Property Tax & Referendum

Adams/FranklinErnest W. Werstler, Jr.

Business Manager/Board SecretaryExeter Township School District

the Good, the Bad the Good, the Bad and the Uglyand the Ugly

Perspectives for Perspectives for

May Decision MakingMay Decision Making

What’s It All About, Alfie?

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 beenabove the index???

What If Act 72 had been in force: PASBO has index for last 7 years

AveragAveragee

SchoolSchool SAWWSAWW ECEC SAWWSAWW

YearYear IndexIndex IndexIndex & ECI& ECI

1997-1997-9898

1998-1998-9999

3.8%3.8% 2.1%2.1% 3.0%3.0%

1999-1999-0000

4.2%4.2% 2.2%2.2% 3.2%3.2%

2000-2000-0101

4.8%4.8% 2.8%2.8% 3.8%3.8%

2001-2001-0202

3.6%3.6% 3.4%3.4% 3.5%3.5%

2002-2002-0303

4.0%4.0% 3.0%3.0% 3.5%3.5%

2003-2003-0404

2.7%2.7% 3.1%3.1% 2.9%2.9%

2004-2004-0505

2.3%2.3% 4.2%4.2% 3.3%3.3%

Prior School 0.75Statewide Year Market Added to Allowable Millage Over(Under)

School Ave Weekly Employment Average of Value/Income Prior year Millage Rate Allowable District Rate AllowableYear Wage Index Cost Index SAWW & ECI Aid Ratio Ratio Increase Millage Millage Increase Percentage

1997-1998 0.4047 15.331998-1999 3.80% 2.10% 3.00% 0.4297 1.1547 3.46% 15.86 15.33 0.00% 0.001999-2000 4.20% 2.20% 3.20% 0.4259 1.1797 3.78% 15.91 15.93 3.91% 0.022000-2001 4.80% 2.80% 3.80% 0.4388 1.1759 4.47% 16.64 16.40 2.95% (0.24)2001-2002 3.60% 3.40% 3.50% 0.4602 1.1888 4.16% 17.08 17.15 4.57% 0.072002-2003 4.00% 3.00% 3.50% 0.4605 1.2102 4.24% 17.88 17.70 3.21% (0.18)2003-2004 2.70% 3.10% 2.90% 0.4771 1.2105 3.51% 18.32 18.60 5.08% 0.282004-2005 2.30% 4.20% 3.30% 0.4788 1.2271 4.05% 19.35 20.50 10.22% 1.15

Per Act 72

Amount Value Of Removed toOne Mill Meet Index

1997-19981998-19991999-2000 1,009,561 $21,4902000-2001 1,043,2762001-2002 1,083,798 $73,2962002-2003 1,110,5832003-2004 1,170,030 $326,0292004-2005 1,206,815 $1,383,982

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.

However, if tax increase was always to max allowed:

Allowable Amount Millage District Over Removed toIf Max Millage Allowable Meet Index

15.333.46% 15.86 15.333.78% 16.46 15.934.47% 17.20 16.404.16% 17.91 17.154.24% 18.67 17.703.51% 19.32 18.604.05% 20.11 20.50 0.39 473,876$

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

  Input Table  

Line Data Item Value

1 Current EIT Revenue $ 1,000,000.00

2 Current EIT Rate (district share of Act 511 levy) 0.50%

3 Estimated Act 72 EIT Rate Collection % (Full Collection Minus Lag) 75.00%

4 Median Assessed Value $ 100,000.00

5 Total Homestead Eligible Properties 1,000

6 Total Farmstead Eligible Properties 1

7 Estimated State Gaming Money (See PDE Table by SD) $ 200,000

8 Estimated Sterling Act Credit Dollars $ 2,000

9 Current Real Estate Millage Rate (mills) 40.00

10 Taxable Compensation + Net Profit (Earned Income Tax Base) $ 200,000,000

11 Taxable Personal Income Base $ 230,000,000

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

Owners with income Higher earned income tax, reduction in property tax

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.