How would you have been affected by the possible tax shift?

Act 1 of 2006 is 100-pages of complex legislation setting rules for slot money distribution, requiring front-end voter referenda on tax-shifting, mandating new school district budget practices and requiring back-end voter referenda on future real estate tax increases above an “index.”  In an effort to explain the complexities of Act 1, the five major aspects of this new law are summarized below:

1.           Limits the ability of School Districts to increase tax rates above an inflationary “index”:  This part of the law limits the ability of school boards to increase tax rates above a level computed by the state.  This limit is based on inflation and is increased for poorer districts.  There are some exceptions where the tax rate can be increased more to cover specific increased costs if approved by state courts or the Pennsylvania Department of Education.  The index for the 2007-2008 fiscal year is 3.4%, which in the North Hills School District is equal to 0.629 mills.

2.           Tax rate referendums:  If the tax increase allowed by the inflationary index is not sufficient to cover district expenditures, school boards can ask the voters of their districts to increase their taxes by approving a referendum (referred to as a “back-end referendum”).  There are a number of steps that must be taken to put a referendum on the ballot at each primary election.  The referendum requires the approval of a majority of the voters in that election to pass.

3.           Tax Shifting and the Homestead Exemption:  Act 1 requires each school district to ask its voters if they wish to shift some of the tax burden from the property tax to an income tax.  The law requires school boards to put this question on the May 2007 primary election ballot.  The North Hills referendum question, if approved by the voters, would increase the existing earned income tax income tax with the resulting revenues used to provide a homestead tax exemption for owner-occupied homes.  Commercial, vacation or rental properties would not get the tax exemption.  The exemption would be a fixed amount for all qualified homeowners.

Click here for information regarding the May 2007 primary election ballot question

Click here for more information on the Tax Study Commission

4.           Distribution of “Gaming Funds” generated by state slots casinos:  Act 1 changes how these “Gaming Funds” would be distributed.  Much of the revenues generated will go to rent rebates or property tax subsidies for low-income elderly citizens.  Other significant amounts will be used to provide homestead funds for school districts, mainly in the Philadelphia area, impacted by the Philadelphia income tax.  Any remaining funds will be distributed to school districts to provide homestead exemptions.  The state’s estimate of the eventual benefit to North Hills School District citizens would be a $77 homestead exemption for each homeowner.

5.           Installment payments of Real Estate Taxes:  Act 1 requires school districts to provide homeowners with an option to pay their real estate taxes in four equal payments between August and November.

Links to more information

Text of Act 1 of 2006

General information provided by the Pa. Department of Education

The Index

Frequently Asked Questions: Prepared by Pa. School Boards Associations

Act 1:  Timeline 2006-2008

Newspaper Articles

Shift in school tax loses
Moving burden from property to income levy fails to persuade taxpayers that different is better
Pittsburgh Post-Gazette:  May 16, 2007

Tax Shift:  No way
Pittsburgh Tribune-Review: May 16, 2007

Voters to decide Act 1 tax trade off
Pittsburgh Tribune-Review: May 7, 2007

Issues of community, class underlie taxpayer relief act
Pittsburgh Post-Gazette:  April 26, 2007

20 districts' panels back raising earned income taxes
Pittsburgh Tribune-Review: Dec. 14, 2006

Pennsylvania's Tax-Shift Tangle:  The May 15 tax referendums are confusing voters, have huge implications, and may have difficulty passing
The Philadelphia Inquirer: Jan. 14, 2007

A Time to Act: Schools continue to struggle with new state law
Delco Times:  Jan. 29, 2007

Act 1 is Unfair to Renters
Pittsburgh Post-Gazette:  March 7, 2007

Additional Information

Property Tax Rebate:  Understanding the Question on the May Ballot
(Prepared by the Pennsylvania Institute of Certified Public Accountants)

Act 1:  The Back-End Referendum: Increasing Taxes Over PDE's Published Index
(The following is the third in a planned series of Communiqués from Thorp Reed & Armstrong, LLP regarding the changes to School District financial affairs brought about by the Taxpayer Relief Act, Act 1 of Special Session 2006.)

Act 1:  The Devil is in the Details
(The following is the second in a series of Communiqués from Thorp Reed & Armstrong, LLP regarding the changes to School District financial affairs brought about by the Taxpayer Relief Act, Act 1 of Special Session 2006).

Local Tax Study Commission:  The First Mandate of Act 1
(The following is the first in a planned series of Communiqués from Thorp Reed & Armstrong, LLP regarding the changes to School District financial affairs brought about by the Taxpayer Relief Act, Act 1 of Special Session 2006).

Act 1 Overview: PowerPoint presentation (pdf file - 362 KB)

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