PRINTER'S NO. 1210
No. 1035 Session of 2003
INTRODUCED BY REED, ARMSTRONG, BASTIAN, BIRMELIN, CAPPELLI,
CAUSER, COLEMAN, FORCIER, HABAY, HARRIS, HERSHEY, HUTCHINSON,
LEWIS, McCALL, McILHATTAN, McILHINNEY, PAYNE, ROHRER,
SCAVELLO, R. STEVENSON, T. STEVENSON AND WILT, APRIL 2, 2003
REFERRED TO COMMITTEE ON FINANCE, APRIL 2, 2003
AN ACT
1 Establishing the School Property Tax Reduction Fund; authorizing
2 an additional personal income tax; providing for
3 distributions to school districts, for question to be
4 submitted to electors and for certain referendum relating to
5 school property tax elimination; imposing limitations on
6 earned income tax rate; authorizing certain increases on
7 earned income tax rate; prohibiting and limiting real
8 property tax in certain school districts; and authorizing
9 resubmission of referendum under certain circumstances.
10 TABLE OF CONTENTS
11 Section 1. Short title.
12 Section 2. Definitions.
13 Section 3. School Property Tax Reduction Fund.
14 Section 4. Additional personal income tax imposed.
15 Section 5. Distributions to school districts.
16 Section 6. Question to be submitted to electors.
17 Section 7. Binding referendum on school property tax
18 elimination.
19 Section 8. Earned income tax rate limits.
20 Section 9. Earned income tax rate increases.
1 Section 10. Real property tax prohibition in school districts
2 approving referendum.
3 Section 11. Real property tax limitation in school districts
4 defeating referendum.
5 Section 12. Resubmission of referendum.
6 Section 13. Applicability.
7 Section 14. Effective date.
8 The General Assembly of the Commonwealth of Pennsylvania
9 hereby enacts as follows:
10 Section 1. Short title.
11 This act shall be known and may be cited as the School
12 Property Tax Reduction and Optional Elimination Act.
13 Section 2. Definitions.
14 The following words and phrases when used in this act shall
15 have the meanings given to them in this section unless the
16 context clearly indicates otherwise:
17 "Department." The Department of Revenue of the Commonwealth.
18 "Earned income tax." A tax on earned income and net profits
19 levied under section 13 of the act of December 31, 1965
20 (P.L.1257, No.511), known as The Local Tax Enabling Act.
21 "Election officials." The county board of elections of a
22 county.
23 "Fund." The School Property Tax Reduction Fund established
24 under section 3.
25 "Governing body." The board of school directors of a school
26 district.
27 "Local tax revenue." The revenue from taxes actually levied
28 and assessed by a school district. The term does not include
29 interest or dividend earnings, Federal or State grants,
30 contracts or appropriations, income generated from operations or
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1 any other source that is not derived from taxes levied and
2 assessed by a school district.
3 "Statewide average weekly wage." The amount determined
4 annually for each calendar year by the Department of Labor and
5 Industry under section 105.1 of the act of June 2, 1915
6 (P.L.736, No.338), known as the Workers' Compensation Act.
7 "Tax Reform Code." The act of March 4, 1971 (P.L.6, No.2),
8 known as the Tax Reform Code of 1971.
9 "The Local Tax Enabling Act." The act of December 31, 1965
10 (P.L.1257, No.511), known as The Local Tax Enabling Act.
11 Section 3. School Property Tax Reduction Fund.
12 (a) Establishment.--There is hereby established in the State
13 Treasury a special fund to be known as the School Property Tax
14 Reduction Fund.
15 (b) Custodian.--The State Treasurer shall be custodian of
16 the fund, which shall be subject to the provisions of law
17 applicable to funds listed in section 302 of the act of April 9,
18 1929 (P.L.343, No.176), known as The Fiscal Code.
19 (c) Funding.--
20 (1) The tax imposed pursuant to section 4 shall be
21 received by the department and paid to the State Treasurer
22 and, along with interest and penalties and any refunds and
23 credits paid, shall be credited to the fund not less
24 frequently than every two weeks.
25 (2) During any period prior to the credit of moneys to
26 the fund, interest earned on moneys received by the
27 department and paid to the State Treasurer pursuant to this
28 act shall be deposited into the fund.
