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					                   Act 72 Issues and Decisions for
                   Pennsylvania School Districts
                   presented by: David Sallack, Managing Director
                   Public Financial Management, Inc.
                   Harrisburg, Pennsylvania
EPLC               (717) 232-2723
January 13, 2005
                            What is Act 72 all About?




•   Provides for school district property tax reduction funded through a combination
    of locally raised income taxes and gaming revenue allocated by the state
•   Facilitates a tax reduction and 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 but this reduction could be off set by an increase in an income based
    tax
•   Districts which participate in Act 72 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




                                                                                          2
                Summary of Major Provisions of Act 72

1. Allocates, by formula, a portion of Pennsylvania gaming revenue to school
   districts to provide for property tax reduction – dollars allocated by formula, exact
   amount uncertain at this time
2. Requires district to impose a minimum of .1% EIT to qualify to receive gaming
   revenue allocation – school board can adopt by resolution
3. Allows higher EIT or PIT (over .1%) to be imposed by front end referendum to
   provide for additional property tax reduction up to constitutional maximum
4. Uses the homestead and farmstead exclusion to achieve property tax reduction
5. Total property tax reduction to qualifying homesteads or farmsteads is the sum of
   state gaming money and new locally generate income based taxes
6. After opting into the new tax and receiving gaming revenue allocation, requires
   school board to seek voter approval through a back end referendum for tax rate
   increases over an annually determined “index”
7. Provides for exemption from back end referendum for certain budgeted
   expenditures with either court or PDE approval
8. New state money is for property tax reduction only and does not increase or
   decrease directly the state money available to the district for education.

                                                                                      3
                  Allocation of Total Gaming Funds

•Gaming Legislation Authorizes Three Types of Slots Venues
     – Category 1 – “Racinos” Seven or eight race tracks
     – Category 2 – “Stand-alone” Four or five
     – Category 3 – Resort hotels – two

•Proposed machine total is 61,000. Makes Pennsylvania second only to
Nevada (for now)

Revenue Generator                          One Time Revenue      Recurring Revenues
Licenses                                   $550 - $650 million
Casino Operations                                                48% of revenues
Property Tax Relief                                              34% of revenues
Economic Development                                             5% of revenues
Host County/Contig. Juris.                                       2% of revenues
Horse Racing Dev. Fund                                           9% of revenues
Host Municipality                                                2% of revenues
                                                                                      4
                Gaming Revenue for Property Tax Relief


• Initial sale of licenses estimated $550 to $650 million and 34% of gross
  revenue (estimated $3 billion total annual revenue when slots fully
  implemented) is dedicated to property tax relief.
• Total property tax relief distribution pays for:
     – State allocation by district
     – Allocation to districts for Philadelphia wage tax credit
     – Philadelphia wage tax reduction
     – Philadelphia senior citizen property tax reduction

• Act 72 creates two funds to hold revenues from gaming:
     – Property Tax Relief Fund
     – Property Tax Relief Reserve Fund

• In order to make the first allocation to schools for property tax relief the
  Secretary of Budget must certify that:
     – Property Tax Relief Fund has at least $500 million
     – Property Tax Relief Reserve Fund has $400 million



                                                                                 5
What are the board and community options in
relation to Act 72?




                                              6
         Act 72 - Board Decision Path


          A
                  May 30, 2005
              Board declines gaming          End
              revenue and does not          Process
              schedule a referendum
                                                                                Nov. 2007
                                                                         Potential referendum
          B        May 30, 2005                                          to increase EIT or PIT
               Board adopts a .1% EIT                                    meet min. homestead

                                                         Nov. 2005
                                                      Public approves
                                                        referendum
                     May 30,2005
School    C
              Board adopts resolution
 Board            to have front end                    Nov. 2005             Board imposes
              referendum Nov 2005 on                Public does not            .1% EIT by
                    EIT or PIT tax                approve referendum           resolution


                                                          Nov. 2007
                                                       Public approves
                     May 30, 2005                        referendum
          D    Board adopts resolution
                  to have Nov. 2007
                      referendum                          Nov. 2007
                                                                              Board imposes
               on EIT or PIT. Includes                   Public does
                                                                                .1% EIT by
              only districts which do not                not approve
                                                                                resolution
                   now impose EIT                        referendum


                                                                                         7
           Potential District Actions in relation to Act 72

         Action                     Timeline                    Pro                          Con
A Do not adopt qualifying    May 30, 2005            •Retain tax system control   •Turn down gaming
.1% EIT tax (decline                                                              revenue
                                                     •Not subject to Act 72
gaming revenue) do not
                                                                                  •No property tax decrease
schedule a referendum
                                                                                  •No option to reconsider

                                                                                  •Political implications
B. Adopt qualifying .1%      May 30, 2005            •District qualifies for      •Subject to Act 72 2006/07
EIT tax, take no action on                           gaming revenue at earliest
                                                                                  •May be required to have
front end referendum                                 date
                                                                                  referendum in Nov 2007 to
                                                                                  increase EIT or PIT

                                                                                  •Lack of information on
                                                                                  process or revenue


C. Opt to have front end     May 30, 2005/November   •Qualifies for gaming        •Subject to Act 72 2006/07
referendum for higher EIT    2005                    revenue
                                                                                  •Commits district when
or PIT in 2005
                                                     •Delays final EIT rate       information and process is
                                                     decision for more            unclear
                                                     information
                                                                                  •Could have future
                                                                                  referendum        8
         Potential District Actions in relation to Act 72


