Act 1 of Special Session 2006 continues to impact School District operations. The Act marked a milestone this past school year. It was the first year that School Districts received payment from the Property Tax Relief Fund created by the legalization of slot machines in Pennsylvania. Of course, the funds come with strings attached. School Boards must determine the value of the homestead/farmstead exclusion rates in their District and determine whether or not to accept the gaming funds. Act 1 also sets indexes for millage rate increases and a procedure for approval if those rates must be exceeded.
In every odd-numbered year, beginning with calendar year 2009, there are additional opportunities for Boards to reconsider a “front-end” referendum asking voters if they want to increase the School District’s Earned Income Tax or, for some School Districts, establish that tax, or convert an existing Earned Income Tax to a Personal Income Tax for the purpose of providing property tax relief over and above that provided by the gaming funds. In 2007, voters in only nine school districts statewide approved the referendum. Districts interested in placing a referendum on the ballot in 2009 must go through the same procedures from 2007, including the formation of a tax study commission, adopting a Resolution supporting the placement of the question on the ballot and required advertising. One major difference is that the 2009 referendum will occur at the general election in November rather than the primary election as in 2007. Any changes to the local tax structure approved in November 2009 would become effective on July 1, 2010.
Revenue from an increase in the earned income tax rate must be used in combination with gaming revenue to fund the district’s homestead/farmstead exclusion. The one exception is that up to 2% of the revenue from the increased tax can be used for School District operations in the first year in which the new tax rate is effective. Districts that find themselves with more revenue than they need to fund the maximum homestead/farmstead exclusion can either reduce the rate of the income tax so that it produces less revenue or retain the homestead/farmstead exclusions for all property (including commercial property) that is subject to the property tax in the District.