(The Pennsylvania Homeowner Tax Relief Act)

Why Act
M
Why Act 72

Act 72 at a Glance

What You Should Know

Why Many Districts are Concerned

Impact for Residents

Why Back-End Referendum

Glossary

ost Pennsylvanians are not quick

to associate a quality education
with the economic vitality of the
state or their local community.
There are 501 school districts in
Pennsylvania, each given the responsibility
to provide the best possible education
for our children. Their challenge is to do
this as education costs rise and state
funding declines, all while putting as little
tax burden on you as possible.
Finding a fair and equitable way to fund
public education in Pennsylvania has not
been easy. In fact, it has been an ongoing
battle for nearly 25 years. More than 80%
of Pennsylvania s children attend public
schools, yet less than 20% of Pennsylvania
citizens have school-aged children or
children attending public schools. Despite

Out of every school dollar...

Act 72 is a complicated law. This
booklet is designed to help you
understand the basics, what it means
to you as a taxpayer and what it
means to your local school district.
Take the time to learn the pros and
cons of this law and why your local
school district s decision to opt in or
opt out is as important to children
as it is to the economic future of your
community.

this statistic, Pennsylvania has relied on

the property taxes of all homeowners to
fund public schools.
Last summer (2004), in an effort to
reduce the burden on homeowners and
farmers, the governor and general
assembly of Pennsylvania signed the
Homeowner Tax Relief Act or Act 72,
into law. Act 72 is intended to reduce
property taxes by combining state gaming
revenue (income from slot machines)
with new or higher local income taxes.
Act 72 also allows residents in
participating school districts the right to
say yes or no to future property tax
increases above an annually
predetermined index.
Participation in Act 72 is neither
automatic nor required. School districts
have until May 30, 2005 to decide
whether or not to participate in Act 72.
By opting in, school districts would agree
to accept state gaming dollars along with
the terms of the law which include raising
your Earned Income Tax (EIT) or adding a
Personal Income Tax (PIT).
Since the mid-seventies the Pennsylvania
government share of educational
expenditures has declined from 55% to
an average of only 35%. This means that

The State used to provide...

55%

72?
for every dollar in a school district s
checking account, the fifty-five cents that
once came from the state has dropped to
an average of only thirty-five cents, leaving
school boards scrambling to find ways to
make up the difference.
Not only have school districts had to rely
on local taxes to make up for the decline
in state support, but the rising cost of
education has caused many districts
severe financial despair. Traditionally,
districts in communities and
neighborhoods that can afford it, have
found at least some ways to make up the
difference namely by raising property
taxes. Needless to say however, not all
communities have the means, (expanding
local properties and thriving local
businesses) to continue to support a
growing tax. As the cost of education
continues to rise and state funding
continues to decline, even the wealthiest
communities have limits to what they are
willing to shell out in school taxes.
The intent behind Act 72 is to begin the
process of changing the way school
districts are funded and lifting the burden
off of local property owners. Though the
provisions may appear to be adding funds
to schools, Act 72 is not a tax cut, but
rather a tax shift. It does not
eliminate property taxes; it simply
reduces them by moving a set amount
of tax burden from property owners
to income earners.

ACT 72 AT A GLANCE

Act 72 is intended to distribute a portion of the money raised by Pennsylvania

gaming (slot machines) to school districts so that they can lower your
property tax.

Pennsylvania proposes a total of nearly 61,000 slot machines statewide,

second only to the state of Nevada.

To qualify to receive gaming dollars, a school board must pass a

resolution by May 30, 2005 to either increase your Earned Income Tax (EIT) by
0.1% or request a public vote in November (front end referendum) to ask for
an even greater EIT increase or to convert the EIT to a Personal Income Tax
(PIT) to provide for even greater property tax reduction.

School districts that do not currently enact an EIT may ask voters on the
November 2007 ballot.

The state will distribute funds based on a property tax relief index (PTR)
which ranks school districts based on their wealth and local tax effort the
higher the wealth, the lower the ranking the lower the ranking, the lower
the tax relief.

Qualifying residents receive a property tax reduction based on the sum of

state gaming dollars combined with income from EIT and PIT.

School districts that have residents that work in Philadelphia are entitled
to Sterling Act Credits.

Under Act 72, if a school board wishes to raise your taxes over an annually
predetermined index (basically the rate of inflation), they must seek your
approval through a public vote (back-end referendum).

Act 72 does provide exceptions for school districts to raise your taxes under
certain circumstances, (such as unexpected emergencies, safety issues, federal
compliance issues, etc.) without referendum, provided they can obtain court
approval or authorization from the Pennsylvania Department of Education.

Now schools only get

35%
3

WHAT YOU
SHOULD
KNOW
The actual amount of your
tax break depends on
several variables which
include how many
applications were received
and approved by the county
assessor.

As a property owner, in order to qualify for property tax relief, you must
complete an application and return it to your county assessor by March 1.
If you missed the deadline this year you will have the opportunity to apply
by March 1 of each year. Those who have not applied will receive annual
reminders in the mail. Homestead/farmstead exclusions are good for
at least three years.

