Property Tax Relief
Making Property Tax Relief
a Reality for Pennsylvania
Implementing Act 72 in Your
Community
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Property Tax Relief
Understanding Pennsylvania’s
new property tax relief law
• How does property tax relief work?
• What does my school district have to do
to receive its share of property tax
relief?
• How will property tax relief limit future
tax increases in my community?
• Where can I get more information?
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Property Tax Relief
How does property tax
relief work?
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Property Tax Relief
Homeowners will receive
historic property tax relief
• Property taxes will decrease by an average of more
than $330 once property tax relief is fully in place
• The funding for property tax relief in your
community will come from two sources:
– State funding from a tax on expanded gaming,
which is expected to ultimately generate up to
$1 billion a year for tax relief
– A local 0.1% Earned Income Tax (EIT)
• State-funded property tax relief is expected to begin
during the 2007-08 fiscal year
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Property Tax Relief
State funding alone will reduce
local taxes by an average of 20%
• Experts project that state funding for tax relief will
ultimately reach at least $1 billion per year
• Why do experts believe there will be so much funding
available for property tax relief?
– Gaming will have more of a public benefit in
Pennsylvania than in almost all other states
• 34% of gross revenue from gaming will be used for
tax relief in Pennsylvania
• In New Jersey and Nevada, the rate is about 8%
– The law allows Pennsylvania to eventually have up to
61,000 slot machines, compared to fewer than 35,000
in New Jersey and under 10,000 in West Virginia
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Property Tax Relief
State funding for property tax
relief is long-term and predictable
• The law provides for the amount of state
funding for property tax relief to stay the
same or increase from one year to the
next
• $400 million will be kept in a Property
Tax Relief Reserve Fund just in case less
revenue comes in than projected for a
given year
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Property Tax Relief
The revenue from the 0.1% EIT
will stay in your community
• All of the money that is raised from the new
local 0.1% EIT will be used to fund property
tax relief in your school district
• For example: A family that earns $45,000 a
year will pay $45 – and the revenue will all
be used to reduce local property taxes
• Social Security, pensions, interest and
dividends are exempt from this tax
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Property Tax Relief
Every school district is
guaranteed a minimum tax cut
• Once gaming generates $750 million for
state-funded property tax relief, the state
and local funding for tax relief together will
reduce property taxes by 10% to 40% in
every school district
• With $1 billion in state-funded property tax
relief, the state and local funding together
will reduce property taxes by 12.5% to 50%
in every district
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Property Tax Relief
Homeowners will receive tax relief
through a “homestead exclusion”
• Every homeowner must fill out a simple 1-page
“Application for Homestead and Farmstead
Exclusions”
• If your district opts in to receive property tax relief,
your property tax relief will be automatically
deducted from your school tax bill
• For example: If your house is assessed at $50,000
and your school district’s homestead exclusion is
$5,000, then you only pay property taxes on $45,000
of your house’s value:
$50,000 Total assessed house value
- $5,000 Tax relief: homestead exclusion
$45,000 New taxable house value
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Property Tax Relief
Sign up through your County
Assessor to receive property
tax relief
• Contact your County Assessment
Office for a homestead exclusion
application
• Applications must be submitted by
March 1
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Property Tax Relief
What does my school district
have to do to receive its
share of property tax relief?
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Property Tax Relief
School districts must “opt in”
to get their share of tax relief
• School boards must pass a board resolution
by May 30, 2005, in order to participate in
property tax relief
• The only vote is taken by the school board
– voters do not get to “opt in” by
referendum
• May 30, 2005 is the final deadline by law;
school boards that do not “opt in” by that
date will not have another chance
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Property Tax Relief
There are 3 ways to “opt-in”
for property tax relief
1. For all school districts:
• Board resolution to levy a local
0.1% Earned Income Tax (EIT)
– This local EIT will take effect once
state-funded property tax relief begins
– All of the revenue from the local 0.1%
EIT will be used for local property tax
relief
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Property Tax Relief
2. For all school districts:
• Board resolution to put a question
on the November 2005 ballot
– Voters can decide to go even further
than the 0.1% EIT – and all of the new
EIT revenue will be used for local
property tax relief
– If the referendum does not pass, the
school board agrees to levy a 0.1% EIT
to raise the local share of property tax
relief
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Property Tax Relief
3. For school districts that do not already have
a local Earned Income Tax only:
• Board resolution to put a question on the
November 2007 ballot
– Voters can decide to wait until 2007 to levy a
local EIT, since it is harder to start collecting a
new EIT than it is to increase an existing EIT
– The proposed EIT in 2007 – combined with the
state funding for property tax relief – must
provide at least 50% of the maximum amount
of tax relief allowed by law
– If the referendum does not pass, the school
board agrees to levy a 0.1% EIT to raise the
local share of property tax relief
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Property Tax Relief
School districts can go even
further in November 2005
• School boards can put an optional
referendum question on the November
2005 ballot
• Voters could either:
– Raise the EIT beyond 0.1% and use all of
the additional revenue for local property tax
relief, or
– Turn the Earned Income Tax into a Personal
Income Tax (PIT) and use all of the new PIT
for local property tax relief
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Property Tax Relief
And voters will have more
local control in November 2007
• School districts that opted-in to property tax relief
must give voters a choice at the November 2007
election to either:
– Raise the EIT so that the district can further
reduce property taxes, or
– Turn the EIT into a PIT and further reduce
property taxes
• The new EIT or PIT rate must further reduce
property taxes so that the total property tax relief is
at least 50% of the maximum tax reduction allowed
by law
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Property Tax Relief
How will property tax relief
limit future tax increases in
my community?