         Action                    Timeline                     Pro                       Con
D. Districts without EIT     May 2005 Board Action   •Qualifies for gaming      •Subject to Act 72 in
currently, defer action on                           revenue if referendum      2006-07
                             Nov. 2007 Referendum
Act 72 commitment until                              approved
                                                                                •Local pressure to get
2007. Board adopts
                                                     •Delays commitment until   property tax reduction
resolution 2005 to have
                                                     process and dollars are    sooner
front end referendum
                                                     better known
2007. Specific option for
districts which do not now                           •Allows longer district
have EIT                                             planning period




E. Adopt qualifying .1%      May 2005 Board Action   •Qualifies for gaming      •Subject to Act 72 2006-
EIT 2005 use front end                               revenue immediately        07
                             Nov 2005 Referendum
referendum in 2005 or
                                                     •Minimum commitment        •Local pressure to get
2007 to set EIT or PIT at              or
                                                     allows time to monitor     more property tax
levels to achieve 50% to     Nov 2007 Referendum     process, gather data and   reduction sooner
100% of maximum
                                                     plan
homestead


                                                                                                  9
How does the State determine the amount of slot
 revenue a district will receive?




                                                  10
             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
  •The index is adjusted so that no district would get amount of state gaming
  allocation which would provide for less than a 15% reduction in residential
  property taxes nor more than a 50% decrease

                                                                               11
               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)




                                                                        12
   Allocation of Gaming Revenue to Allegheny
                 County Schools
                      $500 Million                          $500 Million
    School District   State Funds       School District     State Funds
ALLEGHENY VALLEY          $322,458   NORTH ALLEGHENY           $1,857,509
AVONWORTH                 $207,087   NORTH HILLS               $1,173,449
BALDWIN WHITEHALL       $1,393,077   NORTHGATE                   $608,291
BETHEL PARK             $1,427,802   PENN HILLS TWP.           $1,956,537
BRENTWOOD BORO            $524,696   PINE-RICHLAND               $977,413
CARLYNTON                 $455,473   PITTSBURGH               $12,035,441
CHARTIERS VALLEY          $747,743   PLUM BOROUGH              $1,337,221
CLAIRTON CITY             $379,976   QUAKER VALLEY               $562,552
CORNELL                   $190,585   RIVERVIEW                   $293,353
DEER LAKES                $761,427   SHALER AREA               $1,642,927
DUQUESNE CITY             $308,797   SOUTH ALLEGHENY             $610,432
EAST ALLEGHENY            $788,937   SOUTH FAYETTE TWP.          $527,563
ELIZABETH FORWARD       $1,075,829   SOUTH PARK                  $723,885
FOX CHAPEL AREA         $1,231,971   STEEL VALLEY                $807,086
GATEWAY                 $1,198,343   STO ROX                     $761,883
HAMPTON TOWNSHIP          $697,312   UPPER ST. CLAIR TWP.      $1,164,221
HIGHLANDS               $1,055,193   WEST ALLEGHENY              $924,290
KEYSTONE OAKS             $688,468   WEST JEFFERSON HILLS        $920,751
MCKEESPORT AREA         $1,960,027   WEST MIFFLIN AREA         $1,236,561
MONTOUR                   $768,816   WILKINSBURG BORO            $696,611
MOON AREA                 $783,404   WOODLAND HILLS            $1,802,306
MOUNT LEBANON           $1,427,922
                                                                            13
What are the local income taxes that a
district can impose under Act 72?




                                         14
    Personal Income Tax vs. Earned Income Tax
Earned Income Tax (EIT): Levied by the Locality, taxes the following for services rendered:
            •    Salaries/Wages
            •    Commissions/Bonuses/Incentive Payments
            •    Fees
            •    Tips


Personal Income Tax (PIT): Levied by the Commonwealth, Pennsylvania taxes eight classes of income:
            •    Compensation
            •    Net Profits
            •    Net Property Income
            •    Net Income from Rents, Royalties, Patents & Copyrights
            •    Dividends
            •    Gambling & Lottery Winnings
            •    Interest
            •    Net Income through Estates or Trusts




