take place in November of 2005 or November of
  2007.

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Myths of Property Tax Relief Implementation

• Myth 1 Taxpayers will see reductions in
  their property taxes immediately.
• Myth 2 Property tax relief will be delivered
  as a rebate.
• Myth 3 Property tax relief will be delivered
  automatically to all property owners.

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Myth 1Taxpayers will see reductions in their
property taxes immediately.

• The Facts
• Statewide property tax relief will not occur
  until enough state gaming revenue is available to
  fund it.
• Only after the state budget secretary certifies
  that 900M is available, will school districts
  receive a share of money from the state and be
  able to implement the homestead/farmstead
  exclusion.
• It is unlikely that this much gaming revenue be
  generated before next year. Thus property tax
  relief will probably not go into effect until the
  2006-2007 school year.

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Myth 2Property tax relief will be delivered as
a rebate.

• The Facts
• Property tax relief will not be delivered through
  a rebate or a reduction in the districts tax
  rate.
• Instead, property owners will receive a credit
  known as a homestead/farmstead exclusion, which
  will appear on their regular property tax bill.
• The exclusion will reduce by an equal amount the
  assessed value of each owner occupied home or
  farm. Consequently, it will reduce the amount of
  property taxes owed for these properties.

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In other words, computing tax relief will work
like this

• The homestead/farmstead exclusion will show up on
  a tax bill as a separate line item under the
  original assessed value of the property.
• The exclusion will be subtracted from the
  original value to produce a new net assessment.
• The new, reduced value of the property will be
  multiplied by the millage or tax rate.
• When the tax rate is applied to a lower property
  value, it will result in a lower amount of final
  property taxes billed to the property owner.

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Myth 3 Property tax relief will be delivered
automatically to all property owners.

• The Facts
• Property owners must qualify in order to receive
  a reduction in their property taxes
• To qualify, property owners must apply to the
  county assessment office to have their property
  designated as a homestead/farmstead and be
  approved.
• All owner occupied properties are eligible for a
  homestead/farmstead exclusion.

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The Application ProcessWhat should property
owners expect?

• By October 18, 2004, all resident property owners
  will receive a homestead exclusion application
  with instructions.
• By December 31, 2004, residential property owners
  at least those who have not been approved
  will receive a reminder mailing with another
  application.
• Property owners must submit their applications to
  the county assessors office by March 1, 2005.
• Within 30 days of submitting an application,
  property owners are to receive notice from the
  county assessor of whether or not their
  application has been approved.

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Amount of the Exclusion

• The exclusion will be calculated each year by
  dividing the number of approved properties into
  the amount of money set aside in the fund to pay
  for it. (The districts share of state gaming
  revenue and the first year proceeds of the
  districts new EIT or PIT).
• The amount of the exclusion will fluctuate from
  year to year
• The exclusion can never be greater than half of
  the median assessed value of the districts
  homesteads and farmsteads.

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Property Tax Relief in Southeastern PA

• In Philadelphia, state gaming money will be used
  to reduce the wage tax instead of provide
  homestead/farmstead exclusions.
• In Philadelphia, state gaming money will also be
  used to provide further property tax relief to
  senior citizens already receiving a rebate under
  the Senior Citizens Rebate and Assistance Act.
• Suburban school districts will receive state
  gaming money as a credit for wage taxes paid by
  their residents who work in Philadelphia. This
  money must be used for homestead/farmstead
  property tax reductions.

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Can districts increase tax rates?

• Yes, BUT only by a limited amount without voter
  approval through the back-end referendum.
• The district must pose a ballot question for any
  property tax rate increase that exceeds an index
  that reflects the rate of inflation.
• The index is an average of the State Average
  Weekly Wage (SAWW) and the Employment Cost Index
  for Elementary and Secondary Schools (ECI), a
  federal figure. The index for low wealth
  districts also includes a factor that measures
  their relative wealth.

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For instance

• Consider that the index for the year is 2.5
• If the school board needs to raise the tax rate
  2.4 -- or even 2.5 -- it may do so without
  asking for voter approval.
• However, if the board needs to raise the rate
  above 2.5, it must place a question on the
  ballot, and voters must approve the increase.

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Exceptions to Referendum

• School districts may raise taxes above the index
  without voter approval to cover specific expenses
  but only if approved by the Pennsylvania
  Department of Education or the county court.
• These costs are identified as exceptions to
  referendum and include
• Emergencies/disasters
• Court orders
• Debt on construction costs incurred prior to
  Sept. 3, 2004
• Conditions posing harm
• Increases in enrollment at a certain rate
• Combined district revenue that fails to keep pace
  with the index
• Special education expenses
• School improvement plans
• Health care and retirement contributions that
  exceed certain rates of increase

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A New Budgeting Timeline

• Beginning with the 2005-2006 school year,
  districts must develop a preliminary budget for
  the following fiscal year (2006-2007) using the
  new Act 72 schedule.
• The new schedule will require advanced planning
  and earlier financial decision making by school
  districts.

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A New Budgeting Timeline

• Months in italics apply during presidential
  election years
• January (Dec.) Public inspection of preliminary
  budget
• February (Jan.) Board adoption of preliminary
  budget
• February Districts must file any proposed tax
  rate increase with PDE
• February PDE must notify districts if tax rate
  increase is less than or equal to index
• March (Feb.) Districts must advertise their
  application for an exception
• March (Feb.) Districts must submit their request
  for an exception
• March Districts must submit referendum question
  to the county
• March Court/PDE must decide on exception
• Mid May (Apr.) Primary election
• June 30 Deadline for school districts to adopt
  final budgets

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