The state will create two funds; a Property Tax Relief Fund and a Reserve Fund.
The state will not distribute funds until the Secretary of Budget has certified
that there is $500 million in the Property Tax Relief Fund and $400 million in
the Property Tax Relief Reserve Fund.

Because the state will need time to accumulate these funds, tax relief money
may not be available for up to two years.

You will not receive a rebate check. If your school district opts in to Act 72,
your tax break comes in the form of a reduced assessment on your school
tax bill (homestead/farmstead exclusion) thereby reducing the amount
of your bill.

The actual amount of your tax break depends on several variables which include;
how many applications were received and approved by the county assessor,
the amount of money generated by additional earned income tax
and the amount of money your school district receives in Sterling Act
Credit and from state gaming revenues.

In order to receive any tax break at all, you will pay a minimum of a 0.1%
increase in (or new) Earned Income Tax (EIT).

If you pay rent (or do not own your home) you will pay more, not less in taxes.

Individuals without an earned income will not have to pay the additional earned
income tax.

If your district needs to increase the EIT or convert EIT to a Personal Income
Tax (PIT) (or simply add a PIT) to fund Homestead Exclusion, they must ask you
and your neighbors to vote on it in November of 2007.

Every qualifying property in a school district that opts into Act 72

will receive the same dollar amount of tax reduction.

School districts are given only one opportunity to take advantage of a funding
procedure that is so new and complex that no one really knows how
well it will work.

Once a school district opts in they cannot opt out without a referendum.

The amount of income from the property tax relief fund is unpredictable
because it depends upon gaming revenue an unstable funding mechanism.

State gaming allocations to districts will be unpredictable increasing or

decreasing as gaming revenue goes up or down.

School districts must adopt a preliminary budget 90 days before the primary
election in May, well before they know how much money to expect from the
state budget. This places added pressure on school boards, superintendents
and business managers to plan their budget without accurate funding information.

Act 72 does not address the gap between declining state funding and the
rising costs of running a school district such as health care, transportation (fuel)
and technology, etc.

If a referendum fails, many districts have indicated that cutting programs such
as sports, extracurricular activities, transportation and even academic programs
may be unavoidable.

From mailing notices to hiring financial consultants, school districts have already
incurred additional costs in communicating Act 72 whether they decide to
opt in or out.

WHY MANY
SCHOOL
DISTRICTS ARE
CONCERNED
If a referendum fails, many
districts have indicated that
cutting programs such as
sports, extracurricular
activities, transportation and
even academic programs
may be unavoidable.

States that have adopted referendum requirements have faced

challenges such as:

Deferred maintenance on school buildings resulting in hazardous

safety conditions for children

Cuts in extracurricular activities

Outdated and obsolete technology and textbooks

Increases in class sizes

Difficulty in attracting and retaining high

quality teachers

SCHOOL
BOARDS MUST
MAKE A
DECISION BY
MAY 30, 2005

If your school district DOES NOT Opt In by May 30, 2005:

Your local school district...

You...

is spared the moral arguments

associated with gambling

are spared the moral arguments

associated with gambling

will have no other opportunity to

participate in Act 72 in the future

will not be eligible for a property-tax

reduction through homestead/farmstead
exclusion

will not be eligible for a property-tax

reduction through homestead/farmstead
exclusion

will not have to pay more in earned or

personal income taxes

If your school district DOES Opt In by May 30, 2005:

Your local school district...

You...

becomes eligible to receive a share of

state revenues from gaming when they
become available

become eligible for a property tax

reduction if all of these conditions apply:
1. you own your home
2. you live in your home for at least
50% of the year
3. you submit an application to the
county assessor and it is approved

will have to provide adequate

information to help taxpayers
understand why an increase that
exceeds the index is needed

will not receive a rebate check. Your

tax break comes in the form of a
reduced assessment on your school
tax bill (homestead/farmstead exclusion)
thereby reducing the amount of
your bill

is given the authority to impose an

additional Earned Income Tax of 0.1%
or go to referendum to increase the EIT
or impose a Personal Income Tax in
order to fund homestead/farmstead
exclusion

will receive the same homestead

exclusion and same dollar amount of
tax reduction as every homeowner in
our district with an approved
application

maintains the ability to increase

property taxes up to the index

become subject to an additional Earned

Income Tax of 0.1%

must adhere to new budget procedures

which include adopting a preliminary
budget much earlier than currently
required

will share responsibility for the quality of

education in your school district by your
informed vote for or against future tax
increases above the index (back-end
referendum)

The back-end referendum is intended to

give you (the taxpayer) more say in
school district spending by affording you
the opportunity to say yes or no to
tax increases above the index. This
prompts school districts to provide you
with adequate information about
programs or items that require the
additional funding so that your vote is as
informed as possible.
With referendum, it is more essential
than ever for school districts to make an
ongoing effort to keep the public
informed. It is also very important for you
to understand the challenges and financial
demands school districts face just to keep
students achieving at the growing levels
directed by state and federal
requirements namely those under the
President s No Child Left Behind law.