29 (3) All moneys in the fund, including, but not limited
30 to, moneys credited to the fund pursuant to this section,
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1 prior year encumbrances and the interest earned thereon,
2 shall not lapse or be transferred to any other fund, but
3 shall remain in the fund and be used exclusively as provided
4 in this act.
5 (4) Pending their disbursement, moneys received on
6 behalf of or deposited into the fund shall be invested or
7 reinvested as are other funds in the custody of the State
8 Treasurer in the manner provided by law. All earnings
9 received from the investment or deposit of such funds shall
10 be credited to the fund.
11 (d) Limitations on fund.--Moneys deposited in or
12 appropriated to the fund shall be used solely as provided in
13 this act.
14 Section 4. Additional personal income tax imposed.
15 (a) Construction.--The tax imposed by this section shall be
16 in addition to any tax imposed by the Commonwealth pursuant to
17 Article III of the Tax Reform Code. The provisions of Article
18 III of the Tax Reform Code shall apply to the tax imposed by
19 this act.
20 (b) Personal income tax.--There is hereby imposed a tax upon
21 each class of income as defined in Article III of the Tax Reform
22 Code. The tax shall be collected and shall be paid over to the
23 Commonwealth as provided in Article III of the Tax Reform Code.
24 (c) Rate.--The tax imposed by subsection (b) shall be at the
25 rate of 0.55%.
26 (d) Deposit of tax proceeds.--The department shall deposit
27 taxes collected under this section in the fund pursuant to the
28 provisions of section 3.
29 (e) Rules and regulations.--The rules and regulations of the
30 department which are promulgated under Article III of the Tax
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1 Reform Code, or any other act, shall be applicable to the tax
2 imposed by this section to the extent that they are applicable
3 to the tax imposed under Article III of the Tax Reform Code.
4 Section 5. Distributions to school districts.
5 (a) General rule.--The State Treasurer shall make
6 distributions from the fund to each school district as provided
7 in this section.
8 (b) Amount of distributions.--Amounts deposited in the fund
9 under section 4 shall be distributed to each school district
10 under this section in proportion to the amount of total State
11 funding received by the school district in fiscal year 2002-2003
12 divided by the amount of total State funding received by all
13 school districts in this Commonwealth in fiscal year 2002-2003.
14 (c) Minimum distribution.--For each fiscal year, a school
15 district shall receive distributions from the fund in an amount
16 not less than 25% of the amount of total State funding received
17 by the district in the State fiscal year 2002-2003.
18 (d) Frequency of distributions.--Distributions to school
19 districts under this section shall be made at least quarterly
20 beginning October 1, 2003.
21 (e) Duties of Department of Education.--The Department of
22 Education shall supply the State Treasurer with all information
23 necessary to make the distributions required under this section.
24 (f) Use of proceeds.--Each school district shall use the
25 distributions received by it under this section only for the
26 purpose of reducing the tax on real property levied by the
27 district.
28 Section 6. Question to be submitted to electors.
29 (a) Question required.--The governing body of each school
30 district shall cause a referendum question pursuant to section 7
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1 to be submitted to the electors of the school district at the
2 2004 general election.
3 (b) Failure to act.--If the board of school directors fails
4 to adopt the resolution required by subsection (a) prior to the
5 90th day preceding the 2004 general election, the election
6 officials shall prepare a referendum question for the school
7 district. The Department of Education shall provide assistance
8 to the election officials in fulfilling their duties under this
9 subsection.
10 (c) Referendum procedure.--
11 (1) For the 2004 general election, the county board of
12 elections shall cause the question required by this section
13 to be submitted to the electors of the school district.
14 (2) The procedure for the referendum under this section
15 shall be governed by the act of June 3, 1937 (P.L.1333,
16 No.320), known as the Pennsylvania Election Code.
17 (d) Nonapplicability.--This section shall not apply to a
18 school district of the first class.
19 Section 7. Binding referendum on school property tax
20 elimination.
21 (a) Referendum on eliminating the school property tax.--A
22 school district may increase the maximum rate of the earned
23 income tax sufficient to eliminate the real property tax only by
24 obtaining the approval of the electorate of the affected school
25 district in a public referendum.
