BY NANCY LOWRY NLOWRY@NCNEWSONLINE.COM





It's called a tax shift. But members of local school boards and tax study commissions claim Act 1 is more a shifty move by Gov. Ed Rendell to fund tax relief. It is the school board members the voters will remember when they recall who set and will collect the money to pay for it. Act 1, called the Taxpayer Relief Act, reduces property taxes through homestead or farmstead exclusions. Reductions vary from district to district and are based on assessed value of property. Property owners must apply for the designation. To be eligible for an exclusion, a homestead must be a person's primary residence on which taxes are paid. A farmstead exclusion provides tax relief to farmers. It applies to any buildings used for agricultural purposes and those buildings must b eon the same parcel as the primary residence. Farmers could be eligible for both exclusions. In Lawrence County, these reductions will be funded through increased wage taxes set and collected by local school districts. A commission in each district -- composed of community residents -- made non-binding recommendations that school boards could accept, reject or modify. The school boards are then required to ask taxpayers, through a ballot question, to accept or reject the tax hike. All the commissions recommended an earned income tax increase, saying that form of tax -- assessed on wages and earnings -- would be easiest to collect because the districts already collect it. They also said this burden is shouldered by wage-earners and not senior citizens, many of whom are retired and on fixed income. However, Mohawk and Shenango seriously considered a second option -- a personal income tax increase. This tax -- on interest, investments, dividends and other income -- is collected by the state. It was attractive, said tax study commission chairmen Ed Weber of Mohawk and Bill Brown of Shenango, because it would involve more people. But collection proved to be too daunting. Ultimately, income from the state's new slots machines will join the equation to lower property taxes. These taxes are expected to be continued and reduce the property taxes by a greater amount. However, this is "years down the road," according to commission chairmen. Chairmen of many of the study commissions said although they made recommendations, as they had been charged to do, they do not really support the premise. Some people, depending on their income, will not be getting any tax reduction. Others will be paying more than they are now. At some point, called the break-even number, a person's property tax reduction will equal the increase he or she is paying in income tax. Anything beyond that will mean the person is paying a higher amount in tax than the reduction he or she is receiving. ELLWOOD CITY The chairwoman of the district's tax study commission said the public should know "that the state has put a gun to the school district's head. "Instead of making decisions likely to make voters unhappy," Linda Cole noted, "legislators have shifted the responsibility and the potential for voters' ire to school boards." Ellwood City's proposal would nearly double the current 0.5 percent wage tax rate with an additional 0.4 percent. "If we start jacking up the wage taxes to give property owners a break, the workers are going to move out," said David Reese, school board president and commission member. The income included is wages or salaries, net profits of those self-employed, bonuses, commissions, incentive payments, fees and tips. "This could determine where people live and send their kids to school," said Joe Carofino, commission member. "How will you (school board) do your budget year to year when you don't have any idea of how much earned income will come in? At least, with property taxes, you know what you're going to get." The commission chose to recommend an increase in earned income tax instead of going with the state's 3.07 percent personal income tax, even though Reese and commission member Kathy Brown spoke in favor of it. "Do you want to tax just the workers or everyone?" Reese asked. Personal income tax targets more income sources, such as interest, dividends, net income from rents, gambling and lottery winnings except the Pennsylvania lottery and income from estates and trusts. Social Security and retirement income would not be taxed. Brown said she favored the personal income tax because people who vote are more likely to fall into that category and would vote it down. Property tax relief will come, Reese noted, once revenue from gambling begins to come in. LAUREL Tim Redfoot, Laurel's commission chairman noted, "This was all very confusing." A general contractor, Redfoot also is president of the Laurel school board. Like others, he said he is concerned the public will think the additional tax money will go to the school district. It will not. "It's almost a pass-through," he said. "The district won't make any money on this." However, each district may keep up to 2 percent of the amount collected to cover administrative costs. "Everyone will get the same reduction," he said. Redfoot called Act 1 a strangely written law. "If people think they will see a huge tax relief they will be disappointed." Laurel's reduction will average about $180. Redfoot said he can't predict how the public will respond to the ballot question. "The wording will decide it," he said. "If the first thing the public reads asks if they will favor a tax increase, I'm sure they will vote it down. If the question asks first if they will support lowering property taxes, they might approve." MOHAWK Although Ed Weber and his committee recommended that the Mohawk board increase the earned income tax by 0.8 percent, the