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					                     Act 1 – Taxpayer Relief Act
                     Public Financial Management, Inc.
                     One Keystone Plaza
                     Suite 300
                     Harrisburg, Pennsylvania
Nazareth Area
                     (717) 232-2723
School District
September 28, 2006
What is the role of the Tax Study Commission under Act 1?




                                                       2
                           Tax Study Commission

•   Mandatory under Act 1


•   Appointed 180 days prior to adopting resolution (9/14/2006)
     – the purpose is to study existing taxes and recommend an EIT
       or PIT rate for the purpose of reducing property taxes
     – resolution authorizing referendum question for higher EIT or
       PIT rate
     – Board resolution must be adopted by 3/13/07


•   Must include 5, 7, or 9 residents or taxpayers
     – socioeconomic, age, and occupational diversity
     – may include one school board member
     – no employees, officials, or relatives of employees or officials
       of the District




                                                                         3
         Contents of the Study – Required by Act 1

• Historic and present rate analysis
     – assessed vs. collected taxes
     – effects of county and municipal taxes
     – % of total revenues provided by taxes


• Tax base demographics
     – age, income, employment, property use


• Projected revenues of currently levied taxes




                                                     4
                     Commission Recommendation

• Recommendation within 90 days of appointment


• Recommendation to be presented at public board meeting


• Non-binding recommendation regarding imposition of taxes
     – EIT vs. PIT


• At least one public hearing prior to recommendation


• Board may accept or reject recommendation




                                                             5
                               Board Resolution

• Must be adopted by 3/13/07 (60 days before Primary)



• Must state EIT or PIT rate
     – Rate must achieve a property tax reduction between the minimum and maximum
       homestead exclusion
     – Rate not required to exceed 1% EIT, or PIT equivalent
     – Non-legal interpretative statement shall accompany referendum question


• Further periodic opportunities to change EIT or PIT may occur at a municipal
election, no earlier than November 2009
     – Board decision, tax study will be required




                                                                                    6
What is Act 1 all about?




                           7
                             What is Act 1 all about?




•   Provides for school district property tax reduction funded through gaming
    revenue allocated by the state and possibly an additional income tax
•   Facilitates a tax reduction and possibly a tax shift but does not directly provide
    additional revenue to school districts to fund academic programs
•   Every qualified owner occupied home and farm will receive a school property tax
    reduction. Taxpayers, if they vote to do so, may pay some additional income tax
    to the school district which needs to be taken into account in terms of the “net”
    tax reduction to taxpayers.
•   Districts will have limits on the ability to raise tax rates without seeking voter
    approval
•   Citizens can have periodic opportunities to consider raising the initial local
    income based taxes to provide for further property tax reduction, may occur no
    earlier than November 2009, initial opportunity will occur in May 2007




                                                                                         8
                 Summary of Major Provisions of Act 1

1. Provides an allocation for a portion of Pennsylvania gaming revenue to school
   districts to provide for property tax reduction – exact timing and amount uncertain
   at this time
2. Allows higher EIT or PIT to be imposed by front end referendum to provide for
   additional property tax reduction up to constitutional maximum
3. Uses the homestead and farmstead exclusion to achieve property tax reduction
4. Eventually, total property tax reduction to qualifying homesteads or farmsteads is
   the sum of state gaming money and any new locally generated income based
   taxes
5. Requires the school board to seek voter approval through a back end referendum
   for tax rate increases over an annually determined “index”
6. Provides for exemption from back end referendum for certain budgeted
   expenditures with either court or PDE approval
7. Any new state gaming money is for property tax reduction only and does not
   increase or decrease directly the state money available to the district for education
8. Immediately expands the state property-tax and rent rebate program
9. The District must create a tax study commission to study existing taxes and make
   a non-binding EIT or PIT recommendation for the purpose of reducing property
   taxes
                                                                                    9
                  Timing of Major Provisions of Act 1

•   Expanded Property-Tax and Rent-Rebate Program
     – First payments will go out in 2007 as a rebate for the 2006 tax year
     – Eligible residents include citizens over the age of 65, widows over the age of
       50, and disabled citizens over the age of 18
     – Raised income eligibility



•   Voter referendum May 2007 to cut property taxes by increasing local
    income taxes
     – If approved, new local income tax would become effective July 1, 2007
     – If not approved, no new local tax would be imposed



•   State Gaming Revenue
     – Once Reserve Funds are funded, gaming funds will be eligible for property tax
       reductions at a minimum of $400 Million
                                                                                   10
                    Tax Study Commission Timeline under Act 1



                                                                             Tax Study Commission Timeline

 2006    2006              2006              2006           2006                     2006             2007      2007         2007       2007               2007        2007
 July   August          September           October       November                 December         January   February       March      April              May         June
                       Appoint Tax
                   Study Commission (1)

                         Tax Study Commission Public Hearing (2)

                                                                 Tax Study
                                                                Commission
                                                             Recommendation (3)

Timeline Key                                                                                                     Board Resolution
                                                                                                                 EIT/PIT Rate (4)
(1) Tax Study Commission must be appointed by 9/14/06
(2) Tax Study Commission must have at least one public hearing prior to recommendation                                               Election Bureau (5)
(3) Tax Study Commission must make recommendation within 90 days of appointment
(4) Board Resolution must adopt EIT/PIT question for the May ballot by 3/13/07                                                                          Vote on
(5) District must submit referendum question to election bureau 60 days prior to primary                                                            EIT/PIT Rate (6)
(6) Public vote on higher EIT/PIT rate at May primary




                                                                                                                                                                  11
                                      District Budget Cycle under Act 1

                                                                      District Budget Cycle Under Act 1

2006     2006              2006             2006         2006                    2006                    2007             2007             2007       2007                2007             2007
July    August          September          October     November                December                January          February          March       April               May              June