26 (b) Contents of question.--The referendum question
27 authorized by subsection (a) shall state the maximum rate of the
28 earned income tax calculated under section 8 and that the
29 additional revenue generated by an increase in the earned income
30 tax will be used to eliminate the school district's real
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1 property tax. The question shall be in clear language that is
2 readily understandable by a layperson. For the purpose of
3 illustration, a referendum question may be framed as follows:
4 Do you favor increasing the rate of the earned income tax
5 to a maximum of X%, with the requirement that the
6 increase be used to eliminate the real property tax in
7 [name of school district]?
8 (c) Vote.--
9 (1) If a majority of the electors voting on the question
10 vote "yes," then the governing body shall implement an
11 increase in the earned income tax pursuant to section 8, and
12 the governing body shall eliminate the school district's real
13 property tax as required by section 10.
14 (2) If a majority of the electors voting on the question
15 vote "no," the governing body may not increase the rate of
16 the earned income tax above the maximum rate otherwise
17 provided by law, and the governing body shall be limited by
18 the provisions of section 11.
19 (d) Voting proceedings.--Proceedings under this section
20 shall be in accordance with the provisions of the act of June 3,
21 1937 (P.L.1333, No.320), known as the Pennsylvania Election
22 Code.
23 Section 8. Earned income tax rate limits.
24 (a) General rule.--Except as otherwise provided under
25 section 9, for each fiscal year beginning after approval of the
26 referendum required under section 6 or a referendum permitted
27 under section 12, the governing body of a school district shall
28 impose the earned income tax at a rate not exceeding the maximum
29 earned income tax rate as calculated under subsection (b).
30 (b) Calculation of maximum earned income tax rate.--The
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1 maximum earned income tax rate shall be determined by taking the
2 sum of the rates calculated under paragraphs (1) and (2),
3 subject to the limitation set forth under paragraph (3) as
4 follows:
5 (1) The rate of the earned income tax that would have
6 resulted in the collection by the school district of an
7 amount equal to the amount collected from the real property
8 tax, including any delinquent real property tax. The
9 calculation under this paragraph shall be made using actual
10 revenue collections for the fiscal year ending immediately
11 prior to the referendum.
12 (2) The rate at which the earned income tax was
13 collected by the school district for the fiscal year ending
14 immediately prior to the referendum.
15 (3) The tax rate determined under paragraphs (1) and (2)
16 shall be rounded off to the nearest increment of 0.10%. The
17 maximum rate of the earned income tax calculated under this
18 subsection shall not be subject to the limits on the earned
19 income tax specified in section 8(3) of The Local Tax
20 Enabling Act.
21 (c) Other rates of taxation.--If a municipality or school
22 district, both of which impose an earned income tax on the same
23 individual under The Local Tax Enabling Act and both of which
24 are limited to or have agreed upon a division of the tax rate in
25 accordance with section 8(3) of The Local Tax Enabling Act, and
26 the school district receives voter approval under section 7 and
27 opts to increase the rate of earned income tax in excess of that
28 limit or agreement, then the municipality which does not receive
29 voter approval shall remain subject to that limit or agreement.
30 Section 9. Earned income tax rate increases.
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1 (a) Allowable increase.--A school district that has approved
2 a referendum under section 6 or 12 may increase the rate of the
3 earned income tax above the limit authorized in the ballot
4 question under section 7 by up to one-tenth of one percent in
5 each year following the first year of implementation of an
6 increase in the earned income tax under section 8.
7 (b) Referendum for certain increases.--A school district
8 that has approved a referendum under section 6 or 12 may
9 increase the rate of the earned income tax by more than one-
10 tenth of one percent by obtaining approval of the electorate of
11 the affected school district in a referendum at the primary
12 election immediately preceding the fiscal year of the proposed
13 tax increase. If the electorate fails to approve the proposed
14 referendum question to increase the rate of the earned income
15 tax, the governing body shall be limited to the rate of tax
16 permitted prior to the referendum.
17 Section 10. Real property tax prohibition in school districts
18 approving referendum.