                                                                                              15
                      Allegheny County Tax Base Comparison


                                                                        Allegheny County
    School District    2002 EIT Base   2002 PIT Base    $ Difference    % Difference      School District   2002 EIT Base    2002 PIT Base    $ Difference    % Difference
ALLEGHENY VALLEY        $178,389,217     $193,630,828     $15,241,611        8.54%     NORTH ALLEGHENY      $1,469,573,110   $1,594,149,936   $124,576,826         8.48%
AVONWORTH               $243,861,696     $268,391,840     $24,530,144       10.06%     NORTH HILLS            $753,958,525     $811,937,683    $57,979,158         7.69%
BALDWIN WHITEHALL       $591,000,607     $642,231,040     $51,230,433        8.67%     NORTHGATE              $166,779,488     $176,985,825    $10,206,337         6.12%
BETHEL PARK             $701,046,706     $755,920,679     $54,873,973        7.83%     PENN HILLS TWP.        $608,875,819     $644,548,119    $35,672,300         5.86%
BRENTWOOD BORO          $138,337,939     $146,906,225      $8,568,286        6.19%     PINE-RICHLAND          $553,406,587     $603,761,615    $50,355,028         9.10%
CARLYNTON               $230,624,433     $248,651,292     $18,026,859        7.82%     PITTSBURGH           $3,834,742,120   $4,301,367,759   $466,625,639        12.17%
CHARTIERS VALLEY        $561,603,915     $614,333,179     $52,729,264        9.39%     PLUM BOROUGH           $480,355,487     $509,893,339    $29,537,852         6.15%
CLAIRTON CITY            $77,441,412      $82,534,587      $5,093,175        6.58%     QUAKER VALLEY          $440,312,291     $555,754,543   $115,442,252        26.22%
CORNELL                  $89,230,343     $105,483,534     $16,253,191       18.21%     RIVERVIEW              $191,596,775     $212,643,735    $21,046,960        10.99%
DEER LAKES              $220,863,785     $233,349,680     $12,485,895        5.65%     SHALER AREA            $677,563,843     $722,718,551    $45,154,708         6.66%
DUQUESNE CITY            $48,527,280      $50,797,091      $2,269,811        4.68%     SOUTH ALLEGHENY        $142,988,494     $150,747,994     $7,759,500         5.43%
EAST ALLEGHENY          $181,667,208     $194,826,294     $13,159,086        7.24%     SOUTH FAYETTE TWP.     $273,828,093     $292,219,423    $18,391,330         6.72%
ELIZABETH FORWARD       $290,138,065     $311,831,523     $21,693,458        7.48%     SOUTH PARK             $264,831,571     $277,746,905    $12,915,334         4.88%
FOX CHAPEL AREA         $950,903,107   $1,183,348,553    $232,445,446       24.44%     STEEL VALLEY           $204,853,737     $218,601,434    $13,747,697         6.71%
GATEWAY                 $547,974,606     $591,547,635     $43,573,029        7.95%     STO ROX                $123,644,387     $130,094,079     $6,449,692         5.22%
HAMPTON TOWNSHIP        $504,518,944     $552,439,554     $47,920,610        9.50%     UPPER ST. CLAIR TWP.   $715,018,816     $823,857,155   $108,838,339        15.22%
HIGHLANDS               $274,769,467     $294,468,925     $19,699,458        7.17%     WEST ALLEGHENY         $390,168,060     $404,639,356    $14,471,296         3.71%
KEYSTONE OAKS           $353,048,789     $376,900,527     $23,851,738        6.76%     WEST JEFFERSON HILLS $352,217,437       $380,288,289    $28,070,852         7.97%
MCKEESPORT AREA         $356,327,286     $379,840,539     $23,513,253        6.60%     WEST MIFFLIN AREA      $306,687,043     $325,356,008    $18,668,965         6.09%
MONTOUR                 $517,615,414     $552,630,434     $35,015,020        6.76%     WILKINSBURG BORO       $197,741,767     $207,492,258     $9,750,491         4.93%
MOON AREA               $570,991,616     $605,939,006     $34,947,390        6.12%     WOODLAND HILLS         $709,509,742     $771,417,680    $61,907,938         8.73%
MOUNT LEBANON           $898,103,794   $1,026,912,941    $128,809,147       14.34%
Source: PDE




                                                                                                                                                             16
                 EIT/PIT Tax Base Change (2000-2002)
                                         Allegheny County
                               EIT/PIT Base Changes from 2000-2002
   School District   EIT Base Change   PIT Base Change       School District    EIT Base Change   PIT Base Change
ALLEGHENY VALLEY              7.62%              3.82%   NORTH ALLEGHENY                -0.43%            -5.67%
AVONWORTH                     6.41%              0.57%   NORTH HILLS                     1.87%            -1.11%
BALDWIN WHITEHALL             3.87%              0.64%   NORTHGATE                       1.49%            -0.53%
BETHEL PARK                   1.15%             -2.56%   PENN HILLS TWP.                 0.18%            -2.34%
BRENTWOOD BORO               -7.04%             -8.35%   PINE-RICHLAND                   7.24%             4.13%
CARLYNTON                     1.22%             -1.71%   PITTSBURGH                      1.39%            -5.48%
CHARTIERS VALLEY              5.59%              2.59%   PLUM BOROUGH                    1.99%            -0.92%
CLAIRTON CITY                -0.73%             -3.00%   QUAKER VALLEY                  -2.98%           -12.43%
CORNELL                      -4.11%             -0.75%   RIVERVIEW                       9.95%             5.56%
DEER LAKES                    4.23%              2.60%   SHALER AREA                     2.47%            -0.54%
DUQUESNE CITY                 5.49%              3.42%   SOUTH ALLEGHENY                 1.61%             0.05%
EAST ALLEGHENY                1.64%             -0.23%   SOUTH FAYETTE TWP.              5.22%             1.29%
ELIZABETH FORWARD             3.80%              1.67%   SOUTH PARK                      3.56%             2.36%
FOX CHAPEL AREA               1.76%             -6.58%   STEEL VALLEY                    0.69%            -1.21%
GATEWAY                       3.68%              0.38%   STO ROX                         1.76%            -0.49%
HAMPTON TOWNSHIP              4.67%              0.97%   UPPER ST. CLAIR TWP.            1.23%            -8.07%
HIGHLANDS                     1.63%             -0.33%   WEST ALLEGHENY                  3.99%             2.59%
KEYSTONE OAKS                 3.96%              0.15%   WEST JEFFERSON HILLS            2.56%            -0.98%
MCKEESPORT AREA               1.36%             -1.27%   WEST MIFFLIN AREA               2.85%             1.41%
MONTOUR                       6.46%              3.13%   WILKINSBURG BORO               -0.61%            -2.77%
MOON AREA                     5.19%              1.85%   WOODLAND HILLS                  0.87%            -3.45%
MOUNT LEBANON                 1.26%             -7.30%
Source: PDE

                                                                                                            17
How will Act 72 impact taxpayers?




                                    18
                                                        ACT 72 MODEL
                                                       ABC School District

              2006/2007 ESTIMATED HOMESTEAD/FARMSTEAD EXCLUSION CALCULATION @ 0.10% INCOME TAX
                                        AT $500 MILLION OF STATE GAMING DISTRIBUTION
Table 1


a. State Gaming Distribution                                                         $   764,060

b. Sterling Tax Credit                                                               $   472,496

c. Earned Income Tax @ 0.10% (1st Year Collections)                                  $   244,800      *

d. Total Available for Homestead/Farmstead Exclusion                      a+b+c      $ 1,481,356