                      Appoint Tax
                  Study Commission (1)
                        Index %
                      Announced (2)
                      Tax Study Commission Public Hearing (3)
                                                              Tax Study
                                                             Commission
                                                          Recommendation (4)
                                                                      Deadline for Homestead/
                                                                       Farmstead Applications
                                                                          to be mailed (5)
                                                                                           District Preliminary Budget (6)
                                                                                                    Deadline to
                                                                                                   Adopt Budget
                                                                                                   Resolution (7)
Timeline Key
                                                                                                                           Deadline to File
(1) Tax Study Commission must be appointed by 9/14/06                                                                    Homestead/Farmstead
(2) Deadline for PDE to notify Districts of the Index % for the following fiscal year (9/30)                               Application (8)
(3) Tax Study Commission must have at least one public hearing prior to recommendation                                       Court Exception (9)
(4) Tax Study Commission must make recommendation within 90 days of appointment
                                                                                                                             PDE Exception (10)
(5) Homestead/Farmstead Applications must be mailed at least 60 days prior to deadline
                                                                                                                             Board Resolution
(6) Preliminary Budget must be on display by 1/26/07 and adopted by 2/15/07
                                                                                                                             EIT/PIT Rate (11)
(7) Deadline to adopt resolution agreeing to keep a tax increase within the Index - 1/26/07
(8) Deadline to file Homestead/Farmstead application is 3/1/07                                                                                     Election Bureau (12)

(9) Court Exception must be sought at least 75 days prior to the primary                                                                            Slot $ (13)
(10) Deadline for PDE Exception is 75 days prior to primary                                                                                                           Vote on
(11) Board Resolution must adopt EIT/PIT question for the May ballot by 3/13/07                                                                                   EIT/PIT Rate (14)
(12) District must submit referendum question to election bureau 60 days prior to primary                                                                            District Final Budget (15)
(13) Slot $ to be announced by 4/15/07
(14) Public vote on higher EIT/PIT rate at May primary
(15) Final budget adopted by 6/30/07
                                                                                                                                                                                 12
What should be the evaluation criteria for making an EIT/PIT
 recommendation?




                                                       13
              Sample Evaluation Criteria to Consider –
                    Not Required Under Act 1

•   Who will be impacted by new EIT/PIT rate?
•   Which tax base (EIT or PIT) is more predictable?
•   Which tax base is growing more rapidly?
•   What’s the likelihood of a new EIT/PIT rate getting approved?
•   How might relative tax structures of neighboring Districts impact
    population shifts and development?
•   How will renters react?
•   How will landlords react?
•   What % of the population benefits from higher property tax reduction vs.
    higher EIT/PIT rate?
•   What will be required to administer the tax?
•   ______________________________________
•   ______________________________________

                                                                           14
What are the local income taxes that a
district can impose under Act 1?




                                         15
           Districts can enact an Earned Income Tax or
                       Personal Income Tax
Earned Income Tax (EIT): Levied by the Locality, taxes the following for services rendered:
            •    Salaries/Wages
            •    Commissions/Bonuses/Incentive Payments
            •    Fees
            •    Tips
            •    Sole proprietorship (Schedule C) Net Income
            •    Partnership (K-1) ordinary income
Personal Income Tax (PIT): Levied by the Commonwealth, Pennsylvania taxes eight classes of income:
            •    All of the above plus the following:
            •    Net Profits
            •    Net Property Income
            •    Net Income from Rents, Royalties, Patents & Copyrights
            •    Dividends
            •    Gambling & Lottery Winnings
            •    Interest
            •    Net Income through Estates or Trusts
            •    S Corporation (K-1) Net Income

                                                                                              16
Implications of new EIT or PIT rate


                      EIT
  Tax focuses on salary and wage earners
  Higher rate needed (smaller base)
  Benefits residents who have no EIT (Seniors)
  Unfavorable towards renters
  Cost to administer the tax

                      PIT
  More volatile
  Lower rate needed (larger base)
  Must convert all EIT if approved
  Who will collect the new tax?
  Taxes entire population
  Unfavorable towards renters
  Cost to administer the tax


                                                 17
                                                   ACT 1 TAX STUDY COMMISSION
                                                    Nazareth Area School District

                   2000        % Change          2001        % Change         2002       % Change       2003       % Change       2004
EIT Base*       $450,067,836       9.21%      $491,521,680       4.18%      $512,064,311     3.64%    $530,716,139     5.80%    $561,485,137
PIT Base*       $507,825,953       6.11%      $538,865,209       2.73%      $553,574,082     4.52%    $578,598,866     6.70%    $617,392,105
*For illustrative purposes, a seperate base is used for EIT/PIT calculations.
Source: PDE


                                                                 EIT vs. PIT Base
$700,000,000


$600,000,000


$500,000,000


$400,000,000


$300,000,000


$200,000,000


$100,000,000


         $0
                        2000                       2001                        2002                        2003                2004

Source: PDE                                                                 EIT Base*          PIT Base*




                                                                                                                                      18
                                                      ACT 1 MODEL
                                               Nazareth Area School District

                                                  IMPACT OF EIT VS. PIT

                                         HOUSEHOLD A                 HOUSEHOLD B             HOUSEHOLD C




           Income
                  Salaries/Wages     $            50,000
                   Social Security                               $             25,000
                          Pension                                $             25,000
                    Commissions
                             Fees
                              Tips
               Sole Proprietorship
              Partnership Income
                       Net Profits
             Net Property Income
  Net Income from Rent, Royalties
                        Dividends    $             4,000         $              4,000    $            30,000
                Gambling/Lottery
                          Interest   $             2,000         $              2,000    $            26,000
Net Income through Estates/Trusts
              S Corporation (K-1)

           Total Earned Income       $            50,000         $                -      $               -
          Total Personal Income      $            56,000         $              6,000    $            56,000
                   Total Income      $            56,000         $             56,000    $            56,000

       Income Taxes @ 0.5% EIT       $                 250       $                 -     $                 -
       Income Taxes @ 0.5% PIT       $                 280       $                  30   $                 280

                                                                                                                 19
Objective of the Tax Study Commission




                                        20
          Objective of the Tax Study Commission

The Tax Study Commission must recommend a specific income tax rate of
   either:


Earned Income Tax
   Required to achieve a property tax reduction between the Minimum and
   Maximum Homestead Exclusion, rate not required to exceed 1.0%


                        ----------------- OR ------------------


Personal Income Tax
   Required to achieve a property tax reduction between the Minimum and
   Maximum Homestead Exclusion, rate is not required to exceed the PIT
   equivalent of 1.0% EIT



