News & Issues: Issue Summaries

Pennsylvania's Taxpayer Relief Act (Act 1)

Issue Summary Background:

In 2006 Pennsylvania legislators passed a bill intended to provide significant local tax relief. Entitled "Act 1 of Special Session 2005-2006," the bill creates new opportunities for local taxpayers and school districts, including targeted tax relief to some groups of taxpayers, and the ability for voters to approve (or disapprove) major local school tax increases. Because Act 1 relies upon local action and voter approval, it is important that citizens learn about the act, what it does and does not do, and how they can influence its implementation in their own community.

Act 1 is intended to reduce the real property tax burden on homeowners and on farmers, and involves several important components:

1. Targeted real property tax reductions via the Homestead & Farmstead exclusions
2. Real property tax and rent rebates for low income seniors
3. Reimbursement to school districts who lose income tax revenues to Philadephia
4. Wage tax reductions in Philadelphia
5. Voter approval for future large tax increases (called "Back End" referendum)

The tax reductions and reimbursements will be paid for with state gaming revenues, and in districts which choose to provide larger reductions, with higher local income taxes. It is important to note that Act 1 is a tax shift rather than an overall tax cut, since the targeted reductions are paid for by these two sources of new revenue.

Impact on the school district budget process:

Act 1 each year limits the percentage by which school districts can raise local real estate taxes. If districts exceed this limit, they must ask voters for approval.  Even if a district conforms to the Act 1 limits, taxes can still go up.

PA Act 1 requires school districts to begin the budget process early. Final Budget adoption is not required until June of each year, however, school districts are required to prepare a “Preliminary Budget” months before revenue and expenditure data are most accurate.  The adoption of a Preliminary Budget lets the public know the official budget process has started.  Over the course of the months between adoption of a Preliminary Budget and adoption of a Proposed Budget, goals for the new school year are defined, data is refined, items are prioritized, staff is aligned with need and the public and school community provide input to the Board of School Directors for decision making.

Act 1, Budget process for School Districts:

• December: Approval to Publicly Post Initial Expenditure Budget
• January: Adjust December Budget and Board Adoption of Preliminary Budget
• February, March, April: Revise Preliminary Budget
• Approval to Publicly Post the Preliminary Final Budget
• June: Board Final Adoption of the Budget

Other Resources:

Act 1 Index