What is Act 1 and how does it relate to property taxes?
What is Act 1 and how does it relate to property taxes? In 2006, as a result of a Special Session, Pennsylvania enacted Act 1 into law, providing some state property tax relief and a local referendum option for additional property tax relief, setting methodological limits on school district property tax increases without voter referendum and providing for exceptions to those limits for rising mandated costs and establishing a property tax rent rebate program to assist low-income and disabled residents.
Over the next week, we will review all aspects of Act 1 and its impact on school districts and taxpayers.
One of the underlying goals of Act 1 was to slow the annual increases in school property taxes. To accomplish this, Act 1 established the annual base and adjusted indices for school district property tax rate increases. School districts needing to raising local revenue above the increase permitted by their adjusted Act 1 index must either: 1) apply for and receive from the Department of Education an approved exception due to mandated costs, or 2) place the rate increase above the index on the ballot for voter referendum.
A school district's Act 1 index is first calculated using a three-year average of the Statewide Average Weekly Wage (SAWW) and the Employer Cost Index (ECI). The resulting statewide number is the base Act 1 Index, which serves as the starting point in calculating each school districts' adjusted Act 1 index.
Click on the image link below to view our Infogram illustrating the history of the statewide Act 1 base index.
For each school district, the Act 1 base index is then adjusted by the school district's MV/PI Aid Ratio (we discussed this measure in special education funding--it serves as a measure of local wealth) to calculate their adjusted Act 1 Index. The adjusted index represents the ceiling for property tax increases. School districts do not have to raise their property taxes to the adjusted Act 1 index; however, they cannot exceed the adjusted index without an approved exception or voter referendum.
Click on the image link below to view our interactive map illustrating, for each school district, their adjusted Act 1 index for 2019-20.