                                                                          21
                         SUMMARY OF INCOME TAX RATE CALCULATIONS
                                Nazareth Area School District


                                Earned Income Tax Rate Calculations
                                                                              Estimated
                                                                             Property Tax
                                                          Rate                Reduction
   Minimum Homestead Exclusion                                   0.90%   $                  694

   Maximum Homestead Exclusion                                   1.50%   $              1,157

                             Rate increase not required to exceed 1.0%

   1% EIT                                                        1.00%   $                  771

                                          ------ OR ------
                               Personal Income Tax Rate Calculations
                                                                              Estimated
                                                                             Property Tax
                                                          Rate                Reduction
   Minimum Homestead Exclusion                                   0.80%   $                  670

   Maximum Homestead Exclusion                                   1.40%   $              1,173

                              Rate increase not required to exceed .9%

   PIT Equivalent of 1% EIT*                                     0.90%   $                  754 *
*Not exact equivalent due to rounding required by Act 1
                                                                                                    22
Earned Income Tax Calculations




                                 23
                                                                    ACT 1 MODEL
                                                             Nazareth Area School District

              CALCULATION OF MINIMUM HOMESTEAD/FARMSTEAD PROPERTY TAX REDUCTION AND NECESSARY EIT RATE



a. Minimum Homestead Property Tax Reduction*

   Amount Per Homestead:              (25% of Median Assessed Value x Millage Rate)                                                $        623
                                      0.25 x $64,400 = $16,100 x 38.7 = $623

   Total $ Required:                  (Amount Per Homestead x Eligible Homestead Properties)                                       $   5,079,267
                                      $623 x 8,152 = $5,079,267


   Additional Income Tax Rate Increase (over .7%) Needed To Collect $5,079,267                                (Unrounded .79%)**          0.90% ***



   Estimated Collections of Additional Earned Income Tax (due to rounding)                                                         $   5,775,336

   Per Act 1, 2.00% of Collections is Withheld for School District Operations                                                      $   5,659,829

   Actual Minimum Homestead Property Tax Reduction:                                                                                $        694

                                      (Actual Projected Collections/ Eligible Homesteads)
                                      $5,659,829 / 8,152 = $694

*For these calculations, the 2006/2007 millage rate and the projected 2007/2008 income tax base were used.
**Per Act 1, rate is rounded up to the nearest 0.10%.
***Total School District EIT rate is 1.6%, for illustrative purposes only, actual EIT rate increase not required to exceed 1.0%.
Note: Median assessed value and number of homesteads were provided by the District.




                                                                                                                                            24
                                                                    ACT 1 MODEL
                                                             Nazareth Area School District

             CALCULATION OF MAXIMUM HOMESTEAD/FARMSTEAD PROPERTY TAX REDUCTION AND NECESSARY EIT RATE



b. Maximum Homestead Property Tax Reduction*

   Amount Per Homestead:              (50% of Median Assessed Value x Millage Rate)                                                $      1,246
                                      0.50 x $64,400 = $32,200 x 38.7 = $1,246

   Total $ Required:                  (Amount Per Homestead x Eligible Homestead Properties)                                       $ 10,158,533
                                      $1,246 x 8,152 = $10,158,533


   Additional Income Tax Rate Increase (over .7%) Needed To Collect $10,158,533                             (Unrounded 1.58%)**           1.50% ***

                                            Per Act 1, this rate increase is not required to exceed 1.0%

   Estimated Collections of Additional Earned Income Tax (due to rounding)                                                         $   9,625,560

   Per Act 1, 2.00% of Collections is Withheld for School District Operations                                                      $   9,433,049

   Actual Maximum Homestead Property Tax Reduction:                                                                                $      1,157

                                      (Actual Projected Collections/ Eligible Homesteads)
                                      $9,433,049 / 8,152 = $1,157

*For these calculations, the 2006/2007 millage rate and the projected 2007/2008 income tax base were used.
**Per Act 1, rate is rounded down to the nearest 0.10%
***Total School District EIT rate is 2.2%, for illustrative purposes only, actual EIT rate increase not required to exceed 1.0%.
Note: Median assessed value and number of homesteads were provided by the District.




                                                                                                                                           25
                                                                ACT 1 MODEL
                                                         Nazareth Area School District

                           CALCULATION OF HOMESTEAD/FARMSTEAD PROPERTY TAX REDUCTION @ 1.0% EIT


c. Homestead Property Tax Reduction @ 1.0% EIT*

   Additional Income Tax Rate Needed                                                                                1.00%    **


   Estimated Collections of Additional Earned Income Tax                                                     $   6,417,040

   Per Act 1, 2.00% of Collections is Withheld for School District Operations                                $   6,288,699

   Actual Maximum Homestead Property Tax Reduction:                                                          $        771

                                   (Actual Projected Collections/ Eligible Homesteads)
                                   $6,288,699 / 8,152 = $771

*For these calculations, the 2006/2007 millage rate and the projected 2007/2008 income tax base were used.
**Total School District EIT rate is 1.7%.
Note: Median assessed value and number of homesteads were provided by the District.




                                                                                                                     26
Personal Income Tax Calculations




                                   27
                                                                    ACT 1 MODEL
                                                             Nazareth Area School District

              CALCULATION OF MINIMUM HOMESTEAD/FARMSTEAD PROPERTY TAX REDUCTION AND NECESSARY PIT RATE



a. Minimum Homestead Property Tax Reduction*

   Amount Per Homestead:              (25% of Median Assessed Value x Millage Rate)                                               $        623
                                      0.25 x $64,400 = $16,100 x 38.7 = $623

   Total $ Required:                  (Amount Per Homestead x Eligible Homestead Properties)                                      $   5,079,267
                                      $623 x 8,152 = $5,079,267


   Personal Income Tax Rate (over existing .7% EIT) Needed To Collect $5,079,267                             (Unrounded .72%)**          0.80% ***



   Estimated Collections of Additional Personal Income Tax (due to rounding)                                                      $   5,575,814

   Per Act 1, 2.00% of Collections is Withheld for School District Operations                                                     $   5,464,298

   Actual Minimum Homestead Property Tax Reduction:                                                                               $        670

                                      (Actual Projected Collections/ Eligible Homesteads)
                                      $5,464,298 / 8,152 = $670

*For these calculations, the 2006/2007 millage rate and the projected 2007/2008 income tax base were used.
**Per Act 1, rate is rounded up to the nearest 0.10%.
***Existing School District EIT rate is .7%, and would need to be converted to PIT, in addition to the .8% PIT rate.
Note: Median assessed value and number of homesteads were provided by the District.




