(The Pennsylvania Homeowner Tax Relief Act)

55%

Out of every school dollar...

The State used to provide...

Why Act 72 3

Act 72 at a Glance 4

What You Should Know 5

Why Many Districts are Concerned 6

Impact for Residents 7

Why Back-End Referendum 8

Glossary 9

Act 72 is a complicated law. Thisbooklet is designed to help youunderstand the basics, what it meansto you as a taxpayer and what itmeans to your local school district.Take the time to learn the pros andcons of this law and why your localschool district s decision to opt in oropt out is as important to childrenas it is to the economic future of yourcommunity.

Why Act

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ost Pennsylvanians are not quickto associate a quality educationwith the economic vitality of thestate or their local community.

There are 501 school districts inPennsylvania, each given the responsibilityto provide the best possible educationfor our children. Their challenge is to dothis as education costs rise and statefunding declines, all while putting as littletax burden on you as possible.

Finding a fair and equitable way to fundpublic education in Pennsylvania has notbeen easy. In fact, it has been an ongoingbattle for nearly 25 years. More than 80%of Pennsylvania s children attend publicschools, yet less than 20% of Pennsylvania citizens have school-aged children orchildren attending public schools. Despite

this statistic, Pennsylvania has relied onthe property taxes of all homeowners tofund public schools.

Last summer (2004), in an effort toreduce the burden on homeowners andfarmers, the governor and generalassembly of Pennsylvania signed theHomeowner Tax Relief Act or Act 72,into law. Act 72 is intended to reduceproperty taxes by combining state gamingrevenue (income from slot machines)with new or higher local income taxes.Act 72 also allows residents inparticipating school districts the right tosay yes or no to future property taxincreases above an annuallypredetermined index.

Participation in Act 72 is neitherautomatic nor required. School districtshave until May 30, 2005 to decidewhether or not to participate in Act 72.By opting in, school districts would agreeto accept state gaming dollars along withthe terms of the law which include raisingyour Earned Income Tax (EIT) or adding aPersonal Income Tax (PIT).

Since the mid-seventies the Pennsylvaniagovernment share of educationalexpenditures has declined from 55% toan average of only 35%. This means that

M

35%Now schools only get

for every dollar in a school district schecking account, the fifty-five cents thatonce came from the state has dropped toan average of only thirty-five cents, leavingschool boards scrambling to find ways tomake up the difference.

Not only have school districts had to relyon local taxes to make up for the declinein state support, but the rising cost ofeducation has caused many districtssevere financial despair. Traditionally,districts in communities andneighborhoods that can afford it, havefound at least some ways to make up thedifference — namely by raising propertytaxes. Needless to say however, not allcommunities have the means, (expandinglocal properties and thriving localbusinesses) to continue to support agrowing tax. As the cost of educationcontinues to rise and state fundingcontinues to decline, even the wealthiestcommunities have limits to what they arewilling to shell out in school taxes.

The intent behind Act 72 is to begin theprocess of changing the way schooldistricts are funded and lifting the burdenoff of local property owners. Though theprovisions may appear to be adding fundsto schools, Act 72 is not a tax cut, butrather a tax shift. It does noteliminate property taxes; it simplyreduces them by moving a set amountof tax burden from property ownersto income earners.

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■ Act 72 is intended to distribute a portion of the money raised by Pennsylvania■ gaming (slot machines) to school districts so that they can lower your ■ property tax.

■ Pennsylvania proposes a total of nearly 61,000 slot machines statewide, ■ second only to the state of Nevada.

■ To qualify to receive gaming dollars, a school board must pass a■ resolution by May 30, 2005 to either increase your Earned Income Tax (EIT) by■ 0.1% or request a public vote in November (front end referendum) to ask for ■ an even greater EIT increase or to convert the EIT to a Personal Income Tax ■ (PIT) to provide for even greater property tax reduction.

■ School districts that do not currently enact an EIT may ask voters on the ■ November 2007 ballot.

