`Homestead exemption foe says savings won't be huge`

By Michael Roknick
Herald Staff Writer

The 501 school boards in Pennsylvania are approaching the new homestead tax exemption much like the 1970s Life cereal commercial, asserts Donald B. Owen.

In the ad two boys ponder trying the cereal, which their parents say is good for them. Instead of trying it themselves they foist it on a younger boy, Mikey, for a taste test.

In approving the Homestead Act last year, state legislators gave it their parental seal of approval. But school districts are like the two boys who aren't willing to try it until someone else does.

"Most school districts are taking a wait-and-see attitude,'' said Owen, a lawyer and associate executive director for the Pennsylvania School Boards Association.

Owen headlined a road show Monday night at Greenville High School to explain the law's specifics. He was invited by Greenville, Commodore Perry, Jamestown and Reynolds school districts. PSBA represents school boards in Pennsylvania and opposes the law.

Authors of the 77-page law said it would allow voters and school boards to more fairly tax those living in the district. The idea is to move away from a property tax on homeowners to an income tax.

"This is more of a tax shifting than a tax reform law,'' Owen told the audience of 35.

At best, eligible homeowners in all four districts would save between $200 and $320, if the law is used, Owen said. Those figures were based on allowing districts to operate at existing budget levels.

Allowing homeowners to take the homestead exemption would cut tax bills, according to PSBA's analysis.

PSBA's savings estimates are:

Greenville

Maximum a median eligible homeowner would save without the district's budget operating with a deficit -- $319.

Maximum median eligible homeowner would save under the law -- $389. The district would have a $188,872 deficit.

Commodore Perry

Maximum a median eligible homeowner would save without the district's budget operating with a deficit -- $200

Maximum a median eligible homeowner would save under the law -- $344. The district would have a $202,000 deficit.

Jamestown

Maximum a median eligible homeowner would save without the district's budget operating with a deficit -- $175

Maximum a median eligible homeowner would save under the law -- $375.

Reynolds

Maximum a median eligible homeowner would save without the district's budget operating with a deficit -- $219

Maximum median eligible homeowner would save under the law -- $374. The district would have a $455,000 deficit.

Owen noted school districts prefer to rely on property taxes because collection and revenues are reliable.

How the law works

Here's how the Homestead/Farmstead tax exemption works:

School boards -- Local school directors must decide whether they want to implement the exemption, which excludes from taxes up to 50 percent of the assessed property value of an individual's main residence.

Directors also must decide whether to shift the tax base to earned income taxes on wages, commissions and net profits, and reduce reliance on property taxes and other district-generated levies. The law caps the earned income tax at 1.5 percent.

Commission -- To get the ball rolling, a school board can appoint a five-member commission to examine the tax structure and recommend changes. The commission would have 90 days to make a public report. (So far, Mercer Area School District is the only local district that has created such a commission.) The school board then has five months to accept or reject the recommendations or adopt an alternative proposal.

If the commission fails to make a recommendation, the board can adopt its own.

Taxpayers -- Voters then get the chance to approve the exemption and corresponding tax shift in a referendum held the year before the change would take effect.

A school board may decide not to make changes in its tax policy, but if a board fails to put a referendum on the ballot by 2000, local voters can take matters into their own hands. Voters can circulate a petition with signatures of at least 2 percent of the electorate to require appointment of a tax study commission. The study commission can then go about its work.

If the commission recommends tax changes and the board still fails to schedule a referendum, voters can circulate another petition -- this time with signatures of at least 5 percent of the electorate -- to put the issue on the ballot.

Once a new system is in place, the school board would need voter approval to hike property taxes at some future point above the inflation rate.

Pros -- Supports say the law provides a method of shifting a tax base away from homeowners to a fairer earned-income method. This is thought to benefit senior citizens and others on fixed incomes who own their homes. It also gives taxpayers a say in how taxes should be figured in their school district.

Cons -- Critics charge that some school districts will not be able to collect enough revenue from a 1.5 percent earned income tax to warrant cutting property taxes or eliminating the other levies, such as the occupational privilege tax. They also say the law is cumbersome with too many deadlines, timetables and hoops to jump through.

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Updated May 25, 1999
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