                                                                                                                                           28
                                                                   ACT 1 MODEL
                                                            Nazareth Area School District

             CALCULATION OF MAXIMUM HOMESTEAD/FARMSTEAD PROPERTY TAX REDUCTION AND NECESSARY PIT RATE



b. Maximum Homestead Property Tax Reduction*

   Amount Per Homestead:             (50% of Median Assessed Value x Millage Rate)                                               $      1,246
                                     0.50 x $64,400 = $32,200 x 38.7 = $1,246

   Total $ Required:                 (Amount Per Homestead x Eligible Homestead Properties)                                      $ 10,158,533
                                     $1,246 x 8,152 = $10,158,533


   Personal Income Tax Rate (over existing .7% EIT) Needed To Collect $10,158,533                          (Unrounded 1.46%)**          1.40% ***

                              Per Act 1, this rate increase is not required to exceed the PIT equivalent of 1.0% EIT

   Estimated Collections of Additional Personal Income Tax (due to rounding)                                                     $   9,757,674

   Per Act 1, 2.00% of Collections is Withheld for School District Operations                                                    $   9,562,521

   Actual Maximum Homestead Property Tax Reduction:                                                                              $      1,173

                                     (Actual Projected Collections/ Eligible Homesteads)
                                     $9,562,521 / 8,152 = $1,173

*For these calculations, the 2006/2007 millage rate and the projected 2007/2008 income tax base were used.
**Per Act 1, rate is rounded down to the nearest 0.10%.
***Existing School District EIT rate is .7%, and would need to be converted to PIT, in addition to the 1.4% PIT rate.
Note: Median assessed value and number of homesteads were provided by the District.




                                                                                                                                        29
                                                                    ACT 1 MODEL
                                                             Nazareth Area School District

                 CALCULATION OF HOMESTEAD/FARMSTEAD PROPERTY TAX REDUCTION @ PIT EQUIVALENT OF 1.0% EIT


c. Homestead Property Tax Reduction @ PIT equivalent of 1.0% EIT*


   Estimated Collections of Additional Earned Income Tax of 1.0%                                                                      6,417,040


   Personal Income Tax Rate (over existing .7% EIT) Needed To Collect $6,417,040                             (Unrounded .92%)**          0.90% ***


   Estimated Collections of Additional Personal Income Tax (due to rounding)                                                      $   6,272,791

   Per Act 1, 2.00% of Collections is Withheld for School District Operations                                                     $   6,147,335

   Actual Maximum Homestead Property Tax Reduction:                                                                               $        754

                                     (Actual Projected Collections/ Eligible Homesteads)
                                     $6,147,335 / 8,152 = $754

*For these calculations, the 2006/2007 millage rate and the projected 2007/2008 income tax base were used.
**Per Act 1, rate is rounded down to the nearest 0.10%
***Existing School District EIT rate of .7% would need to be converted to the PIT equivalent, in addition to the .9% PIT rate.
Note: Median assessed value and number of homesteads were provided by the District.




                                                                                                                                         30
How will Act 1 impact taxpayers?




                                   31
                                                                 ACT 1 MODEL
                                                          Nazareth Area School District
                                         IMPACT OF TAX REFORM ON HOMEOWNERS (Using EIT Base)




                                       Property Tax Reduction only if approved by Taxpayers

First Year Collections*
@ 0.90% EIT                            Income               $120,000            Income                $60,000   Income            $25,000

Homestead Exclusion                                ($486)                                    ($486)                      ($486)

Additional Income Tax of 0.90%                    $1,080                                     $540                        $225

Difference: (Savings)/Cost                         $594                                      $54                         ($261)


Second Year Collections
@ 0.90% EIT                            Income               $120,000            Income                $60,000   Income            $25,000

Homestead Exclusion                                ($694)                                    ($694)                      ($694)

Additional Income Tax of 0.90%                    $1,080                                     $540                        $225

Difference: (Savings)/Cost                         $386                                      ($154)                      ($469)

*For these purposes, assumes first year collections of 70% of total estimated collections.

                                                                                                                                      32
                                                               ACT 1 MODEL
                                                        Nazareth Area School District
                        IMPACT OF TAX REFORM ON HOMEOWNERS WORKING IN PHILADELPHIA (Using EIT Base)




                                      Property Tax Reduction only if approved by Taxpayers

First Year Collections*
@ 0.90% EIT                            Income              $120,000            Income                 $60,000   Income            $25,000

Homestead Exclusion                               ($486)                                     ($486)                      ($486)

Additional Income Tax of 0.90%                   $1,080                                      $540                        $225

Sterling Tax Credit                              ($1,080)                                    ($540)                      ($225)

Difference: (Savings)/Cost                        ($486)                                     ($486)                      ($486)


Second Year Collections
@ 0.90% EIT                            Income              $120,000            Income                 $60,000   Income            $25,000

Homestead Exclusion                               ($694)                                     ($694)                      ($694)

Additional Income Tax of 0.90%                   $1,080                                      $540                        $225

Sterling Tax Credit                              ($1,080)                                    ($540)                      ($225)

Difference: (Savings)/Cost                        ($694)                                     ($694)                      ($694)

*For these purposes, assumes first year collections of 70% of total estimated collections.