■ The state will distribute funds based on a property tax relief index (PTR) ■ which ranks school districts based on their wealth and local tax effort — the ■ higher the wealth, the lower the ranking — the lower the ranking, the lower■ the tax relief.

■ Qualifying residents receive a property tax reduction based on the sum of■ state gaming dollars combined with income from EIT and PIT.

■ School districts that have residents that work in Philadelphia are entitled ■ to Sterling Act Credits.

■ Under Act 72, if a school board wishes to raise your taxes over an annually ■ predetermined index (basically the rate of inflation), they must seek your ■ approval through a public vote (back-end referendum).

■ Act 72 does provide exceptions for school districts to raise your taxes under ■ certain circumstances, (such as unexpected emergencies, safety issues, federal ■ compliance issues, etc.) without referendum, provided they can obtain court ■ approval or authorization from the Pennsylvania Department of Education.

ACT 72 AT A GLANCE

The actual amount of yourtax break depends onseveral variables which

include how manyapplications were received

and approved by the countyassessor.

WHAT YOUSHOULD

KNOW

■ As a property owner, in order to qualify for property tax relief, you must ■ complete an application and return it to your county assessor by March 1. ■ If you missed the deadline this year you will have the opportunity to apply ■ by March 1 of each year. Those who have not applied will receive annual ■ reminders in the mail. Homestead/farmstead exclusions are good for ■ at least three years.

■ The state will create two funds; a Property Tax Relief Fund and a Reserve Fund. ■ The state will not distribute funds until the Secretary of Budget has certified ■ that there is $500 million in the Property Tax Relief Fund and $400 million in ■ the Property Tax Relief Reserve Fund.

■ Because the state will need time to accumulate these funds, tax relief money ■ may not be available for up to two years.

■ You will not receive a rebate check. If your school district opts in to Act 72, ■ your tax break comes in the form of a reduced assessment on your school ■ tax bill (homestead/farmstead exclusion) thereby reducing the amount ■ of your bill.

■ The actual amount of your tax break depends on several variables which include;■ ● how many applications were received and approved by the county assessor, ■ ● the amount of money generated by additional earned income tax ■ ● and the amount of money your school district receives in Sterling Act ■ ■ Credit and from state gaming revenues.

■ In order to receive any tax break at all, you will pay a minimum of a 0.1% ■ increase in (or new) Earned Income Tax (EIT).

■ If you pay rent (or do not own your home) you will pay more, not less in taxes.

■ Individuals without an earned income will not have to pay the additional earned ■ income tax.

■ If your district needs to increase the EIT or convert EIT to a Personal Income ■ Tax (PIT) (or simply add a PIT) to fund Homestead Exclusion, they must ask you ■ and your neighbors to vote on it in November of 2007.

■ Every qualifying property in a school district that opts into Act 72 ■ will receive the same dollar amount of tax reduction. ■

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If a referendum fails, manydistricts have indicated thatcutting programs such assports, extracurricularactivities, transportation andeven academic programsmay be unavoidable.

WHY MANYSCHOOLDISTRICTS ARECONCERNED

■ School districts are given only one opportunity to take advantage of a funding ■ procedure that is so new and complex that no one really knows how ■ well it will work.

■ Once a school district opts in they cannot opt out without a referendum.

■ The amount of income from the property tax relief fund is unpredictable ■ because it depends upon gaming revenue — an unstable funding mechanism.

■ State gaming allocations to districts will be unpredictable increasing or ■ decreasing as gaming revenue goes up or down.

■ School districts must adopt a preliminary budget 90 days before the primary ■ election in May, well before they know how much money to expect from the ■ state budget. This places added pressure on school boards, superintendents ■ and business managers to plan their budget without accurate funding information.

■ Act 72 does not address the gap between declining state funding and the ■ rising costs of running a school district such as health care, transportation (fuel) ■ and technology, etc.

■ If a referendum fails, many districts have indicated that cutting programs such ■ as sports, extracurricular activities, transportation and even academic programs ■ may be unavoidable.

