Third and State
Act 1 may not be perfect, but it has slowed the growth of school property taxes. Since the passage of Act 1 in 2006, and its revision in 2011, the growth of school property taxes has moderated in Pennsylvania. A newly revised forecast from the Pennsylvania Independent Fiscal Office (IFO) shows more modest growth in coming years.
Earlier this week, the IFO released a revised school property tax forecast[MW1] through 2019-20. Compared to their estimate from 2013, the IFO projects slower growth in school property taxes in coming years. The IFO cut its previous estimates by 4% to 5% per year over the next four fiscal years due largely to a reduction of the Act 1 index that limits property tax growth. On top of the lower index, fewer districts used exceptions to raise taxes in excess of the index in 2013-14.
In 2003-04, school property taxes increased 7.3% from the prior year. By 2012-13, the increase had dropped to 1.9%. The Act 1 base index, itself, is roughly half of what it was in 2006-07, dropping from 3.9% to 1.9%.
Act 1 limits the amount property taxes can increase in a district each year. School districts can ask voters to approve raising school property taxes more than the Act 1 limit, but it has to be for a specific reason – typically to meet pension, debt, or special education obligations.
The base index is recalculated each year, based on an average of the change in the statewide average weekly wage and the Federal employment cost index for schools. For 2015-16, base index growth is 1.9%, down from 2.1% the year before[MW1] .
More than two dozen advocacy and direct-service organizations from across the commonwealth, including the Pennsylvania Budget and Policy Center, have united to champion measures to help working families care for their children and get ahead.
Tens of thousands of hard-working, low-wage earners in Pennsylvania – such as domestic care providers, fast food employees, and retail workers – struggle every day to provide for their families. Despite steady income and long workdays, many of these families still have trouble making ends meet.
The Making Work Pay Coalition is recommending policies and programs that the state can implement to ensure that low-income families benefit when parents are employed, work longer hours, and earn promotions. These recommendations would improve existing family-sustaining programs, introduce a new tax credit and aid low-wage workers in providing for the needs of their families by:
- Eliminating asset tests for TANF and SNAP
- Establishing a statewide earned income tax credit (EITC)
- Increasing the income limit for childcare subsidies to 270% of the Federal Poverty Limit
- Increasing the minimum wage to $10.10 per hour
Below are PBPC Research Director Mike Woods’ remarks explaining three of the recommendations at the audio press conference launching the coalition:
The federal Earned income Tax credit, or EITC, is a widely heralded and effective program that helps 936K Pennsylvania working families each year. The average EITC benefit for PA families was $2,185 in 2013.
The EITC not only helps working families make ends meet by having extra cash in each paycheck, it is proven to reduce poverty and has documented long-lasting positive effects on families.
A PA-based EITC, set at a percentage of the federal credit (10%, 15%, or 20%), could do the same. This idea is far from new, as 25 states and the District of Columbia already have state-EITCs. By adopting a state-EITC, Pennsylvania could make a real difference in recipient’s lives – particularly if the credit is refundable (meaning once PA income taxes are offset, families receive the rest of the value of the credit in the form of a check).
From and administrative standpoint, implementing a state-EITC would be easy: adding a single line to the state’s income tax return. Taxpayers would indicate how much federal EITC they received and multiply that amount by the state percentage.
Pennsylvania’s Tax Forgiveness program reduced income taxes for nearly 1.3 million filers in 2012, but it has a problem. Income eligibility for the program drops off quickly once income thresholds are met. This is also known as the “cliff effect.”
For a married couple with two children, the program forgives all personal income taxes up to $32,000 in income. Then the benefits drop off quickly. By $34,251, that same family receives no benefits under the program. That means if that family makes $43 more dollars a week, it loses all program benefits. For a single taxpayer with a child, the income eligibility is much lower. Full benefits ends at $16,000 and at $18,251 – no taxes are forgiven.
Pennsylvania can improve this program by increasing eligibility income and making a longer phase-out of benefits. (Currently, this phase-out occurs over $2,250 in income).
Making these changes to Tax Forgiveness can certainly help make work pay.
Family Savings Account (FSA)
The Family Savings Account was a program Pennsylvania offered until 2009-10. Lawmakers should restore funding. Families with incomes up to 200% of poverty could receive state matching funds for money they save. The families would have to agree to save an average of $10 per week over a 1 to 3 year period to receive the state dollar-for-dollar match. In addition, the families receive financial management training and counseling to help them reach their specific goals.
Funds saved could be used for buying or fixing a house, going to school, purchasing a car, or starting a business.
These programs could help low-income Pennsylvania families move forward by making work pay.