                                                                                                                                            33
                                                                ACT 1 MODEL
                                                         Nazareth Area School District
                                         IMPACT OF TAX REFORM ON FARMSTEADS (Using EIT Base)




                                      Property Tax Reduction only if approved by Taxpayers

First Year Collections*
@ 0.90% EIT                            Income              $120,000            Income                 $60,000   Income              $25,000

Homestead Exclusion                               ($486)                                     ($486)                      ($486)

Farmstead Exclusion                               ($486)                                     ($486)                      ($486)

Additional Income Tax of 0.90%                   $1,080                                      $540                         $225

Difference: (Savings)/Cost                        $108                                       ($432)                      ($747)


Second Year Collections
@ 0.90% EIT                            Income              $120,000            Income                 $60,000   Income              $25,000

Homestead Exclusion                               ($694)                                     ($694)                      ($694)

Farmstead Exclusion                               ($694)                                     ($694)                      ($694)

Additional Income Tax of 0.90%                   $1,080                                      $540                         $225

Difference: (Savings)/Cost                        ($309)                                     ($849)                      ($1,164)

*For these purposes, assumes first year collections of 70% of total estimated collections.
                                                                                                                                              34
                                                               ACT 1 MODEL
                                                        Nazareth Area School District
                                           IMPACT OF TAX REFORM ON RENTERS (Using EIT Base)




                                                              For Rent                                 For Rent                      For Rent



                                                               Rent                                     Rent                          Rent

                                      Property Tax Reduction only if approved by Taxpayers

First Year Collections*
@ 0.90% EIT                            Income             $120,000             Income               $60,000       Income          $25,000

Homestead Exclusion                                $0                                         $0                            $0

Additional Income Tax of 0.90%                   $1,080                                      $540                          $225

Difference: (Savings)/Cost                       $1,080                                      $540                          $225


Second Year Collections
@ 0.90% EIT                            Income             $120,000             Income               $60,000       Income          $25,000

Homestead Exclusion                                $0                                         $0                            $0

Additional Income Tax of 0.90%                   $1,080                                      $540                          $225

Difference: (Savings)/Cost                       $1,080                                      $540                          $225

*For these purposes, assumes first year collections of 70% of total estimated collections.

                                                                                                                                         35
                                                               ACT 1 MODEL
                                                        Nazareth Area School District
                           IMPACT OF TAX REFORM ON RENTERS WORKING IN PHILADELPHIA (Using EIT Base)




                                                              For Rent                                   For Rent                        For Rent



                                                               Rent                                       Rent                            Rent

                                      Property Tax Reduction only if approved by Taxpayers

First Year Collections*
@ 0.90% EIT                            Income             $120,000             Income                 $60,000       Income            $25,000

Homestead Exclusion                                $0                                         $0                              $0

Additional Income Tax of 0.90%                   $1,080                                      $540                            $225

Sterling Tax Credit                              ($1,080)                                    ($540)                          ($225)

Difference: (Savings)/Cost                         $0                                         $0                              $0


Second Year Collections
@ 0.90% EIT                            Income             $120,000             Income                 $60,000       Income            $25,000

Homestead Exclusion                                $0                                         $0                              $0

Additional Income Tax of 0.90%                   $1,080                                      $540                            $225

Sterling Tax Credit                              ($1,080)                                    ($540)                          ($225)

Difference: (Savings)/Cost                         $0                                         $0                              $0

*For these purposes, assumes first year collections of 70% of total estimated collections.

                                                                                                                                                    36
                                                                                                     ACT 1 MODEL
                                                                                              Nazareth Area School District

                                                                             IMPACT OF TAX REFORM ON HOMEOWNERS (Using EIT Base)
                                                                                 CHANGE IN SCHOOL TAXES DUE TO TAX REFORM

                                                                                       Assumes EIT Rate is approved by Taxpayers


                                                                                First Year Collections*                           Second Year Collections
                                                                                      @ 0.90% EIT                                      @ 0.90% EIT

                                                                            Additional EIT           0.90%                      Additional EIT         0.90%
        Property Tax Reduction only if approved by Taxpayers


                                                                             Total EIT Rate          1.60%                       Total EIT Rate        1.60%
                                                                              Homestead                $486                       Homestead              $694

                                                                            Household                                           Household
                                                                            Income              Difference                      Income            Difference
                                                                                 300,000            $2,214                           300,000          $2,006
                                                                                 285,000            $2,079                           285,000          $1,871
                                                                                 270,000            $1,944                           270,000          $1,736
                                                                                 255,000            $1,809                           255,000          $1,601
                                                                                 240,000            $1,674                           240,000          $1,466
                                                                                 225,000            $1,539                           225,000          $1,331
                                                                                 210,000            $1,404                           210,000          $1,196
                                                                                 195,000            $1,269                           195,000          $1,061
                                                                                 180,000            $1,134                           180,000            $926
                                                                                 165,000              $999                           165,000            $791
                                                                                 150,000              $864                           150,000            $656
                                                                                 135,000              $729                           135,000            $521
                                                                                 120,000              $594                           120,000            $386
                                                                                 105,000              $459                           105,000            $251
                                                                                  90,000              $324                            90,000            $116
                                                                                  75,000              $189                            75,000             ($19)
                                                                                  60,000                $54                           60,000           ($154)
                                                                                  45,000               ($81)                          45,000           ($289)
                                                                                  30,000             ($216)                           30,000           ($424)
                                                                                  15,000             ($351)                           15,000           ($559)
                                                                                       0             ($486)                                0           ($694)



Note:                                                          Black positive numbers reflect an increase in the homeowner's school taxes.
                                                               Red (negative) numbers reflect a reduction in the homeowner's school taxes.
                                                                                                                                                                 37
*For these purposes, assumes first year collections of 70% of total estimated collections.
                                                                                                    ACT 1 MODEL
                                                                                             Nazareth Area School District

                                                               IMPACT OF TAX REFORM ON HOMEOWNERS WORKING IN PHILADELPHIA (Using EIT Base)
                                                                              CHANGE IN SCHOOL TAXES DUE TO TAX REFORM

                                                                                       Assumes EIT Rate is approved by Taxpayers


                                                                                First Year Collections*                           Second Year Collections
        Property Tax Reduction only if approved by Taxpayers                          @ 0.90% EIT                                      @ 0.90% EIT

                                                                        Net Additional EIT          0.00%                  Net Additional EIT       0.00%
                                                                              Homestead               $486                       Homestead            $694

