Voters to decide school tax structure
By Christine Haines Herald-Standard
Registered voters, regardless of party affiliation, will be deciding whether local schools should continue to be funded through real estate taxes or whether a portion of that tax should be shifted to a wage tax.
A referendum question will appear on the May 15 primary ballot in each school district regarding Act 1, known as the Taxpayer Relief Act.
“Everyone can vote. Even if you are an Independent, you can vote on this issue,” said Alan Shuckrow, an attorney with Strassburger, McKenna, Gutnick and Potter in Pittsburgh and a member of the North Allegheny School Board.
Shuckrow was one of four panelists at a workshop on Act 1 sponsored by the Pennsylvania Institute of Certified Public Accountants.
Another panelist, Timothy Frenz, the managing director of public finance for Janney, Montgomery Scott, said calling Act 1 taxpayer relief is a bit misleading.
“It really does provide property tax relief. It is not necessarily local tax relief,” Frenz said.
Frenz noted that while the amount of property tax relief granted would be a fixed amount in the districts where the referendum passes, the earned income tax paid changes depending on how much money each family earns. In other words, each pay raise is also a tax increase, but the amount of the property tax relief remains the same.
School districts are not allowed to have a windfall profit from the tax shift, but that doesn’t mean that individual taxpayers won’t be impacted.
“It is not revenue-neutral at an individual level. Every individual will either pay more taxes or less taxes, with a number in the middle who are neutral,” Frenz said.
For example, in the Uniontown Area School District, a homeowner who has registered for the homestead exemption will see property taxes reduced by $185.32, but the earned income tax will go up by an additional .4 percent over the current .5 percent tax. That means a family with a household income of $40,000 will pay an additional $160 in earned income tax, for a net tax savings of $25.32. A family with a household income of $50,000 will have a net increase in taxes of $14.68.
“Renters are the big losers in this because they don’t get any property tax reduction because they don’t own their own homes, but if an increased earned income tax or personal income tax is passed, they will pay more,” Frenz said. “The only person who gets the entire break is the person who owns his own home and has no income.”
Shuckrow said that even though the tax shift is supposed to be revenue neutral for the school districts, significantly different earned income tax rates from district to district could cause problems.
“We have a good school district. If we wake up on May 16 and our income tax is twice as high as the districts that border us, is that going to remain the same?” Shuckrow said.
Shuckrow said that even though the tax study commissions appointed by each district could recommend no change in the tax structure, the school boards had to put some tax shift option on the ballot as a referendum.
“They were not given the option of whether or not they put something on the ballot,” Shuckrow said.
Shuckrow said voter turnout tends to be low for primary elections and in his school district, like many others, older voters show up at the polls more often than young voters.
“In the last election in our district, twice as many people 55 and older voted than people 55 and younger. That’s who votes and who will decide this issue,” Shuckrow said.
Shuckrow said that with or without passage of the referendums, all school districts will be eligible to receive state gaming revenue once it becomes available, and that money will be used to offset property taxes.
Shuckrow said districts also now have limits placed on their ability to increase taxes without putting it before the voters in a referendum, but that doesn’t mean taxes won’t go up.
“This back end referendum is going to encourage some school districts to raise their taxes an itty bit each year. The amount they can raise their taxes is a percentage of their current rate. It almost rewards school districts who haven’t kept their millage in check,” Shuckrow said.
There are also numerous exceptions to the millage increase cap, including special education, pension and construction costs.
Dr. Robert Strauss of the Heinz School at Carnegie Mellon, noted that Pennsylvania’s 501 school districts will need to find $2.2 billion in new taxes in 2012 because of unfunded teacher pensions. Strauss said that districts this school year are contributing 6.4 percent to the pension fund, for a statewide total of $764 million. In the 2012-13 school year, the pension contribution rate will jump to 22.52 percent and will require $ 3 billion in funding.
Dr. Jake Haulk, president of the Allegheny Institute, said the tax shift does not provide tax relief.
“You’re going to end up paying more property tax probably, and also more in income tax and that tax isn’t going to come down,” Haulk said. “As it is written, the law relies on people with earned incomes paying more in income tax than they will save in property tax.
“Districts with a high number of seniors who are super voters will pass this. I think that’s what the Legislature was thinking, that the retirees will get out and vote and the people who will be hurt by this won’t. It’s pandering to the older voters,” Haulk said.
The Uniontown Area School District ballot question is similar to those in all the other area school districts The amount of the earned income tax increase will vary from school district to school district. The Uniontown Area School District ballot question states: “Do you favor imposing an additional 0.4 % earned income tax? The revenue generated from the increased tax rate will be used to reduce taxes on qualified residential properties by $185.32. The current earned income tax rate is 0.5%.
Editor’s note: Graphs showing the impact of the earned income tax increase and net change for property owners who qualify for a property tax reduction are available at www.heraldstandard.com.