Act 72 of 2004 Introduction and Implications

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Act 72 of 2004 Introduction and Implications

• Presented to
• Penn Manor Education Foundation
• February 3, 2005

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Agenda

• What is Act 72?
• Property Tax Relief
• Approving Tax Increases
• Key Dates
• Distribution of Funds
• Homestead Credits
• Penn Manor Options
• Administrative Impact
• Next Steps
• Discussion

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What is Act 72?

• Act 72 is also known as the Homeowner Tax Relief
  Act
• Approved by the Legislature and signed by
  Governor Rendell in July 2004
• Effective date September 3, 2004
• Authorizes school districts to reduce property
  taxes using state and local revenues.

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What is Act 72?

• Basically, it is a way to combine implementing
  slots and using the revenue to reduce school
  property taxes by a homestead/farmstead exemption
  process.
• Backend referendum voter approval required for
  certain property tax increases that exceed an
  inflation index.

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What is Act 72?

• Homestead exclusion the exclusion from taxation
  of a portion of assessed value of an individuals
  primary residence.
• Farmstead exclusion same exclusion applied to
  assessed value of buildings and structures used
  in commercial agricultural production on farm.

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What is Act 72?

• State revenues are derived from a 34 tax on
  revenues from slots.
• Local revenues are derived from a 0.1 increase
  (front-end referendum) in local earned income
  taxes (EIT) and increases to that tax that are
  approved by voters.

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What is Act 72?

• The law also requires school districts to put
  certain tax increases up for a vote at the spring
  elections.
• Act 72 also gives school districts 10 exceptions
  to the above requirement for increased costs over
  which they have limited control.

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What Act 72 is Not

• No new money is being provided for public
  education.
• The slot money will primarily go to school
  districts that presently receive larger portions
  of state funding for their budgets (not a Penn
  Manor characteristic).
• Does not eliminate property taxes.
• Does not apply to municipal taxes.

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Property Tax Relief

• 34 of slots revenue
• Establish Tax Relief Fund
• 14 licenses 61,000 machines
• When the Fund accumulates 900 million, districts
  opting in will receive a minimum of 500 million
  for homestead/farmstead credits. 400 million
  stays in reserve fund.

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Property Tax Relief

• Act 72 specifies that all property tax relief
  will be accomplished through a homestead/farmstead
  exclusion.
• This means that Penn Manor would set an amount of
  the assessed value of a property that will be
  excluded from taxation, thus lowering the
  property tax bill.

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Property Tax Relief

• Property owners will not receive a check or
  rebate in the mail.
• No property tax relief would be provided to any
  businesses, including apartment buildings and
  retirement homes. Renters would not be eligible.
  

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Property Tax Relief

• Revenues from new EIT plus state funding amount
  available for homestead credits.
• Other than 2 transition year allowance, dollar
  for dollar reduction.
• The credit is a uniform reduction in assessed
  value.

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Property Tax Relief

• Property tax relief will not occur until three
  things happen
• First, there must be enough revenues from slots
  for the state to distribute payments to school
  districts. This will probably not occur until
  2007.

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Property Tax Relief

• Second, each property owner must take action to
  certify his/her property as eligible to receive
  property tax relief.
• This is done by completing the homestead/farmstead
  application that property owners received in the
  mail from Penn Manor.
• The completed application must be returned to the
  Lancaster County Assessment Office, who will make
  the final determination on eligibility.

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Property Tax Relief

• Applications were mailed out by Oct. 16, 2004 and
  again at the end of the year.
• Property owners have until 3/1/05 to return the
  application to the Lancaster County Assessment
  Office.
• Property owners cannot receive property tax
  relief without completing and returning the
  application.

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Property Tax Relief

• Finally, Penn Manor must make itself eligible, by
  a vote of the School Board, to receive slot
  funds.
• Penn Manor Board of School Directors would have
  to approve a resolution by 5/30/05 to increase
  the EIT at a rate of 0.1.

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Property Tax Relief

• The revenue from the 0.1 EIT and the revenue
  received from the state from the tax on gambling
  must be used to reduce property taxes.
• Voters can approve increases to the 0.1 EIT or
  PIT at a front-end referendum, a question posed
  at any fall election. If voters approve an
  increase, those revenues must also be used to
  reduce property taxes.

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Property Tax Relief

• While front-end referendum questions are
  optional, the law provides that districts must
  ask a question at the fall 2007 election that
  allows you to vote on an income tax increase that
  would permit Penn Manor to reduce property taxes
  by at least half of the maximum allowable amount.
  Failure of the district to pose this question
  will render it ineligible to receive state
  gambling revenues.

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Option to NOT Opt in

• School districts also have the option to NOT opt
  in to the provisions of Act 72. These districts
  will not be eligible for state gambling revenues
  and will not be subject to any of the Acts
  referendum provisions

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Approving School Tax Increases

• If a school district has made themselves eligible
  for receiving state gambling money, it must limit
  any tax increases to an amount known as the
  index.
• Tax increases above the index must be approved by
  voters. This is known as the back-end
  referendum.