                                                                            Household                                           Household
                                                                            Income             Difference                       Income          Difference
                                                                                 300,000            ($486)                           300,000         ($694)
                                                                                 285,000            ($486)                           285,000         ($694)
                                                                                 270,000            ($486)                           270,000         ($694)
                                                                                 255,000            ($486)                           255,000         ($694)
                                                                                 240,000            ($486)                           240,000         ($694)
                                                                                 225,000            ($486)                           225,000         ($694)
                                                                                 210,000            ($486)                           210,000         ($694)
                                                                                 195,000            ($486)                           195,000         ($694)
                                                                                 180,000            ($486)                           180,000         ($694)
                                                                                 165,000            ($486)                           165,000         ($694)
                                                                                 150,000            ($486)                           150,000         ($694)
                                                                                 135,000            ($486)                           135,000         ($694)
                                                                                 120,000            ($486)                           120,000         ($694)
                                                                                 105,000            ($486)                           105,000         ($694)
                                                                                  90,000            ($486)                            90,000         ($694)
                                                                                  75,000            ($486)                            75,000         ($694)
                                                                                  60,000            ($486)                            60,000         ($694)
                                                                                  45,000            ($486)                            45,000         ($694)
                                                                                  30,000            ($486)                            30,000         ($694)
                                                                                  15,000            ($486)                            15,000         ($694)
                                                                                       0            ($486)                                 0         ($694)



Note:                                                          Black positive numbers reflect an increase in the homeowner's school taxes.
                                                               Red (negative) numbers reflect a reduction in the homeowner's school taxes.

*For these purposes, assumes first year collections of 70% of total estimated collections.
                                                                                                                                                              38
                                       Demographics – 2000 Census




                                                                   Nazareth Area School District
                                             Bushkill        Lower Nazareth         Nazareth   Stockertown   Tatamy    Upper Nazareth
             2000 Census                     Township            Township            Borough    Borough      Borough     Township           Total
         2003 Assessed Value              200,224,000         222,093,600          116,260,200 27,865,700 21,517,300   102,497,300      $ 690,458,100
          65 Years and Over                   649                 481                 1,472        109        109         1,298              4,118
               Population                    6,982               5,259                6,023        687        930         4,426             24,307
         Weighted Percentage                28.72%              21.64%               24.78%      2.83%      3.83%        18.21%             100%
       Owner Occupied Homes                  2,172               1,613                1,414        197        289         1,132              6,817
       Renter Occupied Homes                  161                 175                 1,146         82         63          195               1,822
      Median Household Income              63,966.00           70,250.00            39,038.00   48,542.00 48,942.00     55,291.00         56,558.34
*Note: A small portion of Palmer Township lies in the District but is not listed

                                                      Nazareth Area School District Statistics
                                                      Median Household Income      $56,558.34
                                                       Owner Occupied Homes          78.91%
                                                       Renter Occupied Homes         21.09%
                                                     Population over the age of 65   16.94%




                                                                                                                                           39
                     Demographics (Cont.) – 2000 Census




                                   Nazareth Area School District Income Levels
     Household         Bushkill   Lower Nazareth   Nazareth   Stockertown   Tatamy    Upper Nazareth
     Income (1999)     Township     Township       Borough     Borough      Borough     Township       Total   Percentage
Less than $10,000           80               41        222             9        15               11      378      4.37%
$10,000 to $14,999          53               58        211            16        13               52      403      4.66%
$15,000 to $24,999         205               82        335            48        38              106      814      9.41%
$25,000 to $34,999         163              175        372            32        46              141      929     10.74%
$35,000 to $49,999         401              167        503            35        76              227    1,409     16.29%
$50,000 to $74,999         500              437        534            78       100              356    2,005     23.18%
$75,000 to $99,999         515              430        162            38        55              272    1,472     17.02%
$100,000 to $149,999       269              269        170            11        18              125      862      9.97%
$150,000 to $199,999       126               82         16             2         2               20      248      2.87%
$200,000 or more            28               50         30             4         2               16      130      1.50%
Total                                                                                                  8,650    100.00%




                                                                                                                 40
                     Demographics (Cont.) – 2000 Census




                                   Nazareth Area School District Household Values
     Household          Bushkill   Lower Nazareth   Nazareth   Stockertown     Tatamy     Upper Nazareth
      Value (1999)     Township      Township       Borough     Borough        Borough      Township       Total    Percentage
Less than $50,000            9                18          32               4          2            -           65         1.07%
$50,000 to $99,999        217               106         481               54         87            216     1,161         19.02%
$100,000 to $149,999      706               451         617               81       140             404     2,399         39.31%
$150,000 to $199,999      530               517           66              26         49            355     1,543         25.28%
$200,000 to $299,999      304               321           25               8       -                 92      750         12.29%
$300,000 to $499,999        65                84          34          -            -               -         183          3.00%
$500,000 to $999,999      -                 -           -                 2        -               -            2         0.03%
$1,000,000 or more        -                 -           -            -             -               -         -            0.00%
Total                   1,831             1,497       1,255          175           278           1,067     6,103
Median Value          148,800           167,100     107,600      118,000       114,000         136,900
*Note: Current Common Level Ratio is 31.5




                                                                                                                    41
Historical and present tax analysis-
       As required by Act 1




                                       42
                            Assessed Value Analysis

                                              Assessed Value
                                    Lower
            Bushkill       %       Nazareth          %         Nazareth          %        Palmer          %
           Township      Growth    Township        Growth      Borough         Growth    Township       Growth
 1996      162,045,800               183,596,000                 113,019,200                1,902,300
 1997      167,320,900     3.26%     193,202,500    5.23%        112,699,400    -0.28%      1,902,300    0.00%
 1998      170,961,300     2.18%     200,416,200    3.73%        112,602,700    -0.09%      1,902,300    0.00%
 1999      177,957,500     4.09%     204,038,100    1.81%        114,106,000     1.34%      1,902,300    0.00%
 2000      180,928,600     1.67%     204,718,400    0.33%        114,199,600     0.08%      1,903,800    0.08%
 2001      186,524,700     3.09%     210,658,300    2.90%        114,859,600     0.58%      1,903,800    0.00%
 2002      195,067,000     4.58%     214,320,100    1.74%        115,191,700     0.29%      1,903,800    0.00%
 2003      200,224,000     2.64%     222,093,600    3.63%        116,260,200     0.93%      1,901,800   -0.11%
 2004      208,873,400     4.32%     233,882,200    5.31%        117,677,000     1.22%      1,901,800    0.00%
 2005      216,073,900     3.45%     240,990,500    3.04%        118,025,900     0.30%      1,901,800    0.00%
Average                    3.25%                    3.08%                        0.48%                   0.00%

