Woodland Hills School District

1. Woodland Hills School District Tax Study Commission School Board Recommendation

2. Tax Study Commission Members • Mr. Stephen Spear, Chair • Mr. Richard Romanko, Vice-Chair • Ms. Karen Fiore, Secretary • Ms. Felicia Archer • Ms. Lee Borellis • Dr. Dennis English • Ms. Colleen Kontul • Mr. Pat Loughney • Ms. Michelle Mendenhall • Mr. John Morenzi • Ms. Joyce Sullivan, ex officio

3. Tax Study Commission Purpose • Limited purpose • Study district tax structure • Recommend referendum question for May 2007 primary election to the school board • Commission must recommend: • EIT increase or PIT? • What tax rate? • Specific referendum question for ballot

4. Local Tax Study Commission • The study must include: • Historic and present rates and revenue from taxes • % of total revenue provided by these taxes • Age, income, employment and property use characteristics of existing tax base • Projected revenues of taxes • Commission is required to solicit input from the public via a public hearing, which was held Thursday, November 16.

5. Tax Rate Options and Limitations • EIT or PIT Options: ≥ the rate necessary to fund an exclusion of 25% of the district’s median assessed value of homestead property ≤ the rate necessary to fund an exclusion of 50% of the district’s median assessed value • Any rate between these two limits OR • 1% increase if the rate necessary to achieve 25% of the district’s median assessed value is greater than 1%.

6. The Rate Question • The maximum homestead/farmstead exclusion is defined in the state constitution as one-half of the median assessed value of homestead property in the district • For the WHSD, this value (determined from Allegheny County data) is $67,800

7. Maximum Exclusion 50% of the median assessed value Established state constitution/Act 50 of 1998 WHSD Calculation: Median Assessed Value of homestead properties = $67,800 Maximum Allowable Assessed Value Exclusion = $33,900 or .5 X $67,800 Minimum Exclusion ½ of the maximum exclusion Established in Act 1 WHSD Calculation: Median Assessed Value of homestead properties = $67,800 Minimum Allowable Assessed Value Exclusion = $16,950 or .25 X $67,800 How do you calculate the exclusions?

8. How do you convert that Assessed Value to a $ Value / Homestead? • Maximum Allowable Assessed Value Exclusion ($33,900) multiply by the district’s millage (.0239) results in a maximum dollar value of exclusion per Homestead of $810 • Minimum Allowable Assessed Value Exclusion ($16,950) multiply by your district’s millage (.0239) results in a minimum dollar value of exclusion per Homestead of $405

9. Revenue Effects on the District of the Exclusions • (From Allegheny County Data, we have 12,059 approved properties in district) • Maximum: $810 X 12,059 = $9,770,322 • Minimum: $405 X 12,059 = $4,885,161 • These figures are the revenue reduction the school district will face due to the H/F exclusions

10. Calculation of tax rates needed to offset revenue losses • Target $ Amt. $ 9,770,322 • Taxable Compensation + Net Profits = $746,413,791 $ 9,770,322 /$746,413,791=1.3% EIT Increase • This would increase the EIT from 0.5% to 1.8% • Target $ Amt. $ 4,885,161 • Taxable Compensation + Net Profits = $746,413,791 $ 4,885,161 / $746,413,791 = .65% EIT Increase • This would increase the EIT from 0.5% to 1.2% (Act 1 requires rounding to the nearest tenth of a percent

11. District Revenue and Tax Trends

12. Recent District Revenue Trends Average annual growth in real revenue =0.7% Compare with 1% average annual growth in personal income for Allegheny County over the same period (University Center for Social and Urban Research Sabina Deitrick and Christopher Briem)

13. District EIT Tax Revenue Trends

14. EIT as a % of Revenue

15. District Real Estate Tax Trends

16. Property Tax as a % of District Revenue

17. District Enrollment Trends

18. District spending per student For comparison, PA statewide average expenditure per pupil in 2004 (deflated to 1994 $$) was $7610 (Data from U.S. Statistical Abstract)