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Approving School Tax Increases

• The index is an average of two percentages one
  measures the increase in the Statewide Average
  Weekly Wage and the other measures increases the
  costs of school personnel.
• The index will normally be in the range of 2.5
  to 4. This is the limit by which districts could
  raise the real estate tax millage rate each year
  without voter approval.

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Penn Manor Data

• 1,768,000 total amount available for property
  tax reduction
• 1,066,000 from slot revenue
• 702,000 from increased wage tax
• 170 property tax relief per homestead/farmstead
  (1,953 median tax bill)
• 126,800 median assessed value

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Approving School Tax Increases

• This provision will first apply to a districts
  2006-07 budget, so the first potential vote on
  district taxes will be in May 2006.
• Districts can seek exceptions from this provision
  for increases in certain costs. Must be approved
  by court or PDE.

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Key Dates

• September 3, 2004 Effective date of Act 72.
• September 18, 2004 DCED releases standard
  homestead/farmstead application form.
• October 16, 2004 The date by which the initial
  mailing of homestead/farmstead applications must
  be made to residential property owners.

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Key Dates

• December 15, 2004 Penn Manor to certify to PDE
  revenue from additional 0.1 EIT.
• December 31, 2004 The date by which the second
  mailing must be made to residential property
  owners that have not responded. 12/31 is the
  deadline for the annual mailings for those who
  have not responded.

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Key Dates

• March 1, 2005 Deadline for residential property
  owners to submit their completed
  homestead/farmstead applications to the Lancaster
  County Assessment Office.
• March 30, 2005 Lancaster County Assessment
  Office deadline to rule on homestead/farmstead
  applications.

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Key Dates

• April 20, 2005 PDE notified whether or not
  there will be a slot fund allocation for the
  2005-2006 year.
• May 1, 2005 PDE to notify school districts
  amount of allocation.
• May 1, 2005 Deadline for Lancaster County
  Assessment Office to provide report to Penn Manor
  detailing eligible properties. 5/1 is the annual
  deadline in future years.

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Key Dates

• May 30, 2005 The date by which Penn Manor Board
  of School Director must decide whether or not to
  opt in to Act 72.
• July 1, 2005 Mail out tax bills.
• July 2, 2005 Start the budget process for
  fiscal year 2006-2007!

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Distribution Formula

• Property Tax Reduction Index
• Array the following data and assign a numerical
  ranking
• 2002 Personal Income/03-04 ADM
• 04-05 MV-PI Aid Ratio
• 02-03 Equalized Mills
• 02-03 School Tax Ratio
• School taxes/personal income

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Penn Manor Options

• Option 1 Adopt resolution to implement
  additional 0.1 EIT by May 30, 2005.
• Option 2 Do nothing and refuse slot money.
  Business as usual.

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Penn Manor Options

• Option 1
• Board adopts the resolution for additional 0.1
  EIT by May 30, 2005. PDE must be notified within
  5 days of enacting resolution.
• May hold a November 2005 referendum to increase
  EIT or to convert to a personal income tax (PIT)
  for additional property tax relief.
• Must comply with early budget guidelines and
  back-end referendum beginning with 2006-2007.

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Penn Manor Options

• Option 1
• Required November 2007 referendum
• Convert EIT to PIT if desired
• Must provide at least one-half of maximum
  allowable homestead exclusion, which is 50 of
  the median assessed value.
• If ignored, lose eligibility for slot money until
  referendum is held in subsequent year

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Penn Manor Options

• Public cannot force Act 72 on ballot.
• Act 72 completely replaces Act 50.
• One-time opportunity to opt-in.
• No provision to opt-out.

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Administrative Impact

• Additional unfunded costs for both local
  districts and state government
• Required mailings
• Changes in budgeting process and authority (voter
  referendum)
• Future tax rate increases MUST be reviewed by PDE
• Budget accuracy will decrease
• Time deadlines
• Data analysis
• Program impact?

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Budgeting Impact

• Preliminary budget must be adopted no later than
  90 days prior to election preceding start of
  fiscal year
• February 15
• Preliminary budget must be made available for
  public inspection at least 20 days prior to
  adoption
• January 26

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Unresolved Issues

• Ability of PDE to review budget
• Additional costs to school districts
• County Assessment Office
• County Election Office
• EIT collectors
• Employers
• Distribution method and timing of slot revenue
• EIT cash flow

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Penn Manor Next Steps

• Facilitate additional Board training
• Facilitate Board review and discussion
• Educate community
• Communicate issues objectively
• Communicate Board decision and rationale

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Act 72 Forums

• Special sessions on 3/14 (Manor) and 3/15
  (Marticville)
• All residents invited
• Notices to parents
• Notice via Above and Beyond
• Local legislatures invited
• Presented by Administration, Board members in
  attendance

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Resources for Information

• Penn Manor School District
• www.pennmanor.net/act72
• PSBA
• www.psba.org
• PASBO
• www.pasbo.org
• PDE
• www.pde.state.pa.us

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Questions