commission initially had leaned toward a personal income tax. They had to abandon that. "There were uncertainties about who would collect (the tax) and how," Weber pointed out. The commission believed a personal income tax "would put more money in the pot, since more people would be paying the tax." Renters, who make up about 15 percent of the district's residents, will pay the tax but reap no benefits. "We would have liked to have raised the sales tax, but that was not an option." Weber said state officials, including the governor, "don't have the guts to do some things themselves. They will be there to take credit for reducing property taxes, but they are blackmailing the school boards to raise the tax to do it. "The schools get nothing from this, but the people will blame the school boards for raising their taxes." NESHANNOCK John Cournan, Neshannock's tax commission chairman, said the panel recommended the minimum increase for the district and urges people to vote no. The tax shift "lays the burden on working people," he noted. "That is not fair. "We do not feel this is good for Pennsylvania. It is hard enough to keep people here as it is. This is just not the right thing to do." In the past 15 to 20 years, Cournan said, Neshannock Township has been fortunate. "Route 18 has a decent amount of development, housing is stable and most growth to the tax base has been commercial development." The additional earned income tax will remain in effect even after gaming funds come rolling in and trickle down to the school districts. "If voters reject the tax increase, they will see no tax relief (reductions) within their municipality" he said, adding he does not believe proper tax relief will take place until gaming proceeds trickle down. Act 1, promoted by Harrisburg politicians who have promised tax relief, is a temporary mechanism, he said. "I do not believe this is a wise tax policy," he said. "It will do nothing to attract or retain the people who built this state." NEW CASTLE "There really weren't too many options," said New Castle's commission chairman Theo McCracken. Working with Public Financial Management, the commission learned how property taxes could be offset by another tax, he noted. "We went with increasing earned income tax, because we were told there is really no vehicle for collecting the personal income tax on this level." The commission recommended the minimum increase for New Castle, 0.7 percent. If it is approved, New Castle residents can expect to see a $180 property tax reduction in the first year and $208 in the second. If the proposal is voted down, nothing will happen, district business manager Joseph Ambrosini said. "Eventually, the gambling money will kick in and that will fund a reduction." For that to happen, he explained, gambling proceeds must exceed $1 billion. Early estimates were that this could occur by 2009 or 2011. However, legal appeals are preventing some casinos from opening as originally expected. Ambrosini noted gaming revenue from parlors in operation is ahead of projections. If the measure passes, Ambrosini said, the state will provide calculations on how the funds will be allocated. SHENANGO Serving on the tax commission was a good learning experience, Bill Brown said. The former school board member and certified public accountant said he enjoyed crunching the numbers. Although Brown said his preference was a personal income tax, the commission recommended increasing the earned income tax by 0.7 percent, the minimum it could consider. "We didn't want to shock the people too much," he said. "Pennsylvania is set up to collect a personal income tax, but we decided to stick with the local taxes." A personal income tax, Brown noted, taxes interest, dividends, rental income and investment earnings, not just wages or salaries. As such, he said, he thinks it is more fair but added he believes the earned income tax increase stands a better chance of passing. "Everyone promises tax reform," he said. "This is not perfect but it is something." UNION Act 1 is already affecting schools, said Union consultant Dom Ionta. Budgets had to be submitted early, using estimated numbers, he said. The school board agreed to set the increase at 0.4 percent, expected to generate $240,000. Another provision of the act requires districts to allow residents to begin to pay property taxes on an installment plan. Dr. Michael Hink, chairman of Union's five-member tax commission, said it joined with New Castle, Wilmington and Mohawk under Public Financial Management. Obtaining information from the school districts, the Harrisburg-based company reviewed the legislation and recommended the direction the commissions should take. "Any public tax rebate should be meaningful," Hink said. "Everyone is for lowering property taxes," he added. "Why couldn't they recommend a simple solution?" WILMINGTON The Wilmington panel recommended the minimum for that district -- a 1 percent earned income tax increase. The commission's Dr. Margaret Trautman -- former curriculum coordinator for the district -- said the decision of the nine-member commission was unanimous. "But we did it because we had to. We don't necessarily want people to vote for it." The group represented various economic and age groups. "I am 73 and was not the oldest member," she said. "We also included Chris Stone, a Westminster College student, and a member of the Amish community. Everyone was interested in this very complex subject." The commission examined various aspects of the community, including who would be involved in paying the tax and who would benefit, she said. Renters get essentially no benefit because they will have to pay the increased tax but do not qualify for a reduction.