                                                                Upper
          Stockertown      %       Tatamy            %         Nazareth          %                        %
            Borough      Growth    Borough         Growth      Township        Growth     Total         Growth

 1996       22,695,600                18,356,600                  79,720,800              501,615,500
 1997       22,830,900     0.60%      18,488,900    0.72%         81,416,000    2.13%     516,444,900   2.96%
 1998       23,009,200     0.78%      18,535,500    0.25%         83,149,100    2.13%     527,427,200   2.13%
 1999       23,425,900     1.81%      18,624,500    0.48%         85,059,000    2.30%     540,054,300   2.39%
 2000       23,979,400     2.36%      18,794,400    0.91%         88,039,700    3.50%     544,524,200   0.83%
 2001       25,410,000     5.97%      18,954,400    0.85%         91,031,000    3.40%     558,310,800   2.53%
 2002       27,052,000     6.46%      19,902,100    5.00%         93,871,400    3.12%     573,436,700   2.71%
 2003       27,865,700     3.01%      21,517,300    8.12%        102,497,300    9.19%     589,862,600   2.86%
 2004       28,694,700     2.97%      22,252,600    3.42%        114,391,700   11.60%     613,281,700   3.97%
 2005       29,060,900     1.28%      24,828,300   11.57%        121,771,300    6.45%     630,881,300   2.87%
Average                    2.80%                    3.48%                       4.87%                   2.58%

Source: STEB


                                                                                                                 43
Assessed vs. Collected Real Estate Taxes




                                ACT 1 MODEL
                         Nazareth Area School District

 Analysis of Assessed vs. Collected Real Estate Taxes*

     Fiscal Year           Assessed             Collected
     Ending 6/30            Taxes                Taxes         % Collected
        2002                 23,165,816           22,460,876          96.96%
        2003                 24,375,381           23,645,003          97.00%
        2004                 25,369,599           24,751,928          97.57%
        2005                 26,916,943           26,079,300          96.89%
        2006                 29,276,750           28,459,623          97.21%

 *As required by Act 1 of 2006




                                                                               44
                                                         ACT 1 MODEL
                                                  Nazareth Area School District
                                             5 YEAR REVENUE & EXPENDITURE HISTORY
Table 1




                                                  % Change




                                                                               % Change




                                                                                                            % Change




                                                                                                                                          % Change
                                     2001-2002                    2002-2003                    2003-2004                    2004-2005                 2005-2006

Revenues
  Local*
   Real Estate*                     22,965,396   6.65            24,493,416   3.98            25,468,411   5.49            26,867,735    8.91        29,262,130
   Earned Income Tax*                2,493,193   5.59             2,632,557   3.74             2,730,993   4.04             2,841,431    11.26        3,161,235
   Other Local Revenue*              3,070,663   13.61            3,488,674   6.17             3,703,808   4.42             3,867,537    10.79        4,284,849

  State                              9,877,042   6.82            10,550,750    4.72           11,048,683   8.49            11,986,991    1.68        12,188,232
  Federal                              167,504   4.64               175,281   43.26              251,116   14.77              288,213    9.20           314,742
  Other                                    115                          -                          3,122                       21,476                       -
Total Revenues                      38,573,913   7.17            41,340,678   4.51            43,206,133   6.17            45,873,383    7.28        49,211,188

Expenditures                        38,015,008   5.31            40,034,110   5.66            42,298,109   10.72           46,833,145    4.96        49,157,622

Difference                            558,905                     1,306,568                     908,024                      (959,762)                  53,566

Table 2

% of Revenue from Taxes*               73.96%                       74.05%                       73.84%                       73.19%                    74.59%

Existing Taxes*
  School District EIT Rate              0.50%                        0.50%                        0.50%                        0.50%                     0.50%
  Municipality EIT Rate                 0.50%                        0.50%                        0.50%                        0.50%                     0.50%
  Municipality EIT Rate**               0.75%                        0.75%                        0.75%                        0.75%                     0.75%
  Occupation Tax                     250 Mills                    300 Mills                    300 Mills                    300 Mills                 300 Mills
  Occupational Privilege Tax              N/A                          N/A                          N/A                          N/A                       N/A
  Mechanical Device Tax                   N/A                          N/A                          N/A                          N/A                       N/A
  Per Capita Tax                $       15.00                $       15.00                $       15.00                $       15.00                       N/A
  Real Estate Transfer Tax              0.50%                        0.50%                        0.50%                        0.50%                     0.50%

Millage Rate                            35.50                        36.21                        36.21                        36.71                     38.34
1 Mill=                               646,913                      676,427                      703,353                      731,891                   763,227

*As required by Act 1 of 2006
**Bushkill Township

                                                                                                                                                                  45
                                                      ACT 1 MODEL
                                               Nazareth Area School District
                                      5 YEAR REVENUE & EXPENDITURE PROJECTION
Table 1




                                               % Change




                                                                         % Change




                                                                                                   % Change




                                                                                                                              % Change
                                 2006-2007                 2007-2008                 2008-2009                 2009-2010                  2010-2011

Revenues
  Local*
    Real Estate*                30,648,701    4.00        31,874,649    4.00        33,149,635    4.00        34,475,620     4.00        35,854,645
    Earned Income Tax*           4,245,000    3.85         4,408,433    3.85         4,578,157    3.85         4,754,416     3.85         4,937,461
    Other Local Revenue*         3,099,162    0.00         3,099,162    0.00         3,099,162    0.00         3,099,162     0.00         3,099,162

  State                         13,979,587    4.10        14,552,750    2.70        14,945,674    4.20        15,573,393     3.75        16,157,395
  Federal                          360,000    0.00           360,000    0.00           360,000    0.00           360,000     0.00           360,000
  Other                                -      0.00               -      0.00               -      0.00               -       0.00               -
Total Revenues                  52,332,450    3.75        54,294,994    3.38        56,132,628    3.79        58,262,591     3.68        60,408,663