                                                                                      At 100%                 At 50%
                                                                                   Application Rate       Application Rate
e. Homestead/Farmstead Properties (From SD Information)                                    4,048                   2,024

f. Amount per Approved Homestead/Farmstead                                   d/e     $       366           $           732




 * Projected 2006/2007 EIT Base:                       $   326,400,000
   Additional EIT at 75% Collections                     x 0.10% x 75.%
   Earned Income Tax @ 0.10% (1st Year Collections)    $       244,800



    Homestead Exclusion (Assessment Reduction)                                      $17,247                 $34,495


                                                                                                                  19
20
                                                               ACT 72 MODEL
                                                             ABC School District

                     CALCULATION OF MINIMUM HOMESTEAD/FARMSTEAD EXCLUSION AND INCOME TAX RATE
                                             AT $500 MILLION OF STATE GAMING DISTRIBUTION
     Since Homestead amount (f) from previous page is less than Minimum Homestead (g), A NOVEMBER 2007 REFERENDUM IS
                                                            REQUIRED

Table 2

g. Minimum Homestead Exclusion*

    Amount Per Homestead:          (25% of Median Assessed Value x Millage Rate)                                           $     1,126
                                   0.25 x $213,148 = $53,287 x 21.12 = $1,126

    Total $ Required:              (Amount Per Homestead x Eligible Homestead Properties)                                  $ 4,556,396
                                   $1,126 x 4,048 = $4,556,396

    Additional                     (Total $ Required - State Gaming & Sterling - Income Tax Revenue from 0.10%)            $ 1,939,336
    Income Tax Required:           $4,556,396 - $2,372,260 - $244,800 = $1,939,336


    Additional Income Tax Rate Increase (over the 0.60% ) Needed To Collect $1,939,336                (Unrounded .76%)**         0.80%   ***


    Actual Projected Collections in 1st Year of Additional Income Tax (due to rounding)                                    $ 2,037,519

    Per Act 72, 2.00% of Collections is Withheld for School District Operations                                            $ 1,996,769

    Actual Minimum Homestead:                                                                                              $     1,140

                                   (Actual Projected Collections + State Gaming & Sterling + Revenue from 0.10%)/ Eligible Homesteads)
                                   $1,996,769 + $2,372,260 + $244,800 = $4,613,829 / 4,048 = $1,140

*For these calculations, the 2005/2006 millage rate and the projected 2008/2009 income tax base were used.
**Per Act 72, rate is rounded up to the nearest 0.10%
***Total School District EIT rate is 1.4%

                                                                                                                                         21
                                                              ACT 72 MODEL
                                                            ABC School District

                   CALCULATION OF MAXIMUM HOMESTEAD/FARMSTEAD EXCLUSION AND INCOME TAX RATE
                                            AT $500 MILLION OF STATE GAMING DISTRIBUTION



Table 3

h. Maximum Homestead Exclusion*

    Amount Per Homestead:          (50% of Median Assessed Value x Millage Rate)                                         $     2,251
                                   0.50 x $213,148 = $106,574 x 21.12 = $2,251

    Total $ Required:              (Amount Per Homestead x Eligible Homestead Properties)                                $ 9,112,792
                                   $2,251 x 4,048 = $9,112,792

    Additional                     (Total $ Required - State Gaming & Sterling - EIT Revenue from 0.10%)                 $ 5,052,064
    Income Tax Required:           $9,112,792 - $3,815,929 - $244,800 = $5,052,064


    Additional Income Tax Rate Increase (over the 0.60% ) Needed To Collect $5,052,064             (Unrounded 1.98%)**         1.90% ***


    Actual Projected Collections in 1st Year of Additional EIT (due to rounding)                                         $ 4,839,108

    Per Act 72, 2.00% of Collections is Withheld for School District Operations                                          $ 4,742,326

    Actual Maximum Homestead:                                                                                            $     2,175

                                   (Actual Projected Collections + State Gaming & Sterling + Revenue from 0.10%)/ Eligible Homesteads)
                                   $4,742,326 + $3,815,929 + $244,800 = $8,803,055 / 4,048 = $2,175

*For these calculations, the 2005/2006 millage rate and the projected 2008/2009 income tax base were used.
**Per Act 72, rate is rounded down to the nearest 0.10%
***Total School District EIT rate is 2.5%

                                                                                                                                         22
     Total EIT Rate to Achieve the Minimum & Maximum
                   Property Tax Reduction


                                      Montgomery County
                                   @ Min Homes tead                 @ Max Homes tead
                             Additional  Total   $ Reduction   Additional Total  $ Reduction
      School District         EIT Rate EIT Rate Per Homestead EIT Rate EIT Rate Per Homestead
Abington                          1.00%   1.60%           $873     2.30%   2.90%        $1,656
Cheltenham Township               1.50%   2.10%         $1,258     3.40%   4.00%        $2,420
Hatboro-Horsham                   1.00%   1.60%           $870     2.20%   2.80%        $1,634
Lower Moreland Township           0.80%   1.40%         $1,140     1.90%   2.50%        $2,175
Methacton                         1.00%   1.60%           $928     2.10%   2.70%        $1,714
Norristown Area                   1.10%   1.70%           $694     2.50%   3.10%        $1,337
Perkiomen Valley                  1.20%   1.80%         $1,023     2.50%   3.10%        $1,907
Pottsgrove                        1.00%   1.60%           $811     2.40%   3.00%        $1,577
Pottstown                         0.90%   1.50%           $574     2.20%   2.80%        $1,061
Souderton Area                    1.20%   1.80%           $985     2.40%   3.00%        $1,775
Springfield Township              1.10%   1.70%         $1,082     2.40%   3.00%        $2,028
Upper Dublin                      0.70%   1.30%           $777     1.60%   2.20%        $1,424
Upper Merion Area                 0.50%   0.60%           $486     1.00%   1.10%          $858
Upper Moreland Township           0.50%   1.10%           $405     1.30%   1.90%          $765
Upper Perkiomen*                  0.80%   1.40%           $575     1.80%   2.40%        $1,041
Wissahickon                       0.70%   1.30%           $818     1.70%   2.30%        $1,581
*Montgomery County portion