■ From mailing notices to hiring financial consultants, school districts have already ■ incurred additional costs in communicating Act 72 whether they decide to ■ opt in or out.

States that have adopted referendum requirements have faced challenges such as:

■ Deferred maintenance on school buildings resulting in hazardous safety conditions for children

■ Cuts in extracurricular activities

■ Outdated and obsolete technology and textbooks

■ Increases in class sizes

■ Difficulty in attracting and retaining high quality teachers

SCHOOLBOARDS MUST

MAKE ADECISION BY

MAY 30, 2005

If your school district DOES NOT Opt In by May 30, 2005:

Your local school district... You...

is spared the moral argumentsassociated with gambling

will have no other opportunity toparticipate in Act 72 in the future

will not be eligible for a property-taxreduction through homestead/farmsteadexclusion

are spared the moral argumentsassociated with gambling

will not be eligible for a property-taxreduction through homestead/farmsteadexclusion

will not have to pay more in earned orpersonal income taxes

Your local school district... You...

becomes eligible to receive a share ofstate revenues from gaming when theybecome available

will have to provide adequateinformation to help taxpayersunderstand why an increase thatexceeds the index is needed

is given the authority to impose anadditional Earned Income Tax of 0.1%or go to referendum to increase the EITor impose a Personal Income Tax inorder to fund homestead/farmsteadexclusion

maintains the ability to increaseproperty taxes up to the index

must adhere to new budget procedureswhich include adopting a preliminarybudget much earlier than currentlyrequired

become eligible for a property taxreduction if all of these conditions apply:1. you own your home2. you live in your home for at least

50% of the year3. you submit an application to the

county assessor and it is approved

will not receive a rebate check. Yourtax break comes in the form of areduced assessment on your school tax bill (homestead/farmstead exclusion)thereby reducing the amount of your bill

will receive the same homesteadexclusion and same dollar amount oftax reduction as every homeowner inour district with an approvedapplication

become subject to an additional EarnedIncome Tax of 0.1%

will share responsibility for the quality ofeducation in your school district by yourinformed vote for or against future taxincreases above the index (back-endreferendum)

If your school district DOES Opt In by May 30, 2005:

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WHY BACK-ENDREFERENDUM?Because the back-endreferendum gives you avoice in education, it isequally as important for youto understand the connectionbetween a high-qualityeducation and the economicfuture of our community.

Referendum Exceptions

The back-end referendum is intended togive you (the taxpayer) more say inschool district spending by affording youthe opportunity to say yes or no totax increases above the index. Thisprompts school districts to provide youwith adequate information aboutprograms or items that require theadditional funding so that your vote is asinformed as possible.

With referendum, it is more essentialthan ever for school districts to make anongoing effort to keep the publicinformed. It is also very important for youto understand the challenges and financialdemands school districts face just to keepstudents achieving at the growing levelsdirected by state and federalrequirements — namely those under thePresident s No Child Left Behind law.

Because the back-end referendum givesyou a voice in education, it is equally asimportant for you to understand theconnection between a high-qualityeducation and the economic future ofour community. If your district opts in toAct 72 and accepts referendum, it will be important for you to take thetime to gather the information you needto make an informed decision on how to vote.

Even if you are not a parent, go to schoolboard meetings and ask questions, get toknow the school board, thesuperintendent and the administration.Find out even more by attending schoolevents and by talking to your neighborswho have children in public schools.There is no better time than right now tounderstand that education is everyone sbusiness.

There are ten exceptions under Act 72 law that allow school districts to raise taxes by more than the established index without going to a referendum. Theexceptions must be approved by the court or the Pennsylvania Departmentof Education depending on which exception applies. The exceptions include:

1. Emergency or disaster

2. Implementing a federal or state court-ordered action

3. Cost of responding to a condition that poses a serious threat or physical1. harm to students, staff or residents

4. Debt repayment and construction issues incurred prior to 1. September 3, 2004

5. Increases in Special Education costs that exceed 10% in a given year

6. Cost to implement a school improvement plan required under 1. No Child Left Behind

7. Three-year average enrollment increase exceeds 7.5% or the actual 1. costs of instructional expenses do not keep pace with the index.