19. Property vs. EIT as a % of District Revenue Based on average percentage from 2004-2005 revenue data

20. Home owners vs. Renters From 2000 Census Data

21. District Households and Income

22. Our Recommendation

23. Issues Bearing on Our Recommendation • How will a change in the district’s tax structure affect the municipalities which make up the district? • All neighboring districts are going through the same process and making recommendations that, even for the minimum option, will alter the existing pattern of wage and property taxes

24. Issues Bearing on Our Recommendation • Voter approval of tax shifts will cause EIT rates for municipalities countywide to vary • Plum Borough’s TSC has recommended the minimum option • For their district, this requires an EIT increase of 0.9%, for a total EIT rate of 1.4% for the district • Compare with the WHSD EIT rate of 1.3% for the minimum • PASBO statewide survey shows districts leaning toward the minimum option requiring EIT increases in the range of 0.6%-1%

25. Issues Bearing on Our Recommendation • Good reasons to shift taxes from property to income • Assessment issues • Property value movements frequently at odds with local economic conditions • Inequity of requiring homeowners (58% of district) to pay 84% of the school tax • Act 1’s approach to shifting the tax burden is deeply flawed, however

26. Issues Bearing on Our Recommendation • Thought experiment: WHSD voters adopt Act 1, but neighbors don’t • Economic effects of changes in the tax structure • Effect on housing values is ambiguous. Lower property taxes alone will increase demand for housing leading to an increase in housing value. However, EIT increase will tend to reduce demand. • Retirees are an exception, since they can lower property taxes without paying the EIT increase • Predicts in-migration of seniors

27. Issues Bearing on Our Recommendation • Thought experiment: WHSD voters adopt Act 1, but neighbors don’t • Economic effects of changes in the tax structure • For rental markets, EIT increase should lead to reduced rents (and reduced net profits from rental properties) because of a reduction in rental demand due to the higher EIT • Predicts outflow of higher income renters and inflow of lower income renters

28. Issues Bearing on Our Recommendation • Opposite thought experiment would reverse these conclusions • The critical question here is how important are tax changes in determining whether people move? • Economic evidence is mixed • Young people move the most • Empirical studies of effects of taxes find evidence that business location decisions are sensitive to property and sales taxes, while employment decisions are sensitive to income taxes • What evidence do we see in Allegheny County data?

29. Current Tax Patterns across Allegheny County EIT rates are currently limited by PA law

30. Current Tax Patterns across Allegheny County

31. Current Tax Patterns across Allegheny County

32. Distribution of Population Changes Across Allegheny County

33. Possible Impact of Millage Differences?

34. Coordination Problem • Suppose our voters approve this but neighboring voters reject • We now have incentives in place for seniors to either relocate from other districts to take advantage of lower property taxes, and for younger, working families to move out (or not move in) to avoid the high EIT tax • Equilibrium in the game is for everyone to opt out.

35. County Survey Results

36. Our recommendation • Since opting out is not a choice for the board, we recommend • Minimum option • Property tax reduction of $405 • EIT increase of 0.7% • Work to have this voted down or rescinded

37. Referendum Question Option 1 • “Do you favor imposing an additional 0.7% earned income tax? The revenue generated from the increased tax rate will be used to reduce taxes on qualified residential properties by $405. The current earned income tax rate is 0.5%.”

38. Consequences of Rejection • Act 1 caps school districts’ ability to raise millages by tying them to an index which is the average of • Statewide Average Weekly Wage (SAWW) • A state measure of wage increases using earnings data • Captures most sectors of industry within the state • Typically the inflation number unions focus on when formulating wage demands • Employment Cost Index for Elementary and Secondary Education (ECI) • A national measure of compensation cost increases • Tracks employment costs specific to the public education sector

39. Potential Impact of Cap

40. What Happens When the District Reaches the Index? • There are three options: • Cut programs and reduce costs • Request exceptions for extraordinary costs or circumstances that are beyond the district’s control (ten identified areas in Act 1) • Back-end referendum for tax increase (i.e. a referendum question on the primary ballot)