                                                                                        23
                                                             ACT 72 MODEL
                                                           ABC School District
                                       IMPACT OF TAX REFORM ON HOMEOWNERS (Using EIT Base)
                                         AT $500 MILLION OF STATE GAMING DISTRIBUTION
                          ASSUMING A 50% APPLICATION RATE IN YEAR 1 AND A 100% APPLICATION RATE BY YEAR 5




YEAR 1
@ 0.10% EIT                         Income            $110,000        Income              $75,000   Income              $40,000

Homestead Exclusion                          ($467)                              ($467)                      ($467)

Additional EIT of 0.1%                        $110                                $75                         $40

Difference: (Savings)/Cost                   ($357)                              ($392)                      ($427)


YEAR 5
@ Minimum Homestead                 Income            $127,520        Income              $86,946   Income              $46,371

Homestead Exclusion                          ($1,001)                          ($1,001)                      ($1,001)

Additional EIT of 1.09%                      $1,388                              $946                         $505

Difference: (Savings)/Cost                    $387                                ($54)                      ($496)


YEAR 5
@ Maximum Homestead                 Income            $127,520        Income              $86,946   Income              $46,371

Homestead Exclusion                          ($2,001)                          ($2,001)                      ($2,001)

Additional EIT of 2.38%                      $3,031                              $2,066                      $1,102

Difference: (Savings)/Cost                   $1,030                               $65                        ($899)

                                                                                                                        24
                                                             ACT 72 MODEL
                                                           ABC School District
                                       IMPACT OF TAX REFORM ON FARMSTEADS (Using EIT Base)
                                         AT $500 MILLION OF STATE GAMING DISTRIBUTION
                          ASSUMING A 50% APPLICATION RATE IN YEAR 1 AND A 100% APPLICATION RATE BY YEAR 5




YEAR 1
                                    Income            $110,000        Income              $75,000   Income              $40,000

Homestead Exclusion                          ($467)                              ($467)                      ($467)

Farmstead Exclusion                          ($467)                              ($467)                      ($467)

Additional EIT of 0.1%                        $110                                $75                         $40

Difference: (Savings)/Cost                   ($823)                              ($858)                      ($893)


YEAR 5
@ Minimum Homestead                 Income            $127,520        Income              $86,946   Income              $46,371

Homestead Exclusion                          ($1,001)                          ($1,001)                      ($1,001)

Farmstead Exclusion                          ($1,001)                          ($1,001)                      ($1,001)

Additional EIT of 1.09%                      $1,388                              $946                         $505

Difference: (Savings)/Cost                   ($614)                            ($1,055)                      ($1,496)


YEAR 5
@ Maximum Homestead                 Income            $127,520        Income              $86,946   Income              $46,371

Homestead Exclusion                          ($2,001)                          ($2,001)                      ($2,001)

Farmstead Exclusion                          ($2,001)                          ($2,001)                      ($2,001)

Additional EIT of 2.38%                      $3,031                              $2,066                      $1,102

Difference: (Savings)/Cost                   ($971)                            ($1,936)                      ($2,900)


                                                                                                                         25
                                                              ACT 72 MODEL
                                                            ABC School District
                                         IMPACT OF TAX REFORM ON RENTERS (Using EIT Base)
                                         AT $500 MILLION OF STATE GAMING DISTRIBUTION
                          ASSUMING A 50% APPLICATION RATE IN YEAR 1 AND A 100% APPLICATION RATE BY YEAR 5




                                                          For Rent                            For Rent                        For Rent



                                                           Rent                                Rent                            Rent
YEAR 1
                                    Income            $110,000         Income              $75,000       Income            $40,000

Homestead Exclusion                           $0                                   $0                              $0

Additional EIT of 0.1%                       $110                                  $75                             $40

Difference: (Savings)/Cost                   $110                                  $75                             $40


YEAR 5
@ Minimum Homestead                 Income            $127,520         Income              $86,946       Income            $46,371

Homestead Exclusion                           $0                                   $0                              $0

Additional EIT of 1.09%                      $1,388                               $946                            $505

Difference: (Savings)/Cost                   $1,388                               $946                            $505


YEAR 5
@ Maximum Homestead                 Income            $127,520         Income              $86,946       Income            $46,371

Homestead Exclusion                           $0                                   $0                              $0

Additional EIT of 2.38%                      $3,031                               $2,066                          $1,102

Difference: (Savings)/Cost                   $3,031                               $2,066                          $1,102


                                                                                                                                 26
                                             ACT 72 MODEL
                                           ABC School District

                           IMPACT OF TAX REFORM ON HOMEOWNERS (Using EIT Base)
                               AT $500 MILLION OF STATE GAMING DISTRIBUTION
                               CHANGE IN SCHOOL TAXES DUE TO TAX REFORM

           ASSUMING A 50% APPLICATION RATE IN YEAR 1 AND A 100% APPLICATION RATE BY YEAR 5




          YEAR 1                                  YEAR 5                                YEAR 5
                                           @ Minimum Homestead                   @ Maximum Homestead

Additional EIT        0.10%              Additional EIT       1.09%          Additional EIT       2.38%
  Homestead            $467                Homestead          $1,001           Homestead          $2,001