Because the back-end referendum gives

you a voice in education, it is equally as
important for you to understand the
connection between a high-quality
education and the economic future of
our community. If your district opts in to
Act 72 and accepts referendum,
it will be important for you to take the
time to gather the information you need
to make an informed decision on
how to vote.
Even if you are not a parent, go to school
board meetings and ask questions, get to
know the school board, the
superintendent and the administration.
Find out even more by attending school
events and by talking to your neighbors
who have children in public schools.
There is no better time than right now to
understand that education is everyone s
business.

WHY BACK-END
REFERENDUM?
Because the back-end
referendum gives you a
voice in education, it is
equally as important for you
to understand the connection
between a high-quality
education and the economic
future of our community.

Referendum Exceptions
There are ten exceptions under Act 72 law that allow school districts to raise
taxes by more than the established index without going to a referendum. The
exceptions must be approved by the court or the Pennsylvania Department
of Education depending on which exception applies. The exceptions include:
1.

Emergency or disaster

2.

Implementing a federal or state court-ordered action

3. Cost of responding to a condition that poses a serious threat or physical

1. harm to students, staff or residents
4. Debt repayment and construction issues incurred prior to
1. September 3, 2004
5.

Increases in Special Education costs that exceed 10% in a given year

6. Cost to implement a school improvement plan required under

1. No Child Left Behind
7. Three-year average enrollment increase exceeds 7.5% or the actual
1. costs of instructional expenses do not keep pace with the index.
8.

Maintaining district revenue adjusted for the index

9. Costs of employee health benefits negotiated prior to Act 72 that

1. exceed the index
10. Increase in employer retirement plan exceeds 7.5%
7

WHERETOGO
FORADDITIONAL
INFORMATION
This booklet provides only a snapshot of
a very long and complicated law. To find
more detailed information about any of
the preceding information you may visit
any of the following websites:
Your Local School District Website
Pennsylvania Department of

Education www.pde.state.pa.us
Pennsylvania School Boards
Association www.PSBA.org
Pennsylvania Association of School
Business Officials www.PASBO.org

Glossary/Definitions
Back-end referendum the vote by
local taxpayers to say yes or no to a
tax increase once a school districts has
opted in to Act 72 and needs to raise
taxes above the annually predetermined
index.
Earned Income Tax (EIT) tax on
your earned income such as wages,
salaries, tips, gross income and net from
profits of certain business, levied by local
municipalities (pensions and Social
Security exempt).
Farmstead a property of ten acres
or more that include buildings and
structures used for commercial farming
purposes.
Farmstead Exclusion the sum of

Pierce Communications, L.L.C.

125 Strafford Avenue, Suite 300
Wayne, Pennsylvania 19087
(610) 975-0563

' 2005 Pierce Communications, L.L.C All rights reserved.

Index for the purpose of Act 72, the

annual index is based on the average
percentage increase in the Statewide
Average Weekly Wage (SAWW) and the
average percentage increase in the
Employment Cost Index (ECI). The Index
is determined by the Pennsylvania
Department of Education and announced
in September for use in the following
fiscal year.
Personal Income Tax (PIT) tax on
your earned and unearned income such
as rent, royalties, patents, copyrights,
gambling and lottery winnings, etc., levied
by the State (for the purpose of Act 72,
Social Security, pensions, interest and
dividends are exempt).

Front-end referendum the vote

Property Tax Relief Index (PTR)

Gaming gaming in Pennsylvania

To order additional copies please visit

www.piercecommunications.net/Act72
or contact:

money deducted from the assessed value

of your property that is exempt from
taxes. Simply put, it means that for school
tax purposes, the value of your home is
lower, so the amount of tax your local
school district can impose is also lower.

money deducted from the assessed value

of farm buildings (one of which must be
the primary residence of at least one
owner of the property) that is exempt
from taxes. This lowers the amount of tax
a school district can impose.
by local taxpayers to say yes or no to
an increase in the EIT above the
authorized 0.1% or to convert the EIT to
a Personal Income Tax (PIT) in order to
provide additional property tax relief
through larger homestead/farmstead
exclusions.

Prepared by Keith Pierce, APR former press secretary

and director of communications for the Pennsylvania
Department of Education. Keith Pierce has eighteen
years of public and community relations experience
including nine years in education. He is currently
president of Pierce Communications, L.L.C., a
communications, marketing and public relations firm
dedicated to education and non-profit organizations.

Homestead Exclusion the sum of

refers to legislation passed in 2004 to

allow for slot machines in authorized
locations.
Homestead your primary

residence. Note: you may claim only one

homestead.

the ranking of school districts based on

their income per student ratio. This is
the basis for which the state will
distribute the greatest amount of gaming
dollars to districts with the highest level
of poverty.
Referendum a vote by a whole

population on a specific question or

questions put to it by a government or
similar body.
Sterling Act a 1932 law requiring
individuals who commute to work in
Philadelphia to pay a wage tax to the city.
Sterling Act Credits are provided by the
state to schools districts with residents
who work in Philadelphia.