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Property Tax Relief
The property tax relief law
limits future tax increases
• Pennsylvania’s property tax relief law protects
homeowners from large tax increases while
ensuring that schools can still raise enough
revenue to provide a quality education
• The new referendum requirement is intended to
be flexible and reasonable; it includes
exceptions for a number of costs that school
boards face
• The referendum provisions only apply to
districts that choose to participate in property
tax relief
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Property Tax Relief
Elected school boards will still have
significant control over budgets
• School boards will be allowed to raise property
taxes to keep pace with inflation without holding a
referendum
• Boards can vote to increase millage by as much as
the average of:
– The increase in the Statewide Average Weekly
Wage over the last year, and
– The increase in employment costs from public
schools across the nation over the last year
• This “inflation index” is adjusted to give districts
with a high Aid Ratio even greater flexibility in
20 raising their millage rates
Property Tax Relief
Over the last decade, the inflation
index has averaged more than 3%
Unadjusted
Year Index
FY96-97 2.8%
FY97-98 3.0%
FY98-99 3.0%
FY99-00 3.2%
FY00-01 3.8%
FY01-02 3.5%
FY02-03 3.5%
FY03-04 2.9%
FY04-05 3.3%
FY05-06 3.1%
• With the Aid Ratio adjustment, the average
school district may raise its millage by up to
4% for 2005-06 without seeking voter approval
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Property Tax Relief
Districts must get voter approval to
raise taxes faster than the inflation
index
• If a school board wants to raise taxes
above the Aid Ratio-adjusted inflation
index, then the district must seek
approval from voters
• Voters would have the option of
approving or rejecting the tax increase in
the Spring primary election
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Property Tax Relief
School districts can also seek a
referendum exception for certain costs
• School boards may need to raise taxes faster
than inflation because of unavoidable costs or
for educational necessities
• This law provides the flexibility to help school
districts address those costs without holding a
referendum
• Districts must receive approval from the
Department of Education or the court in order
to gain an exception to raise taxes faster than
inflation without voter approval
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Property Tax Relief
Districts can apply for referendum
exceptions for the following costs…
• Responding to an • Providing special
emergency or education if costs
disaster increase by more
than 10% in a given
• Implementing a year
federal or state court
order • Implementing a
school improvement
• Paying for certain plan to meet the
school construction requirements of No
debt Child Left Behind
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Property Tax Relief
Districts can apply for referendum
exceptions for the following costs…
• Ensuring that per-
• Responding to student spending
conditions that pose keeps pace with
an immediate threat inflation
of harm
• Maintaining district
• Providing health care revenue adjusted for
inflation
benefits in existing
collective bargaining • Mandatory
agreements retirement
contributions that
increase by more
than 7.5%
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Property Tax Relief
Districts must start their
budgeting process earlier
• Districts that receive property tax relief
must adopt a preliminary budget 90 days
before the spring primary election
• The new timeline will provide time to plan
for the coming fiscal year and determine
whether a spring referendum is necessary
• The final budget can still be adjusted later
to reflect changes in state funding and in
local revenue projections
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Property Tax Relief
Where can I get more
information?
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Property Tax Relief
The Department of Education
has answers to your questions
• Visit the Department of Education
online at
http://www.pde.state.pa.us/proptax
• Email ra-propertytax@state.pa.us with
your questions to receive a personal
response
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