8. Maintaining district revenue adjusted for the index

9. Costs of employee health benefits negotiated prior to Act 72 that 1. exceed the index

10. Increase in employer retirement plan exceeds 7.5%

Prepared by Keith Pierce, APR — former press secretaryand director of communications for the PennsylvaniaDepartment of Education. Keith Pierce has eighteenyears of public and community relations experienceincluding nine years in education. He is currentlypresident of Pierce Communications, L.L.C., acommunications, marketing and public relations firmdedicated to education and non-profit organizations.

To order additional copies please visitwww.piercecommunications.net/Act72or contact:

Pierce Communications, L.L.C.125 Strafford Avenue, Suite 300 Wayne, Pennsylvania 19087(610) 975-0563

' 2005 Pierce Communications, L.L.C — All rights reserved.

This booklet provides only a snapshot ofa very long and complicated law. To findmore detailed information about any ofthe preceding information you may visitany of the following websites:

■ Your Local School District Website ■ Pennsylvania Department of

Education — www.pde.state.pa.us■ Pennsylvania School Boards

Association — www.PSBA.org■ Pennsylvania Association of School

Business Officials — www.PASBO.org

WHERETOGOFORADDITIONALINFORMATION

Glossary/Definitions■ Back-end referendum — the vote bylocal taxpayers to say yes or no to atax increase once a school districts hasopted in to Act 72 and needs to raisetaxes above the annually predeterminedindex.

■ Earned Income Tax (EIT) — tax onyour earned income such as wages,salaries, tips, gross income and net fromprofits of certain business, levied by localmunicipalities (pensions and SocialSecurity exempt).

■ Farmstead — a property of ten acresor more that include buildings andstructures used for commercial farmingpurposes.

■ Farmstead Exclusion —the sum ofmoney deducted from the assessed valueof farm buildings (one of which must bethe primary residence of at least oneowner of the property) that is exemptfrom taxes. This lowers the amount of taxa school district can impose.

■ Front-end referendum — the voteby local taxpayers to say yes or no toan increase in the EIT above theauthorized 0.1% or to convert the EIT toa Personal Income Tax (PIT) in order toprovide additional property tax reliefthrough larger homestead/farmsteadexclusions.

■ Gaming — gaming in Pennsylvaniarefers to legislation passed in 2004 toallow for slot machines in authorizedlocations.

■ Homestead — your primaryresidence. Note: you may claim only onehomestead.

■ Homestead Exclusion — the sum ofmoney deducted from the assessed valueof your property that is exempt fromtaxes. Simply put, it means that for schooltax purposes, the value of your home islower, so the amount of tax your localschool district can impose is also lower.

■ Index — for the purpose of Act 72, theannual index is based on the averagepercentage increase in the StatewideAverage Weekly Wage (SAWW) and theaverage percentage increase in theEmployment Cost Index (ECI). The Indexis determined by the PennsylvaniaDepartment of Education and announcedin September for use in the followingfiscal year.

■ Personal Income Tax (PIT) — tax onyour earned and unearned income suchas rent, royalties, patents, copyrights,gambling and lottery winnings, etc., leviedby the State (for the purpose of Act 72,Social Security, pensions, interest anddividends are exempt).

■ Property Tax Relief Index (PTR) —the ranking of school districts based ontheir income per student ratio. This isthe basis for which the state willdistribute the greatest amount of gamingdollars to districts with the highest levelof poverty.

■ Referendum — a vote by a wholepopulation on a specific question orquestions put to it by a government orsimilar body.

■ Sterling Act — a 1932 law requiringindividuals who commute to work inPhiladelphia to pay a wage tax to the city.Sterling Act Credits are provided by thestate to schools districts with residentswho work in Philadelphia.