Household                                Household                           Household
Income           Difference              Income           Difference         Income           Difference
     300,000          ($167)                  347,782          $2,784             347,782          $6,264
     285,000          ($182)                  330,393          $2,594             330,393          $5,851
     270,000          ($197)                  313,004          $2,405             313,004          $5,438
     255,000          ($212)                  295,615          $2,216             295,615          $5,024
     240,000          ($227)                  278,226          $2,027             278,226          $4,611
     225,000          ($242)                  260,837          $1,838             260,837          $4,198
     210,000          ($257)                  243,448          $1,648             243,448          $3,785
     195,000          ($272)                  226,058          $1,459             226,058          $3,371
     180,000          ($287)                  208,669          $1,270             208,669          $2,958
     165,000          ($302)                  191,280          $1,081             191,280          $2,545
     150,000          ($317)                  173,891            $892             173,891          $2,132
     135,000          ($332)                  156,502            $702             156,502          $1,718
     120,000          ($347)                  139,113            $513             139,113          $1,305
     105,000          ($362)                  121,724            $324             121,724            $892
      90,000          ($377)                  104,335            $135             104,335            $479
      75,000          ($392)                   86,946            ($54)             86,946             $65
      60,000          ($407)                   69,556           ($244)             69,556           ($348)
      45,000          ($422)                   52,167           ($433)             52,167           ($761)
      30,000          ($437)                   34,778           ($622)             34,778         ($1,175)
      15,000          ($452)                   17,389           ($811)             17,389         ($1,588)
           0          ($467)                        0         ($1,001)                  0         ($2,001)



                                                                                                             27
How will Act 72 impact the financial operation of
 the school district?




                                                    28
         Operation of Back end Referendum Provisions


Districts which impose at least a .1% EIT and receive state slot allocation are
  subsequently required to submit tax rate increases which exceed the annual
  index to voter approval at primary election preceding the budget year,
  unless certain exceptions apply

  The Annual Index

• Index is determined annually by PDE based on the average of the
  percentage increase in the Statewide Average Weekly Wage (SAWW) and the
  average percentage increase in the Employment Cost Index (ECI)

• Example SAWW average equal 4% and ECI equals 2%, index equals 3%

• History of index: 1999=3.19%, 2000=3.28%, 2001=3.43%, 2002=3.12%,
  2003=3.66%, 2004=2.84%, 2005=2.79%

• Index applies to upcoming fiscal year i.e. Index announced Sept. 2005 would
  apply to 2006-2007 school district budget


                                                                             29
              Operation of Back end Referendum Provisions


Exceptions to Back end Referendum
•    Districts can exclude a portion of the tax increase from the index trigger if
     the tax increase is needed to meet certain costs or conditions.
       –   Exception claims by a district require either court approval or approval of PDE
       –   If exceptions are approved, district tax increase can exceed index without going to referendum


    Exceptions requiring court approval

•    Exceptions which require approval by Court of Common Pleas. District
     must post notice of intent to file and notice of any hearing
       1. Respond to the cost of emergency or disaster
       2. Costs related to compliance with a court order
       3. Costs related to resolving conditions which could result in serious harm or injury


•    Court determines if district qualifies for exception, the dollar value of the
     exception and the tax levy needed to address the exception. Tax levy is
     removed when condition is resolved.



                                                                                                            30
           Operation of Back end Referendum Provisions

   Exceptions which Require PDE Approval

Exceptions which require PDE review and approval. PDE has roughly 10 days to review
   and approve or decline exception. District must notify public of intent to file for
   exception.
     1. Cost related to debt incurred prior to the effective date of the Act or approved by
        voters
     2. Pay for debt related to a portion the cost of new “academic school buildings”
     3. Special education cost increases which exceed 10% in one year, exception
        amount is the amount over the 10% increase
     4. Costs of school improvement plan under NCLB which are not covered by state
        accountability block grants
     5. Maintenance of local tax revenue or AIE per student for rapidly growing
        districts. Requires a 7.5% increase in ADM in the last three years to qualify
     6. Costs related to the maintenance of the total dollar value of property taxes,
        earned income taxes, basic education funding and special education funding at
        a percentage increase over the prior year equal to the index
     7. Payment of cost of health benefits contained in existing contracts, if the
        percentage increase in costs between years is greater than the index.
        Exception is set at the dollar value by which the percentage increase in health
        care costs exceeds the index
     8. Funding of PSERS rate increases which drive up district cost more that 7.5% in
        a year. The exception equals the dollar amount by which the percentage
        increase in the PSERS contribution exceeds the index.                        31
                                                                     ACT 72 MODEL
                                                                   ABC School District
                                                  5 YEAR REVENUE & EXPENDITURE HISTORY
Table 1




                                                          Change




                                                                                    Change




                                                                                                          Change




                                                                                                                                  Change
                                                            %




                                                                                      %




                                                                                                            %




                                                                                                                                    %
                                            2000-2001                 2001-2002               2002-2003             2003-2004               2004-2005

Revenues
  Local
   Real Estate                            23,828,960     14.99       27,399,755     7.06     29,333,591   10.60    32,443,949     16.29    37,728,531
   Earned Income Tax                       3,174,435      7.38        3,408,673     4.39      3,558,272    8.56     3,862,750      7.33     4,145,953
   Other Local Revenue                     4,979,659      6.15        5,285,708    57.70      8,335,552    1.81     8,486,252    -20.09     6,781,482

  State                                    8,390,457      14.69       9,622,676      3.04     9,914,856    7.42    10,650,882     9.64     11,677,941
  Federal                                    331,019      60.58         531,546     12.11       595,942   -7.18       553,130    26.55        700,000
  Other                                      469,039     -99.95             219    -100.00          -                     -                 1,000,000
Total Revenues                            41,173,569      12.33      46,248,577     11.87    51,738,213   8.23     55,996,963    10.78     62,033,907

Expenditures                              41,894,900      6.53       44,631,083    11.98     49,976,048   10.38    55,162,705    16.08     64,033,907

Difference                                   (721,331)                1,617,494               1,762,165              834,258               (2,000,000)

