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"Tax Relief Act" Explained
by Barbara A. RizzoIn recent weeks, there has been a spate of news articles, letters to the editor, and editorials concerning the merits (or lack thereof) of Act 72 of 2004, the Homeowners Tax Relief Act. This article seeks to provide a basic understanding of a very confusing and complicated statute, as school boards wrestle with the decision whether to participate in the Act, and solicit opinions from their constituents as part of the process. Though its name suggests that it may provide relief from taxes, as written, Act 72 will effect a shift in the local tax burden, from the residential real estate taxpayer to the wage earner, in those school districts who decide to participate. This shift will take the form of a credit against the tax bill the residential property owner would otherwise pay, for those property owners who have filled out the appropriate application form. This credit will be funded in part by gaming revenues provided to the school district, and in part by increased revenues collected by the school district following either an increase in its wage tax rate, or its conversion to a personal income tax. Certainly, to the extent that an eligible residential property owner has no or a limited income, the Act may provide some tax relief. But for incomeearning residential property owners, and certainly for the owners of commercial and industrial real estate, the Act's reference to "relief" is a misnomer. Notably, Act 72 will not provide additional revenue to a school district to fund its operations. The gaming revenues generated in Pennsylvania and made available to participating school districts will be used as replacement funds for reduced tax receipts. This, in turn, results from credits to eligible residential real estate taxpayers, i.e., those taxpayers who have timely completed the application form provided by the County assessment office. Gaming receipts must reach a certain threshold before any funds will be available for allocation to participating school districts; it is certainly not expected that any such funds would be available to the school districts (actually, to eligible residential property owners) before July of 2007. Nonetheless, as currently written, to preserve their options, school boards must approve a resolution by May 30, 2005 evidencing their interest in participating. Alternatively, they must place a referendum to this effect on the ballot of the November 2005 general election, and if it fails, adopt a resolution evidencing their interest in participating. While public school districts have long been heavily regulated by the federal and state governments, to proponents of local board control the Act has created additional concern. For example, despite the anticipated delay in gaming allocations, school districts who decide to participate will be required to accelerate their preliminary budget adoption process by several months, beginning with the budget for the 2006-2007 school year. Consequently, school districts may well be preparing preliminary budgets prior to receipt of accurate or complete information concerning health insurance premium increases, basic subsidy funding levels, and staffing needs. Moreover, as alluded to above, in exchange for the partial funding of this credit for residential property owners, a participating school district will be required to increase its wage tax rate or convert to a personal income tax, similar to that imposed by the Commonwealth. In addition, limits will be placed on the extent to which those school districts will be permitted to increase their real estate tax rates in subsequent years, unless they obtain the approval of the Department of Education or the Court of Common Pleas in specific situations and subject to specific limitations. To learn about specific data relating to their communities, readers are encouraged to contact their school board members and administrators, and to attend one of the many scheduled community presentations on Act 72. |
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