What are the Act 1 referendum exceptions for mandated cost?
What are the Act 1 referendum exceptions for mandated costs? Pursuant to Act 1, school districts follow a budget development timeline as provided by the Pennsylvania Department of Education (PDE). Each year, this timeline requires school districts to adopt a preliminary budget in late January--far before school districts know what funding they'll receive from the state.
Pursuant to Act 1, a school district that knows it will not raise the property tax rate by any more than its adjusted Act 1 index can choose to adopt a resolution to that effect, negating the need to adopt a preliminary budget. While the majority of school districts have been able to stay within the Act 1 index each year, and therefore adopt resolutions prior to their preliminary budget, many school districts face rising mandated costs that exceed their Act 1 index and have to consider other options. One option is for a school district to seek Act 1 exceptions.
Prior to 2012-13, school districts had more than ten Act 1 exceptions for which they could apply to PDE for approval to increase their property taxes above their Act 1 index. These exceptions were focused on areas of mandated cost growth, such as pensions and special education, and also included areas such as school construction, maintenance of local revenue and health care-related benefits. Since 2012-13, however, the list of Act 1 exceptions available to school districts has been limited largely to those for rising pension and special education costs.
A school district that thinks it might need to raise property taxes beyond its Act 1 index can apply to PDE for Act 1 exceptions in February/March. PDE has until the end of March to approve or deny the request to raise property taxes above the Act 1 index pursuant to an exception. If the request is approved, the school district has several months to work on its final budget, which must be adopted by June 30.
Since 2012-13, less than 40% of school districts applied for Act 1 exceptions, and in 2018-19, less than 20% of school districts applied for Act 1 exceptions. While many school districts apply for Act 1 exceptions, less than 50% of those school districts that are approved for exceptions end up including those tax rate increases in their final budgets. In most cases, school districts apply for exceptions to ensure they have the flexibility to raise additional revenue to cover increases in mandated costs or other unexpected cost increases, or to ensure they make up for any changes in state funding.
Click on the image link below to view our interactive Infogram illustrating the total number of districts and the total amount of PDE approved Act 1 referendum exceptions for mandated costs over time.