Fund Balance                                3,500,729                 5,118,223               6,880,388             7,714,646               5,714,646

Table 2

% Millage Increase                              4.55%                   10.01%                    0.93%                 5.01%                   9.82%
% Allowable Increase (Index)                    3.43%                    3.12%                    3.66%                 2.84%                   2.79%
% Difference                                   -1.12%                   -6.89%                    2.73%                -2.17%                  -7.03%

Millage Rate                                    15.64                     17.20                   17.36                 18.23                   20.02
Allowable Millage Rate                          15.47                     16.12                   17.83                 17.85                   18.74
Millage Difference                              (0.17)                    (1.08)                   0.47                 (0.38)                  (1.28)

1 Mill =                                    1,524,078                 1,593,009               1,689,723             1,779,701               1,884,542

$ Difference                                 (256,164)               (1,715,970)               793,359               (670,905)             (2,414,820)


Would have needed referendum?*                   YES                       YES                     NO                    YES                     YES


*Unless other PDE exceptions for referendum could have been met or fund balance was used.

                                                                                                                                              32
                                                                         ACT 72 MODEL
                                                                       ABC School District
                                        5 YEAR REVENUE & EXPENDITURE PROJECTION UNDER ACT 72
                                             (AT $500 MILLION OF STATE GAMING DISTRIBUTION)
Table 6




                                                        % Trend




                                                                                 % Trend




                                                                                                          % Trend




                                                                                                                                   % Trend




                                                                                                                                                            % Trend
                                       BASE YEAR                     YEAR 1                   YEAR 2                   YEAR 3                   YEAR 4                   YEAR 5

                                         2005-2006                 2006-2007                2007-2008                2008-2009                2009-2010                2010-2011
Revenues
  Local
   Gross Real Estate (1)                20,484,638     1.00       20,689,484 1.00          20,896,379 1.00          21,105,343 1.00          21,316,396 1.00          21,529,560
    Less: Homestead (2)                         -                 (1,481,356)              (1,481,356)              (4,613,829)              (4,613,829)              (4,613,829)
    EIT - 0.50%                          1,600,000     2.00        1,632,000 2.00           1,664,640 2.00           1,697,933 2.00           1,731,891 2.00           1,766,529
    EIT - 0.10%                                 -                    244,800                  332,928                  339,587                  346,378                  353,306
    EIT -Additional (2)                         -                        -                        -                  2,037,519                2,771,026                2,826,447
    Other Local Revenue                  1,419,523     1.00        1,433,718 1.00           1,448,055 1.00           1,462,536 1.00           1,477,161 1.00           1,491,933

  State - Non-Gaming                     3,615,265     2.50        3,705,647    2.50        3,798,288    2.50        3,893,245    2.50        3,990,576    2.50        4,090,341
  State - Gaming & Sterling                    -                   1,236,556                1,236,556                2,372,260                2,372,260                2,372,260
  Federal                                   49,841     0.00           49,841    0.00           49,841    0.00           49,841    0.00           49,841    0.00           49,841
  Other                                        -       0.00              -      0.00              -      0.00              -      0.00              -      0.00              -
Total Revenues                          27,169,267                27,510,690               27,945,331               28,344,435               29,441,702               29,866,388

Expenditures                            27,169,990     5.70       28,718,679    5.21       30,214,923    4.76       31,653,153    4.64       33,121,859    4.50       34,612,343
Fund Balance                                   -                         -                        -                        -                        -                        -

Difference                                     (723)              (1,207,989)              (2,269,591)              (3,308,718)              (3,680,157)              (4,745,955)

Table 7
1 Mill =                                   969,770                  979,467                  989,262                  999,155                 1,009,146                1,019,238
Millage Rate Needed
To Balance the Budget                         21.12                    22.36                    23.42                    24.43                    24.77                    25.78

Exception (3)                                    N/A                    0.30                     0.07                     0.06                     0.00                     0.00
Table 8
% Increase in Index (4)                         N/A                   3.17%                    3.17%                    3.17%                    3.17%                    3.17%

Millage Rate at Index (5)                       N/A                    21.79                    22.79                    23.58                    24.40                    25.17
Exception                                        N/A                    0.30                     0.07                     0.06                     0.00                     0.00
Actual Millage Rate                            21.12                   22.09                    22.86                    23.65                    24.40                    25.17

% Increase in Actual Millage                  5.61%                   4.58%                    3.49%                    3.44%                    3.17%                    3.17%

Does the Actual Millage Rate                                             NO                       NO                       NO                       NO                       NO
Balance the Budget?
                                                        If "NO" above: A referendum is needed unless additional exceptions are approved or fund balance is
                                                                                                used, if available.

Table 9: Millage Difference
If NO, Actual vs. Needed                                                -0.27                    -0.56                    -0.79                    -0.37                    -0.61
If YES, Actual vs. Allowable                                             0.00                     0.00                     0.00                     0.00                     0.00
$ Value of Millage Rate Difference                                  (260,599)                (550,815)                (787,969)                (378,241)                (622,120)

(1) Includes the change in revenue as a result of the annual change in total assessed value.
(2) In Year 3 through Year 5, assumes the minimum homestead exclusion.
(3) Estimated PDE exception for increased existing local effort debt service and PSERS contribution.
(4) The 5-year historical average of the Index.                                                                                                                                     33
(5) Increases the prior year's actual millage rate by the 5-year avg. of the Index (unless the millage rate needed to balance the budget is less than the allowable millage).
             Key Issues for Districts under Act 72

                   Issue                                      Discussion
Act 72 Board Decisions                         Basic board decision required by May 2005.
                                               No formal study process required however
Does the district want to study the issue of
                                               accepting gaming money could be a one
accepting the state gaming funds and
                                               shot option.
operating under Act 72?