19 (a) General rule.--For each fiscal year beginning after
20 approval of the referendum required under section 6 or a
21 referendum permitted under section 12, a school district is
22 prohibited from levying, assessing or collecting a tax on real
23 property.
24 (b) Applicability.--This section shall not apply to the
25 collection of delinquent real property taxes.
26 Section 11. Real property tax limitation in school districts
27 defeating referendum.
28 (a) General rule.--Except as provided in subsections (c) and
29 (d), a governing body of a school district that defeats a
30 referendum required under section 6 shall be subject to this
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1 section and may not increase the rate of its tax on real
2 property without first obtaining the approval of the electorate
3 of the affected school district in a referendum at the primary
4 election immediately preceding the fiscal year of the proposed
5 tax increase. This section shall apply to fiscal years beginning
6 after the defeat of the referendum required under section 6.
7 (b) Disapproval.--Whenever the electorate fails to approve
8 the proposed referendum question to increase the rate of tax on
9 real property under subsection (a), the governing body shall be
10 limited to the rate of tax permitted to be in effect prior to
11 the referendum.
12 (c) Exceptions.--
13 (1) The provisions of subsection (a) shall not apply to
14 an increase in the rate of the real property tax that does
15 not cause local tax revenue, excluding real property taxes to
16 be levied on newly constructed buildings or structures or on
17 increased valuations based on new improvements made to
18 existing houses, to increase by more than the percentage
19 increase in the Statewide average weekly wage in the
20 preceding year. Prior to any increase under this paragraph,
21 the governing body shall certify to the Department of
22 Education the estimates of total local tax revenues used in
23 the calculation under this paragraph. The Department of
24 Education may, on its own motion or on petition of a person
25 having standing under subsection (e), revise the estimates
26 certified by the governing body and reduce the allowable
27 increase in the rate of the real property tax under this
28 paragraph.
29 (2) The provisions of subsection (a) shall not apply to
30 an increase in the rate of the real property tax if the
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1 governing body satisfies the requirements of paragraph (1) to
2 the maximum amount allowed:
3 (i) To respond to or recover from an emergency or
4 disaster declared pursuant to 35 Pa.C.S. § 7301 (relating
5 to general authority of Governor) or 75 Pa.C.S. § 6108
6 (relating to power of Governor during emergency), but
7 only for the duration of the emergency or disaster and
8 for the costs of the recovery from the emergency or
9 disaster.
10 (ii) To implement a court order or an administrative
11 order from a Federal or State agency that requires the
12 expenditure of funds that exceeds current available
13 revenues. The rate increase shall be rescinded following
14 fulfillment of the court order or administrative order.
15 (iii) To pay interest and principal on any
16 indebtedness incurred under 53 Pa.C.S. Pt. VII Subpt. B
17 (relating to indebtedness and borrowing). However, in no
18 case may a school district incur additional debt under
19 this subparagraph, except for the refinancing of existing
20 debt, including the payment of costs and expenses related
21 to such refinancing and the establishment or funding of
22 appropriate debt service reserves. The increase shall be
23 rescinded following the final payment of interest and
24 principal. The exception provided under this subparagraph
25 shall not be used to avoid referendum requirements to pay
26 for costs which could not be financed by the issuance of
27 debt under 53 Pa.C.S. Pt. VII Subpt. B.
28 (iv) To respond to conditions that pose an immediate
29 threat of serious physical harm or injury to the
30 students, staff or residents of the school district until
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1 the circumstances causing the threat have been fully
2 resolved.
3 (v) Special purpose tax levies approved by the
4 electorate.
5 (vi) To maintain per-student local tax revenue in
6 the school district at an amount not exceeding the amount
7 of per-student local tax revenue of the preceding year,
8 adjusted for the percentage increase in the Statewide
9 average weekly wage. This subparagraph shall apply only
10 if the percentage growth in student enrollment in the
11 school district between the current fiscal year and the
12 third fiscal year immediately preceding the current
13 fiscal year exceeds 10%. For the purposes of this
14 subparagraph, student enrollment shall be measured by
15 average daily membership as defined by the act of March
16 10, 1949 (P.L.30, No.14), known as the Public School Code
17 of 1949, and per-student local tax revenue shall be
18 determined by dividing local tax revenue by average daily
19 membership.
