Taxpayers Guide to the Rendell Property Tax Relief Act of 2006

INTRODUCTION

For more than three decades, Pennsylvania policymakers have repeatedly attempted to devise a mechanism to reduce school district property taxes on homeowners. Such a mechanism has been elusive. A number of past attempts at school district tax reform—including Act 50 of 1998 and Act 72 of 2004—failed for two main reasons: 1) school districts were not required to participate in either law, and 2) these laws relied upon tax-shifting, whereby in order to get a property tax reduction, school district residents would pay equivalent higher taxes elsewhere.

In June 2006, the Pennsylvania General Assembly approved, and Gov. Ed Rendell signed, Special Session Act 1—the latest attempt to provide property tax reductions to Pennsylvania homeowners. Act 1 contains limited immediate property tax reductions for senior citizens and other qualifying residential property owners through a nearly $200 million expansion of the state’s Property Tax and Rent Rebate Program (funded initially by borrowed Lottery Fund revenue).

In addition, some revenues from slot machine gambling will be dedicated to property tax reductions, and school district voters will have the opportunity to expand the amount of relief available—if they are willing to undertake another tax shift.

In the May 2007 primary election, school district voters will be given the option of raising their local earned income tax (or instituting a local earned income tax if one has not already been imposed) or converting to a local personal income tax in exchange for a reduction in their residential property taxes. At the same time, district voters will be given a very limited measure of control over some future tax increases via a “back-end” referendum.

At first glance, Act 1 seems to be an improvement over the current system of school district taxation in Pennsylvania, under which voters have no direct control over school board taxing decisions. Yet a closer examination of the new law finds that regardless of the type of “tax shift” voters may approve, not all district taxpayers will see their tax burden decrease.

Additionally, the type of shift chosen could have serious implications for a school district’s future economic situation (and by extension, its future ability to fund its schools). At the same time, the “back-end” referendum intended to limit school boards’ ability to increase taxes is riddled with exemptions that will undermine taxpayers’ ability to control future school tax increases.