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What is the state property tax relief allocation?

Our previous Daily Data reviewed the initial timeline in the school district budget development process. Another important date for all school districts in this process occurs by May 1, when Act 1 requires the PDE to notify school districts of their total property tax relief allocation for homestead and farmstead properties.

In 2008-09, the state began allocating funds to school districts to reduce the property taxes paid locally through a process called assessed value exclusion. A homestead exclusion is a portion of the assessed value of a homestead that is excluded from the amount paid by the owner. Essentially, the state reduces property tax bills by replacing a portion of the tax bill with funds from the state. The amount of property tax relief funding provided to school districts is determined by a complex formula in Act 1 that uses data frozen in place since 2006. Since the data is not annually updated and the amount of state funding for property tax relief has been static, the property tax relief allocation for homesteads/farmsteads is relatively the same from year to year. Once notified by the PDE of allocation for the upcoming fiscal year, school districts must then certify the amount of assessed value excluded from school districts’ tax levy based on the allocation received from the state property tax reduction allocation. This exclusion is calculated by school districts each year and used to reduce the total tax due from each homestead and farmstead.

During the 2019-20 fiscal year, the amount of budgeted property tax revenue levied by school districts in 2019-20 was $14.756 billion, 4.0% of which is paid for by the state distributing approximately $590 million to provide property tax relief through homestead/farmstead exclusions and the remaining 96.0% ($14.167 billion) through local taxpayers. The interactive graphic at the link below illustrates the current property taxes through the state and locally.

While the total amount of relief provided to most districts is static, what does change from year to year is the number of homesteads and farmsteads in each school district, which changes the amount of the relief provided to each taxpayer. If the total number of homesteads/farmsteads in a school district declines, then the dollar amount of homestead relief will increase. As an example, the Charleroi School District in Washington County received about $644,000 for Act 1 homestead/farmstead property tax relief in 2014-15. For 2019-20, the district received $60 dollars less in the total allocation, a decrease of 0.01%.

However, during that timeframe, the number of eligible homesteads/farmsteads in the district also decreased by 446. As a result, the homestead/farmstead relief provided to each taxpayer increased from $189 to $218 per homestead/farmstead. In some limited situations, the opposite result can occur. The interactive map below illustrates, for each school district in 2019-20, the total amount of Act 1 property tax relief allocation the approximate property tax relief per homestead, the magnitude of total homestead property tax relief provided relative to total property taxes levied, and the approximate property tax bill (before homestead relief) for the median assessed value homestead in the school district.