20 (d) Court action.--Prior to the imposition of the tax
21 increase under subsection (c)(2)(i), (ii), (iv) or (vi),
22 approval is required by the court of common pleas in the
23 judicial district in which the governing body is located. The
24 governing body shall publish in a newspaper of general
25 circulation a notice of its intent to file an action under this
26 subsection at least one week prior to the filing of the
27 petition. The governing body shall also publish in a newspaper
28 of general circulation notice, as soon as possible following
29 notification from the court that a hearing has been scheduled,
30 stating the date, time and place of the hearing on the petition.
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1 The following shall apply to any proceedings instituted under
2 this subsection:
3 (1) The governing body must prove by clear and
4 convincing evidence the necessity for the tax increase.
5 (2) The governing body must prove by clear and
6 convincing evidence that there are no assets or other
7 feasible alternatives available to the school district.
8 (3) The court shall determine the appropriate duration
9 of the increase and may retain continuing jurisdiction. The
10 court may, on its own motion or on petition of an interested
11 party, revoke approval for or order rescission of a tax
12 increase.
13 (e) Standing.--A person shall have standing as a party to a
14 proceeding under this section as long as the person resides
15 within or pays real property taxes to the taxing jurisdiction of
16 the governing body instituting the action.
17 (f) Property tax limits on reassessment.--
18 (1) After any county makes a countywide revision of
19 assessment of real property at values based upon an
20 established predetermined ratio as required by law or after
21 any county changes its established predetermined ratio, each
22 school district subject to this section which after the
23 effective date of this act for the first time levies its real
24 estate taxes on that revised assessment or valuation shall
25 for the first year reduce its tax rate, if necessary, for the
26 purpose of having the percentage increase in taxes levied for
27 that year against the real properties contained in the
28 duplicate for the preceding year by less than or equal to the
29 percentage increase in the Statewide average weekly wage for
30 the preceding year notwithstanding the increased valuations
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1 of such properties under the revised assessment.
2 (2) For the purpose of determining the total amount of
3 taxes to be levied for the first year, the amount to be
4 levied on newly constructed buildings or structures or on
5 increased valuations based on new improvements made to
6 existing houses need not be considered. The tax rate shall be
7 fixed for that year at a figure which will accomplish this
8 purpose.
9 (3) The provisions of subsection (a) shall apply to
10 increases in the tax rate above the limits provided in this
11 subsection.
12 Section 12. Resubmission of referendum.
13 (a) Defeat of initial referendum.--The governing body of a
14 school district in which the referendum required by section 6 is
15 defeated by the electors may resubmit the referendum to the
16 electors at a general or municipal election occurring at least
17 two years after the election at which the referendum required
18 under section 6 was defeated.
19 (b) Notice to electors.--Prior to approving the resolution
20 required under subsection (c), the governing body shall:
21 (1) Give public notice of its intent to adopt the
22 resolution in the manner provided by section 4 of The Local
23 Tax Enabling Act.
24 (2) Conduct at least one public hearing regarding
25 elimination of the real property tax and increasing the
26 maximum rate of the earned income tax.
27 (c) Procedure to initiate subsequent referendum.--In order
28 to proceed under this section, the governing body must adopt a
29 resolution to place a referendum on the ballot and transmit a
30 copy of the resolution to the appropriate election officials.
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1 (d) Referendum requirements.--A referendum submitted to the
2 electors under this section shall conform to the requirements of
3 section 7.
4 (e) Calculation of earned income tax rate.--Prior to the
5 transmittal of the resolution to the election officials under
6 this section, the governing body may recalculate the maximum
7 rate of the earned income tax under section 8 based on the
8 actual revenue collections and tax rates of the most recently
9 completed fiscal year.
10 Section 13. Applicability.
11 This act shall apply as follows:
12 (1) Section 4 shall apply to the second half of the
13 taxable year commencing with or within calendar year 2003 and
14 each taxable year thereafter.
15 (2) Section 5 shall apply to the Commonwealth's 2003-
16 2004 fiscal year and each fiscal year thereafter.
17 Section 14. Effective date.
18 This act shall take effect immediately.
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