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 a frustrating experience 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 respective school districts next month. Pittsburgh, Philadelphia and Scranton were excluded from the referendum requirement.

There are some school officials who believe there should have been just one referendum on the ballot statewide instead of individual questions for each school district.

"The real feeling is that if [Act 1] was a state mandate, they should have done it across the state," said Maria McCool, public relations director for Woodland Hills School District.

The referendum questions, customized for each school district, will ask voters whether they want to reduce their school district property taxes by increasing either the current earned income tax or creating a new 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 voters in Baldwin-Whitehall vote to raise the earned income tax by an additional 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 when Pittsburgh had a 4 percent wage tax in the 1990s.

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

Homestead exemption

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, said Kevin Evanto, Allegheny County communications director. So if you don't have a homestead exclusion on file, you won't get a property tax reduction this year even if your school district approves the tax shift.

Mr. Evanto said county taxpayers can check their property on the county's real estate Web site to determine if they have the exclusion. If not, they can download a form or call 412-350-4600 for more information. Residents living outside Allegheny County must call their respective county assessment offices for information.

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 were held to explain the issues.

Some superintendents, such as Michael Panza, superintendent 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 across 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 school boards association has officially 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 association predicts only 20 percent of the referendums 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 other residents.

"If you have a high percentage of renters, they get no relief from the homestead exclusion, but their income taxes will go up," said Ms. McCool, the spokeswoman for Woodland Hills.

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 will be asked if they want to increase the school district's current 0.5 percent earned income tax rate by an additional 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. Like many districts, Franklin Regional has posted information about Act 1 on its Web site, franklinregional.k12.pa.us.

The Clairton School District, a smaller, economically disadvantaged Mon Valley district, 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 believe 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."

Voters don't understand

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 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 is.

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