Property Tax

1
Property Tax Referendum

• Adams/Franklin
• Ernest W. Werstler, Jr.
• Business Manager/Board Secretary
• Exeter Township School District

2
the Good, the Bad and the Ugly

• Perspectives for
• May Decision Making

3
Whats It All About, Alfie?
4
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.

5
Building Blocks of Act 72

• Expansion of gaming Slots
• Tax shift Property to Income
• Tax Control Limits on tax increases

6
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

7
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

8
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

9
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

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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.

11
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

12
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.

13
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

14
Average
School SAWW EC SAWW
Year Index Index ECI
1997-98
1998-99 3.8 2.1 3.0
1999-00 4.2 2.2 3.2
2000-01 4.8 2.8 3.8
2001-02 3.6 3.4 3.5
2002-03 4.0 3.0 3.5
2003-04 2.7 3.1 2.9
2004-05 2.3 4.2 3.3
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But wait theres more

• Act 72 may force boards to increase taxes every
  year.
• The index is an annual cap on spending increases,
• Therefore If you dont use it, you lose it cap
  is not cumulative.

18
However, if tax increase was always to max
allowed
19
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?

20
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

21
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
22
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.

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Data Sources

• Total homestead (Farmstead) eligible properties
  Number approved by your county assessment office.
• Estimated State Gaming Money PDE table, new
  amounts _at_ 500M 1B
• Estimated Sterling Tax Credits EIT tax returns
  Or Sterling Act wage Data File on PDE web site

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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

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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.

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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)

27
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

28
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

29
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

30
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

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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.

32
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

33
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
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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.

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And the last word DEBT

• Moodys 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.