Expenditures                    53,467,774    9.00        58,279,874    10.20       64,224,421    8.30        69,555,048     7.00        74,423,901

Difference                      (1,135,324)               (3,984,880)               (8,091,792)               (11,292,456)               (14,015,238)

Table 2

% of Revenue from Taxes*           72.60%                    72.53%                    72.73%                     72.65%                     72.66%

Existing Taxes*
  School District EIT Rate          0.70%                     0.70%                     0.70%                      0.70%                      0.70%
  Municipality EIT Rate             0.50%                     0.50%                     0.50%                      0.50%                      0.50%
  Municipality EIT Rate**           0.75%                     0.75%                     0.75%                      0.75%                      0.75%
  Occupation Tax                      N/A                       N/A                       N/A                        N/A                        N/A
  Occupational Privilege Tax          N/A                       N/A                       N/A                        N/A                        N/A
  Mechanical Device Tax               N/A                       N/A                       N/A                        N/A                        N/A
  Per Capita Tax                      N/A                       N/A                       N/A                        N/A                        N/A
  Real Estate Transfer Tax          0.50%                     0.50%                     0.50%                      0.50%                      0.50%

Millage Rate                        38.70
1 Mill=                           791,956

*As required by Act 1 of 2006
**Bushkill Township

                                                                                                                                                        46
How does the State determine the amount of slot
 revenue a district will receive?




                                                  47
             Allocation of Gaming Revenue to Schools


Available gaming revenue as certified by Secretary of Budget is
  allocated to each district which qualifies. Allocation based on a
  “Property Tax Reduction Index”

   Property Tax Reduction Index Concept


  • Every district is ranked on four dimensions of relative wealth and tax effort

  •The rankings for every district for the four dimensions are summed
  •The sum of the ratings is divided by 1000 to produce an index for each
  district
  •The Property Tax Reduction Index gives a greater share of property tax
  reduction to low income, low wealth, high tax effort districts
  •Districts receive additional gaming funds as credit for Philadelphia Wage
  Tax payments paid by their residents.



                                                                               48
               Allocation of Gaming Revenue to Schools


Components of Property Tax Reduction Index

1. 2002 Personal Income/2003-04 ADM
    •   Lowest income per student gets highest ranking i.e. 501

2. 2004-05 MV/PI Aid Ratio
    •   Highest aid ratio (least wealthy) gets highest rank

3. 2002-03 Equalized Mills (Total school taxes/market value)
    •   Highest tax effort gets highest rank

4. 2002-03 School Tax Ratio (Total school taxes/personal income)
    •   Highest tax effort gets highest rank

State Allocation= District Index x ADM x (Dollar Amount Set by State)




                                                                        49
                                                             ACT 1 MODEL
                                                      Nazareth Area School District

                                       IMPACT OF GAMING REVENUE ON HOMEOWNERS/FARMERS

                                                 Assuming $400 Million of Gaming Revenue*
                                                                                                   $500 Million
                                                                                                     At 100%            At 75%
                                                                                                 Application Rate   Application Rate

    a. Property Tax Reduction per Approved Homestead/Farmstead**                                  $          157     $         209


       Millage Rate***                                                                                     38.70              38.70

       Homestead Assessment Exclusion                                         a / Millage Rate    $        4,057     $       5,409

*Source: Pennsylvania Office of the Governor's website
**Does not reflect updated Homestead/Farmstead data, actual dollar amount per Homestead/Farmstead could be higher/lower
***For these calculations, the 2006/2007 Millage Rate was used
Notes:
(1) Gaming allocation has no implication on the Tax Study Commission's decisions
(2) Amount of Philadelphia Wage Tax credit is unknown at this time and will impact final allocation




                                                                                                                              50
                                                             ACT 1 MODEL
                                                      Nazareth Area School District

                                       IMPACT OF GAMING REVENUE ON HOMEOWNERS/FARMERS

                                                   Assuming $1 Billion of Gaming Revenue*
                                                                                                   $500 Million
                                                                                                     At 100%            At 75%
                                                                                                 Application Rate   Application Rate

    a. Property Tax Reduction per Approved Homestead/Farmstead**                                  $          393     $           524


       Millage Rate***                                                                                     38.70              38.70

       Homestead Assessment Exclusion                                         a / Millage Rate    $       10,155     $      13,540

*Source: Pennsylvania Office of the Governor's website
**Does not reflect updated Homestead/Farmstead data, actual dollar amount per Homestead/Farmstead could be higher/lower
***For these calculations, the 2006/2007 Millage Rate was used
Notes:
(1) Gaming allocation has no implication on the Tax Study Commission's decisions
(2) Amount of Philadelphia Wage Tax credit is unknown at this time and will impact final allocation




                                                                                                                            51
           Next Steps for the Tax Study Commission….


•   Review and analyze material




•   The Tax Study Commission must recommend an income tax rate of:
    •   Earned Income Tax or Personal Income Tax
    •   Required to achieve a property tax reduction between the Minimum and Maximum
        Homestead exclusion, but not required to exceed 1% EIT or the PIT equivalent



•   Hold at least one public hearing prior to recommendation




•   Make recommendation at public board meeting within 90 days of appointment
    (If September 14th + 90 days = December 13th)


                                                                                   52
                             Disclosure Statement
The foregoing presentation must be read together with the oral presentation
that accompanied it. The presentation is subject to the following limitations:



•   Legal Interpretation – Act 1 contains many provisions that are open to different
    legal interpretations. All statements as to what will or may happen under certain
    circumstances are based on assumptions, some but not all of which are noted in
    the presentation. Assumptions contained in this presentation may or may not be
    proven to be correct. Changes in assumptions may have a material impact on
    results. Estimates and projections represent PFM’s best judgment as of this date
    and are subject to change without notice. A School District should consult with
    their legal counsel in determining any final interpretations of Act 1 or of PFM
    information.


•   General Disclaimer – Public Financial Management, Inc. disclaims all liability
    relating to the information contained in this presentation. Opinions expressed in
    the presentation are current opinions only and are subject to change without
    notice.


                                                                                    53

				
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