Issue: Tax Reform, Act 1 of 2006

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Act 1 NEWSLETTER
Vol. 1, No. 17, Feb. 13, 2007

IN THIS ISSUE: The notice of intent to apply for back-end referendum exceptions, the nonlegal interpretative statement, the front-end question

SUMMARY : Act 1 requires school boards to request approval for any back-end referendum exceptions it seeks from the county courts no later than 75 days prior to the election immediately preceding the beginning of the school district's fiscal year. For most districts, this date is March 1, 2007. The act also requires boards to publish in a newspaper of general circulation and on the district's publicly accessible Internet site, if one is maintained, notice of its intent to file a petition for a back-end referendum exception at least one week prior to filing the petition. That date is Feb. 22. Boards also must publish, using the same media, notice - as soon as possible following notification from the court - that a hearing has been scheduled, stating the date, time and place of the hearing on the petition.

The act requires similar notice provisions for exceptions sought from the PA Department of Education but otherwise allows PDE to establish procedures for administering exception petitions. Fortunately, PDE has adopted the same timelines that the act prescribes on the court. Therefore, Feb. 22 and March 1 are the key dates for advertising and submitting petitions to both the court and PDE, respectively, for back-end referendum exceptions.

On an altogether different issue, the act also requires election officials in each county, in consultation with school boards, to draft a nonlegal interpretative statement, which must accompany the front-end referendum question in accordance with Section 201.1 of the Pennsylvania Election Code. This statement must accompany your ballot question on the proposed Act 1 income tax. Under Act 1, the nonlegal interpretative statement must inform voters of 1) the reason for the tax; 2) the estimated increase in revenue that the board of school directors has included in the proposed tax rate as authorized in the act; 3) the estimated per homestead reduction; 4) the current rate of earned income and net profits tax levied by the school district; and 5) the proposed tax rate.

Section 3010(b) of the Election Code limits referendum ballot questions to 75 words. This may require the elimination of words, particularly in cases where municipalities levy taxes at different rates.

ANALYSIS : Of the many notices and advertisements Act 1 requires of school districts, the notice of intent to file a petition for a back-end referendum exception probably is one of the simplest. The notice should, at a minimum, include the following information: 1) the school district's Act 1 index for 2007-08; 2) information that explains that if granted, a referendum exception will allow the district to increases taxes above the index without voter approval; 3) information explaining who will determine whether or not the district's petition will be accepted (courts or PDE); 4) information that the dollars generated by the allowed increases in taxes may be used to balance the district's final 2007-08 budget for the purpose of continuing to offer a quality education program to students; and 5) information that the board will supply the time, place and date of any hearing scheduled on the district's petition. A sample notice is included on PSBA's Act 1 Resource Page found in the Members Only of PSBA's Web site.

Unfortunately, the nonlegal interpretative statement is not quite as simple. Representatives from PSBA met recently with representatives from PDE, the PA Department of State - Bureau of Elections and the County Commissioners Association of PA to try to come up with a mutually agreed-upon draft. While the parties came to agreement on most of the items to be included on the statement, there was some disagreement on wording to reflect the provisions of Act 1 and the Election Code that require the statement to explain the reason for the tax (Act 1) or the purpose of the ballot question (Election Code). PSBA proposed language stating that Act 1 requires the board to submit a referendum question to the voters. Other parties expressed concerns that PSBA's proposed statement might be prejudicial and had the potential to encourage voters to cast a negative vote. Attempts to come up with acceptable language failed. PDE, in the meantime, has put a sample nonlegal, interpretative statement on its Web site. Their sample statement begins with the following statement, which changes slightly depending on the taxing option for which voter approval is sought:

Under the Taxpayer Relief Act (also known as Act 1 of Special Session 2006), each local school board - with voter approval - may impose a tax on earned income and net profits in order to pay for reductions in property taxes. In short, the funds generated by an additional income tax will be used to lower property taxes on approved homestead and farmstead properties starting with the 2007-08 fiscal year.

PSBA believes that most districts will find this language unacceptable because it gives the appearance that school districts, rather than the provisions of Act 1, are the cause of the question. The association therefore urges all school districts to take the matter of wording the statement under advisement with their solicitor. Also, alternative wording may result in disapproval of the district's draft statement by the county board of elections, which has final say over how the statement reads.