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Property Tax & Referendum Adams/Franklin Ernest W. Werstler, Jr. Business Manager/Board Secretary Exeter Township School District
the Good, the Bad and the Ugly Perspectives for May Decision Making
Factors Leading to Act 72 • Growing and disproportionate reliance on local real estate tax. • Options for school districts to raise local revenue limited by statute. • Perception that real estate tax is not fair. • Perception that school districts are not conservative financially.
Building Blocks of Act 72 Expansion of gaming – Slots Tax shift – Property to Income Tax Control – Limits on tax increases
Opting into Act 72 • School boards must pass a resolution by May 30, 2005, to participate in property tax relief • If no action by May 30, 2005, school district will not be part of property tax relief • No second chance, no possible voter opt in by referendum
Method 1 to Opt into Act 72 • Board resolution to enact a .1% Local Earned Income tax (EIT) • Local EIT will take effect once state-funded property tax relief begins • All revenue from this .1% to be used for local property tax relief
Method 2 to Opt into Act 72 • Board resolution to put a question on November 2005 ballot • Voters can decide to go even further than 0.1% EIT (or switch to PIT) – all new revenue for property tax relief • If referendum does not pass, board must levy a .1% EIT and is in Act 72
Method 3 to Opt into Act 72 • Available only to districts that do not currently have an EIT • Board resolution to put a question on the November 2007 ballot • Proposed EIT rate plus state funding must provide for at least 50% of maximum amount allowed. • If referendum does not pass, board must levy a .1% EIT and is in Act 72
If In ... WHAT??? • Budget restrictions unlike any other governmental unit in Pennsylvania. • Future tax rate increases higher than index, must obtain an exception or voter approval. • Early budget preparation. • Property tax reduction for approved Homestead properties. • Higher local income tax rates.
To opt in or not to opt inthat is the question: THE GOOD • Provide property tax relief to residential property owners • Provides an new tax source to school districts
To opt in or not to opt inthat is the question: • IF IN (the bad?) • Budget restrictions apply for 2006-07 fiscal year. • If property tax rate increase is over the index will have to apply for exception or voter approval at primary election.
Information for Boards: • History Repeats • Have your tax increases been above the index??? • What If Act 72 had been in force: • PASBO has index for last 7 years
But wait there’s more: • Act 72 may force boards to increase taxes every year. • The index is an annual cap on spending increases, • Therefore: If you don’t use it, you lose it; cap is not cumulative.
Information for Boards: • ACT 72: • What does it mean? • How much of a reduction? • Who are the winners or losers? • Switch to PIT, does that help or hurt?
PASBO Act 72 Worksheet • PASBO web site, click on Act 72 Information, click on Act 72 Worksheet. • Template to calculate key information required to address Act 72 • Templates (2 distinct templates) • School Districts WITH an EIT • School Districts WITHOUT an EIT • Easy to use; Input 11 items for input table
Act 72 Worksheet With an EIT Input Table • 11 Values required to be input • 9 Tables self-calculate • Allows input values to be manipulated
Data Sources • Current EIT Revenue – Budget or AFR • Estimated Act 72 EIT Collection % - Drag, remember the Drag, Cash Flow • Median Assessed Value – Median is not average. Median is the value in an ordered set of values below and above which there is an equal number of values or if no one middle number is the arithmetic mean of the two middle numbers.
Data Sources • Total homestead (Farmstead) eligible properties – Number approved by your county assessment office. • Estimated State Gaming Money – PDE table, new amounts @ $500M & $1B • Estimated Sterling Tax Credits – EIT tax returns Or Sterling Act wage Data File on PDE web site
Data Sources • Current Real Estate Millage Rate – mills xx.xx • Taxable compensation + Net Profits – EIT Base for line 1 • Taxable Personal Income Base – PA Dept of Revenue 2002 Personal income Statistics by School District
0.1% EIT raises how much? • Table 1, Estimate of EI/NP from .1% • line 6 will show the estimated increase in EIT collection 1st year.
How much of a reduction? • Table 5 Homestead/Farmstead Exclusion • Line 3 = Dollar tax Bill reduction per eligible property • Line 5 = Homestead/Farmstead exclusion (assessment deduction)
What is the maximum & minimum assessment exclusion? • Table 3, Median Assessed Value – Maximum and Minimum Exclusion • Line 3 – the maximum allowable assessed value exclusion • Line 6 – the minimum allowable assessed value exclusion
Actual property tax reduction per property if go to max or min • Table 6 • Line 3 - the maximum dollar value of exclusion per eligible property • Line 6 – the minimum dollar value of exclusion per eligible property
EIT Rate to support min or max? • Table 7 – EIT rate for maximum • Line 5 – the additional rate for max • Line 6 – the total EIT rate to fund max • Table 8 – EIT rate for minimum • Line 5 – the additional rate for minimum • Line 6 – the total EIT rate to fund minimum
Well, if we convert to a PIT what would the rate be? • Table 9 – Estimates of Conversion to PIT • Line 4 – The total PIT rate to fund maximum exclusion • Line 5 – The total PIT rate to fund minimum exclusion
November 2007 • If opt in, Section 322 (c) (1) requires a November 2007 referendum asking the voters if they would like more property tax reduction by approving a larger EIT or converting to a PIT • Worksheet gives you the numbers your need for the wording.
Act 72 Worksheet • Recap: • Provides numbers to address the basics information of Act 72 • Ability to change input values (ease in calculating what if . . .) • Median Assessed Value • Total Eligible Homestead/Farmstead Properties • State Gaming & Sterling Credit Dollars • Additional EIT collection %
What is the impact on the community? Renters Higher earned income tax, no tax relief Higher earned income tax, reduction in property tax Owners with income Owners without income No income tax increase, reduction in property tax Changes if personal income tax is enacted Owners without Exclusions Higher income tax, no reduction in property tax Employees/Business Owners Calculation of EIT for personnel from different municipalities, no property tax relief at all Gamblers Wins, losses and rehabilitation costs
Who wins and who loses? • PASBO web site, click on Act 72, click on January 2005 workshop handouts and click on Individual taxpayer analysis • Format for who will win and who will lose, you can set income level and information can be obtained from worksheets.
And the last word: DEBT • Moody’s March 2005 statement: debt issued by PA school districts under Act 72 Property tax constraints will be treated as LIMITED TAX DEBT. • Debt will be rated one notch lower that debt secured by an unlimited tax pledge.