Anita Dufalla, Post-Gazette

The state Legislature's latest foray into tax reform requires school districts to put referendums on the May 15 ballot that will pit wage earners against retirees, renters against homeowners and school districts against each other.

Meeting the mandates of Act 1, the Taxpayer Relief Act of 2006, has been frustrating for the state's school districts. Each had to devote inordinate amounts of time and money to develop a referendum that will give its voters a chance to change the way school taxes are collected.

The result is 498 unique referendums that will be considered by voters in their school districts next month. Pittsburgh, Philadelphia and Scranton were excluded from the referendum requirement.

The referendum questions, customized for each school district, will ask voters whether they want to reduce their school district property taxes either by increasing the current earned income tax or creating a personal property tax.

Kevin Fischer, president of the Baldwin-Whitehall school board, said the referendums create "class warfare" between senior citizens and the working class and will pit school districts against each other.

If people in Baldwin-Whitehall vote to raise the earned income tax by 1 percent while neighboring school districts reject the referendums, wage earners will move to a school district with a lower wage tax, he predicted.

Mr. Fischer said that's what happened years ago when Pittsburgh had a 4 percent wage tax into the 1990s.

"There was a mass exodus to the suburbs," he said.

In Washington County, all the school districts decided to opt for referendums asking voters to decide whether to increase earned income taxes. None chose the personal property tax option.

In the Canon-McMillan School District, voters will be asked whether they want to increase the earned income tax from 0.5 to 0.9 percent. That increase is expected to reduce property taxes on a typical home by about $339.

The 54-square-mile district with about 4,600 students is one of the county's fastest growing districts, but people have not shown much interest in the Act 1 debate, said Glenn Mamula, district business manager.

"On the night of the public hearing, no taxpayers came," he said.

Lack of interest also was evident in the much smaller Charleroi Area School District, where, Business Manager Mike Gigliotti said, the district has been trying to follow the state law by educating the public.

"We had one person show up at the community meeting," he said.

In the Charleroi Area school district, with about 1,700 students, the school board opted to ask voters if they want to increase the current 0.5 percent earned income tax to 1.3 percent. That would save about $211 in real estate taxes on a typical residential property.

Homestead exclusion

In order to qualify for the reduced property taxes, property owners must have filed for an Act 50 Homestead/Farmstead Exclusion with their county assessment office. The deadline for filing this year was March 1, so those without a homestead exclusion on file won't get a property tax reduction this year, even if their school district approves the tax shift. Taxpayers uncertain whether they have an exclusion on file can check by contacting the Washington County Tax Assessment Office at 724-250-4632.

The process of developing these referendums was cumbersome.

School districts appointed citizen tax commissions to study how to shift taxes. Some hired professionals to offer advice. Public meetings, required by the act, were held to explain the issues.

Some superintendents, such as Michael Panza, of the Carlynton School District, even took the show on the road.

"After the tax commission made its recommendation, I made presentations to all the borough councils, plus the [parent teacher organizations] and other presentations," said Dr. Panza, who heads a district that includes Carnegie, Crafton and Rosslyn Farms.

Weighing the options

Nearly 90 percent of the school boards in the state decided to ask voters whether they want to increase the earned income tax.

About 11 percent suggested replacing the earned income tax with a personal income tax, according to a survey by the Pennsylvania School Boards Association, which got a 92 percent response rate from districts.

The earned income tax is levied against earnings, salaries, commissions, bonuses and other forms of direct compensation.

The personal income tax includes all earned income plus interest, dividends, net gains or income from dispositions of property, net gains from rents, royalties, patents and copyrights, income derived through estates or trusts, and gambling and lottery winnings.

Neither option taxes Social Security or retirement pensions.

The Pennsylvania School Boards Association has asked school boards to remain neutral on the Act 1 referendums, said Scott Shewell, PSBA spokesman.

"Individual board members are free to express their opinions, but we have recommended that they not take any action as a board," he said.

Nevertheless, the PSBA predicts 20 percent of the referenda will be approved. The average property tax savings statewide is $340 for those with increased earned income taxes, and $407 for those with personal income taxes.

Weighing the options was especially difficult in a district such as Woodland Hills, which is extremely diverse. The needs of senior citizens who believe they are being taxed out of their homes have to be weighed against the interests of others.

"If you have a high percentage of renters, they get no relief from the homestead exclusion, but their income taxes will go up," said Maria McCool, public relations director for the Woodland Hills School District, a consolidated school district in eastern Allegheny County that serves 12 communities.

In the Carlynton School District, Dr. Panza said, the school board decided to go with a personal income tax because 47 percent of the residents are renters.

"If we went to the earned income tax, we know that 47 percent of our people would pay the bulk because renters don't get a tax break," he said. "We wanted to see what we could do to spread it out."

School districts decide

One major problem with the personal income tax is that most communities don't have a mechanism in place to collect it.

The tax study commission in Franklin Regional School District in Westmoreland County, which serves Murrysville, Export and Delmont, recommended a switch to a personal income tax, but the school board decided to go with the earned income tax because there were already collection procedures in place.

Superintendent P. Emery D'Arcangelo said voters would be asked if they want to increase the school district's current 0.5 percent earned income tax rate by an 1 percent. If voters approve the change, the combined school district/municipal earned income tax would be 2 percent.

That switch would reduce property taxes by about $723 on a typical house.

"We just present the facts and the voters will make the final decisions," Dr. D'Arcangelo said.

The Clairton School District, a smaller, economically disadvantaged Mon Valley district, also opted to replace its 0.5 percent earned income tax with a personal income tax of 1.4 percent.

If approved, the change would reduce property taxes by about $179 on a typical property.

William A. Boucher, Clairton schools business manager, said school officials believed the personal income tax wouldn't impact the wage earners as hard as an earned income tax.

"It is more fair. It puts less burden on the wage earner and taxes investment income," Mr Boucher said. "That way, it isn't just the seniors who get a break."

Many officials believe real estate taxes are a more dependable source of revenue than earned income taxes.

Income taxes are much harder to collect because they are based on information provided by the taxpayers. While real estate taxes remain constant, income taxes will fluctuate. Layoffs, plant closings and retirements all can affect the numbers.

Despite all the work that has gone into the referendum questions, few voters are likely to understand what impact their vote will have, and many won't have any idea how important their vote will be.

"There is a total misunderstanding in the general population about this referendum," Ms. McCool said.