According to the IFO, Act 1 of Special Session 2006 (Taxpayer Relief Act) and Act 25 of 2011 have saved property tax taxpayers between $500 million and $2 billion over the 6 years of enactment. These savings are mostly due to the requirement school districts limit their millage rate increases to an index, as only 6 school districts approved voter referendums to increase their EIT rates for greater homestead/farmstead exclusions. Overall, the Taxpayer Relief Act has been effective in slowing the growth in school property taxes but has not been effective in reducing school property taxes.
In the near future, I will be introducing legislation to update the Taxpayer Relief Act to reduce school property taxes by billions of dollars, provide more protections for taxpayers, provide more flexibility to school districts and greater transparency for the public. This legislation would specifically:
Mandated School Property Tax Reductions - Requires school districts to use 80% of their savings from pension cost reductions to reduce millage rates. If a school district used a pension exception, then they must use the full exception amount as a reduction in their millage rates. ($2.148 billion in millage rate cuts)
- Requires the budget secretary to transfer 80% of any cost reductions in PSERS for the Commonwealth to the Property Tax Relief Fund. ($2.625 billion in homestead/farmstead exclusions)
- This would provide homeowners and property tax taxpayers approximately $4.773 billion school property tax reduction over 14 years or an average of $341 million per year. This would be a 582% increase over the current property tax relief provided through gaming. In other words, this would provide almost 7 times more property tax relief than slot machine revenue.
- Does not require anyone to pay more so others can pay less.
Mandate Relief/Local Control - Allows school boards to directly raise EIT rates or switch to a PIT for millage rate reductions. It grandfathers in any school district which utilized a voter referendum EIT increase for homestead/farmstead exclusions.
- Eliminates the Local Tax Study Commission mandate.
Homestead/Farmstead Exclusions
- 1% increase in the sales tax rate within a county dedicated for homestead/farmstead exclusions. The distribution for the revenue raised by this tax is sent out on a pro-rated basis to school districts within the county. As a result school districts will receive more for homestead/farmstead exclusions based their percent of the overall homestead/farmstead applications in the county.
- For a City of the First Class this revenue is used to reduce the wage or net profit tax.
Enhanced Taxpayer Protections - If a school district seeks to raise millage rates, the millage rate increase will be offset by any EIT/PIT revenue growth and increase of state funding. This will result in a further reduction of property taxes.
- In 1949, the General Assembly instituted a 25 millage rate hard cap for school districts, but throughout the years this hard cap was amended to the point of worthlessness.
- This legislation would reestablish a hard cap on school property taxes by limiting millage rates increases to only 3 more total mills from their 2015-16 millage rates. Once they hit this new maximum millage rate they can only raise their millage rates through a no-exception voter referendum.
Greater Taxpayer Transparency - Requires each property tax bill to have last year’s total property tax payment so taxpayers can easily compare increases or decreases in payments from year to year. It also requires schools which have not reduced their millage rates to provide an analysis of what each property tax taxpayer would receive in a reduction of their millage rate for a 1% increase in the school district’s EIT rate.
Assessment Reform - Allows school districts to force a reassessment in their county if their county’s coefficient of dispersion is 15 or greater.This works with existing language already in the taxpayer relief act which already contains a windfall provision.
These provisions address some of the issues which have resulted in the current condition of local financing for our school districts. From the lack of diverse revenue streams to the need for assessments, this comprehensive update of the Taxpayer Relief Act will provide short term and long term solutions to the nearly half-century old property tax Rubix Cube. This legislation creates multifaceted interplay in the policy proposals, so please do not hesitate to contact me if you have any questions.
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