Rejecting Act 72                               It appears that the gaming revenue will be
                                               distributed to the districts that elect to
What happens if the district declines the
                                               participate. Rejected funds by districts may
state property tax reduction funding?
                                               be used for other purposes. Political issues
                                               may develop.

Size of Property Tax Reduction                 Early in the process this will be difficult.
                                               There are a number of variables regarding
How can a district determine the likely size
                                               tax base, participation in homestead and
of a homestead exclusion resulting from the
                                               actual size of state allocation. Detailed
tax change and gaming revenue?
                                               analysis is needed.

                                                                                              34
              Key Issues for Districts under Act 72

                    Issue                                        Discussion
New EIT Tax                                      Until the tax is actually imposed district will
                                                 not have an exact number. Data available
If a district has never imposed an EIT how
                                                 from the Department of Revenue can
can it determine what revenue would be
                                                 provide a good estimate if you know what
generated?
                                                 categories of income to include. Phila.
                                                 Wage taxes make estimates harder.

Impact of Act 72 on Taxpayers                    It is impossible to analyze the impact for
                                                 every tax payer. The district can estimate
How can a district demonstrate the impact
                                                 the impact on classes of tax payers based
of any of the Act 72 tax changes on
                                                 on assumptions of homestead exclusion,
individual tax payers?
                                                 EIT or PIT rate, state allocation etc.

Not everyone will see a tax decrease             Every qualifying residential property will see
                                                 a property tax reduction. This will be offset
Will every tax payer in the district see a tax
                                                 however by the increased EIT or PIT rate.
reduction as a result of the district’s
                                                 Some taxpayers will actually pay more
participation in Act 72?
                                                 taxes depending on the tax rate and the
                                                 taxpayer’s income.
                                                                                               35
              Key Issues for Districts under Act 72

                    Issue                                         Discussion
EIT vs PIT Tax                                   The EIT or PIT selection will have
                                                 implications both for tax yield and impact on
If the district has the choice of imposing an
                                                 tax payers. The EIT focuses on salaries and
EIT or PIT which should it select?
                                                 wages, PIT includes dividends and other
                                                 unearned income. Income characteristics of
                                                 a district will be critical in this decision.
Philadelphia Wage Tax                            Until such data is collected from the
                                                 taxpayers it will be difficult. There is certain
Act 72 provides that districts will receive
                                                 data available from Philadelphia which can
compensation for the Philadelphia Wage
                                                 aid in this estimate. Estimating this number
Tax credit. How does a district compute the
                                                 is important because it factors into tax
value of this credit?
                                                 reductions.
State Gaming Revenue                             It appears that amounts available to district’s
                                                 can fluctuate both from the state allocation
Once a district takes action to enter into Act
                                                 and the allocation formula. The district is
72, what happens if the gaming revenue
                                                 required to maintain the homestead
allocation falls at some point?
                                                 exclusion irrespective of the state allocation.
                                                                                                36
               Key Issues for Districts under Act 72

                   Issue                                        Discussion
District Budget Cycle                           Essentially the entire schedule will be moved
                                                back. Preliminary budgets must be done in
How will Act 72 change the district’s budget
                                                February which will require the process to
cycle?
                                                begin much earlier and with much less
                                                concrete information on revenue and
                                                expenses.
Exemptions from Referendum                      The Act directs PDE to develop forms and
                                                processes to make these determinations.
There are certain district expenditures which
                                                Since timeframes are very short it will be
can be excluded from the calculations to
                                                advantageous for a district to have a method
determine whether a tax increase exceeds
                                                of determining whether expenses qualify.
the allowable limit. Can these amounts be
determined in advance?
Referendum Communications                       The district will have somewhere between 50
                                                and 60 days to communicate on a
What can a district do to communicate with
                                                referendum. The law prohibits the use of
the public on the need to approve a
                                                public funds to advocate for a position. The
referendum?
                                                district can communicate information.
                                                                                             37
                      Glossary of Terms – Act 72


• Homestead/Farmstead Exclusion – The means by which taxpayers will
  receive a reduction is school property tax obligations. The exclusion is
  expressed as a fixed dollar reduction in the assessed value of a qualified
  property. A taxpayer must apply to qualify as a homestead or farmstead.
• Earned Income Tax (EIT) – An income based tax currently available to
  school districts under Act 511. Maximum rate is 1% split equally
  between the district and municipality. Tax is applied to salaries, wages
  and net profits.
• Personal Income Tax (PIT) – A tax on total personal income which is the
  same base on which the Pennsylvania state income tax is applied. Tax
  base includes salaries, wages, net profits and unearned income including
  interest and dividends.
• Property Tax Reduction Index – A number which measures the relative
  wealth and tax effort of school districts and which determines a district’s
  relative share of gaming revenue.
• Index – The percentage which is used to determine the degree to which a
  district’s tax rate can increase without seeking a public referendum for
  approval. The index is the average of SAWW and ECI.                      38
                     Glossary of Terms – Act 72


• Statewide Average Weekly Wage (SAWW) – The statewide measure of
  the change of average wages of workers year over year.
• Employment Cost Index (ECI) – The statewide measure of the change in
  the cost of employing elementary and secondary school workers
  including salary, wages and benefits year over year.
• Front End Referendum – A public referendum under Act 72 which is
  submitted by the school board to allow the public to consider to the
  imposition of new or increased income taxes.
• Back End Referendum – A pubic referendum under Act 72 which is
  submitted by the school board to allow the public to consider a tax rate
  increase above the annual index. Occurs at general municipal election.
• Referendum Exemption – A school board may apply to exempt some or
  all of a tax increase from the requirements for a back end referendum.
  Exceptions require court or Department of Education approval. Occurs at
  primary election.


                                                                             39

				
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