Senate News Update
From Senator Jane Earll
March 5, 2007

Important Ballot Question in the May Primary Election

Primary election day often results in few headline-grabbing returns and low voter turnout. But this year could be different.

On May 15, voters will be asked to vote on ballot questions that affect their school property tax rate.

The Taxpayer Relief Act, Act 1 of 2006 (Special Session), allows school district residents to reduce property taxes by authorizing additional income taxes. It also limits school district property tax rate increases to the annual inflation percentage, unless school district voters approve an additional increase through a back-end referendum.

Act 1 required that each school district appoint a local tax study commission to recommend the rate of the earned income tax (EIT) or personal income tax (PIT) that voters will approve or disapprove. The income taxes will fund property tax reductions in school districts. Further tax reductions would occur once recently approved slots facilities begin sending revenue to the Commonwealth.

School boards have discretion to determine whether to recommend the EIT or the PIT, and the tax rate, so long as their action will provide property tax reductions of 50 percent of the maximum homestead exclusion allowed by law.  The maximum homestead exclusion is 50 percent of the median assessed value of qualifying residential property in the school district. A residential property owner must apply for the homestead exclusion in order to qualify. (New applications are accepted each year before March 1st at the Erie County Assessment Office in the Court House.)

School districts in Pennsylvania already receive funds from the Earned Income Tax, when the municipality collects it.  Earned Income includes wages and net profits. But additional revenues may be collected from a Personal Income Tax on interest, dividends, gambling winnings (except for PA Lottery winnings), certain income from estates and trusts, and income from patents, rents or royalties, if voters approve use of the PIT for property tax reduction.

Voters will also have a say in whether the district can increase property taxes by more than the inflation index. The index is largely determined annually for each school district by averaging the percentage increase in the Statewide Average Weekly Wage and federal employment cost index for elementary and secondary education.

For Fiscal Year 2007–2008, the base index is 3.4 percent. The rates in Erie County school districts range as follows:  3.4% (Fairview); 4.0% (Millcreek); 4.4% (Harbor Creek); 4.5% (General McLane); 4.8% (North East); 5.0% (Erie City); 5.1% (Corry and Iroquois).  Districts which had not adopted resolutions to adhere to the index at the time of this writing are Fort LeBoeuf, Girard, Union City and Wattsburg.

A school district which has resolved to adhere to the index may increase its property tax rate above the index only if approved by voters, or if it is granted one or more exceptions. Exceptions include scenarios that are largely beyond a school district's control and for which property tax rate increases are essential for a school district to balance its budget. Such exceptions include construction projects, pension costs and maintaining per pupil spending.

If the back-end referendum question is not approved by the voters in these districts, they may only increase their property tax rate to the index or to the percentage allowed through the approval of any exceptions.

Please be sure to exercise your right to vote on this question in the upcoming primary election.

As always, if you have questions on this or any state government matter, please do not hesitate to call my office at 814-453-2515.