Act 1 school tax relief
By Judy Chambers
This spring there have been so many news articles about Act 1 School Tax Relief, you’d think every school district in Pennsylvania was putting a referendum on the primary election ballot -- and you’d be right. Voters across Pennsylvania will be deciding whether or not to shift the school tax burden for their school district by increasing earned income or personal income taxes to fund homestead and farmstead exclusions. This is a ‘revenue neutral’ tax shift -- school districts will not collect more tax revenue, but they may collect it differently as local income tax. Either way, schools will also receive new revenues from Pennsylvania casinos to fund the exclusions. Two years ago, school districts could choose whether to participate in gaming revenues under Act 72, but most voters did not have direct input. Now under Act 1, no one gets to choose whether to accept gaming revenues, but all voters have an opportunity to determine how their school districts will participate. And there’s something called a ‘back end’ referendum, which requires voters to approve future school tax increases in most cases.
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Are you confused yet? It gets much more complicated from here on: there are tax rebates for senior citizens, reimbursements to school districts whose residents work in Philadelphia, wage tax reductions in Philadelphia, and then what’s left in state gaming revenues will be portioned out to school districts across the state. The distribution will use a complex formula that considers equalized millage rates, market value/income ratio, personal income valuation per student, and other terms that befuddle the average taxpayer.
So why make the effort to understand Act 1? Because at the end of the day, you may get some real property tax relief in the form of a homestead exclusion. If you’re a farmer, you can get a farmstead exclusion. And if you live on your farm, you may be eligible for both exclusions. An ‘exclusion’ is a reduction in the assessed value of your property for tax purposes -- it reduces your property tax liability, but does not affect the marketability of your property (actually, one could argue that an exclusion makes your property more marketable because there is less property tax to pay).
The amount of the exclusion will be fixed annually by the school district, and is a fixed number no matter how much your property is worth. For example, if your school district sets an exclusion of $10,000 of assessed value, you will pay property taxes as if your property was worth $10,000 less than its actual assessment. If your property is assessed at $100,000, for example, you will be taxed on a $90,000 assessment. If your property is assessed at $1 million, you will be taxed on a $990,000 assessment. So the exclusion has greater value, proportionately, for homeowners and farmers with lower property assessments.
In the May primary, you will be able to vote on your school district’s proposed tax shift to either the earned income tax or the personal income tax. If the proposed shift is to earned income tax, you need to compare the potential real property tax savings with the increase in earned income taxes you would pay. If the district has proposed a tax shift to personal income tax, take a hard look at your personal financial statement.
There’s another reason to care about (and vote on) your Act 1 ballot question: equity. A tax shift from real property tax to earned income tax may shift a higher portion of the tax burden onto renters or low wage earners. A tax shift from real property tax to personal income may shift a higher proportion of the tax burden on more affluent taxpayers and retirees. It’s important to evaluate the impact of a tax shift on your particular community and to consider other issues. Is your community trying to attract growth or manage it? Will saving on farmstead taxes help support and preserve agriculture, or will it encourage development of farmland?
None of these are easy questions -- and there are certainly no easy answers. But as a responsible voter, you can find out enough to make an informed decision. Penn State Extension is offering two workshops this week on Act 1: Wednesday April 4 from 7-9 pm at the Adams County Ag Center in Gettysburg, and Thursday April 5 from 7-9 pm at the Franklin County Administrative Annex in Chambersburg. The workshop is free and no registration is required. For more information, call Judy Chambers, Penn State Extension Educator, at (717) 334-6271.
Here are a few other resources that may help: Penn State Extension’s tax reform web page. Download the “Understanding Act 1 Educational Bulletin.” It’s 16 pages, but it’s written in plain English. Or call your County Extension office for a print version. You can also visit the PA Department of Education web site. And of course you can contact your local school district as well. Take a few minutes to think about Act 1 now, and don’t forget to vote on May 15.
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