tax relief

Property Tax Relief Making Property Tax Relief a Reality for Pennsylvania Implementing Act 72 in Your Community 1 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? 2 Property Tax Relief How does property tax relief work? 3 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 4 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 5 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 6 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 7 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 8 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 - $5,000 $45,000 Total assessed house value Tax relief: homestead exclusion New taxable house value 9 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 10 Property Tax Relief What does my school district have to do to receive its share of property tax relief? 11 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 12 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 13 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 – 14 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 – – 15 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 16 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 17 Property Tax Relief How will property tax relief limit future tax increases in my community? 18 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 19 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 raising their millage rates 20 Property Tax Relief Over the last decade, the inflation index has averaged more than 3% Year FY96-97 FY97-98 FY98-99 FY99-00 FY00-01 FY01-02 FY02-03 FY03-04 FY04-05 FY05-06 Unadjusted Index 2.8% 3.0% 3.0% 3.2% 3.8% 3.5% 3.5% 2.9% 3.3% 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 21 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 22 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 23 Property Tax Relief Districts can apply for referendum exceptions for the following costs… • Responding to an emergency or disaster • Implementing a federal or state court order • Paying for certain school construction debt 24 • Providing special education if costs increase by more than 10% in a given year • Implementing a school improvement plan to meet the requirements of No Child Left Behind Property Tax Relief Districts can apply for referendum exceptions for the following costs… • Responding to conditions that pose an immediate threat of harm • Providing health care benefits in existing collective bargaining agreements • Ensuring that perstudent spending keeps pace with inflation • Maintaining district revenue adjusted for inflation • Mandatory retirement contributions that increase by more than 7.5% 25 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 26 Property Tax Relief Where can I get more information? 27 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 28