Woodland Hills School Woodland Hills School DistrictDistrict

Tax Study CommissionTax Study Commission

School Board RecommendationSchool Board Recommendation

Tax Study Commission MembersTax Study Commission Members

Mr. Stephen Spear, ChairMr. Stephen Spear, Chair Mr. Richard Romanko, Vice-ChairMr. Richard Romanko, Vice-Chair Ms. Karen Fiore, SecretaryMs. Karen Fiore, Secretary Ms. Felicia ArcherMs. Felicia Archer Ms. Lee BorellisMs. Lee Borellis Dr. Dennis EnglishDr. Dennis English Ms. Colleen KontulMs. Colleen Kontul Mr. Pat LoughneyMr. Pat Loughney Ms. Michelle MendenhallMs. Michelle Mendenhall Mr. John MorenziMr. John Morenzi Ms. Joyce Sullivan, Ms. Joyce Sullivan, ex officioex officio

Tax Study Commission PurposeTax Study Commission Purpose Limited purposeLimited purpose Study district tax structureStudy district tax structure Recommend referendum question for May 2007 Recommend referendum question for May 2007

primary election to the school boardprimary election to the school board Commission must recommend:Commission must recommend:

EIT increase or PIT?EIT increase or PIT? What tax rate?What tax rate? Specific referendum question for ballotSpecific referendum question for ballot

Local Tax Study CommissionLocal Tax Study Commission The study must include:The study must include:

Historic and present rates and revenue from Historic and present rates and revenue from taxestaxes

% of total revenue provided by these taxes% of total revenue provided by these taxes Age, income, employment and property use Age, income, employment and property use

characteristics of existing tax basecharacteristics of existing tax base Projected revenues of taxesProjected revenues of taxes

Commission is required to solicit input from Commission is required to solicit input from the public via a public hearing, which was the public via a public hearing, which was held Thursday, November 16.held Thursday, November 16.

Tax Rate Options and LimitationsTax Rate Options and Limitations EIT or PIT Options:EIT or PIT Options:

≥ ≥ the rate necessary to fund an exclusion of 25% of the the rate necessary to fund an exclusion of 25% of the district’s median assessed value of homestead district’s median assessed value of homestead propertyproperty

≤ ≤ the rate necessary to fund an exclusion of 50% of the the rate necessary to fund an exclusion of 50% of the district’s median assessed valuedistrict’s median assessed value

Any rate between these two limitsAny rate between these two limitsOROR 1% increase if the rate necessary to achieve 25% of 1% increase if the rate necessary to achieve 25% of

the district’s median assessed value is greater than the district’s median assessed value is greater than 1%.1%.

The Rate QuestionThe Rate Question The maximum homestead/farmstead The maximum homestead/farmstead

exclusion is defined in the state exclusion is defined in the state constitution as one-half of the median constitution as one-half of the median assessed value of homestead property in assessed value of homestead property in the districtthe district For the WHSD, this value (determined from For the WHSD, this value (determined from

Allegheny County data) is $67,800Allegheny County data) is $67,800

How do you calculate the How do you calculate the exclusions?exclusions?

Maximum ExclusionMaximum Exclusion 50% of the median assessed 50% of the median assessed

valuevalue Established state Established state

constitution/Act 50 of 1998constitution/Act 50 of 1998 WHSD Calculation:WHSD Calculation: Median Assessed Value of Median Assessed Value of

homestead properties = homestead properties = $67,800$67,800

Maximum Allowable Assessed Maximum Allowable Assessed Value Exclusion = $33,900 or Value Exclusion = $33,900 or

.5 X $67,800.5 X $67,800

Minimum ExclusionMinimum Exclusion ½ of the maximum exclusion½ of the maximum exclusion Established in Act 1Established in Act 1

WHSD CalculationWHSD Calculation: : Median Assessed Value of Median Assessed Value of

homestead properties = homestead properties = $67,800$67,800

Minimum Allowable Assessed Minimum Allowable Assessed Value Exclusion = $16,950 or Value Exclusion = $16,950 or

.25 X $67,800 .25 X $67,800

How do you convert that Assessed How do you convert that Assessed Value to a $ Value / Homestead? Value to a $ Value / Homestead?

Maximum Allowable Assessed Value Exclusion Maximum Allowable Assessed Value Exclusion ($33,900) multiply by the district’s millage ($33,900) multiply by the district’s millage (.0239) results in a maximum dollar value of (.0239) results in a maximum dollar value of exclusion per Homestead of $810exclusion per Homestead of $810

Minimum Allowable Assessed Value Exclusion Minimum Allowable Assessed Value Exclusion ($16,950) multiply by your district’s millage ($16,950) multiply by your district’s millage (.0239) results in a minimum dollar value of (.0239) results in a minimum dollar value of exclusion per Homestead of $405exclusion per Homestead of $405

Revenue Effects on the District of Revenue Effects on the District of the Exclusionsthe Exclusions

(From Allegheny County Data, we have 12,059 (From Allegheny County Data, we have 12,059 approved properties in district) approved properties in district)

Maximum: Maximum: $810 X 12,059 = $9,770,322$810 X 12,059 = $9,770,322

Minimum: Minimum: $405 X 12,059 = $4,885,161$405 X 12,059 = $4,885,161

These figures are the revenue reduction the These figures are the revenue reduction the school district will face due to the H/F exclusionsschool district will face due to the H/F exclusions

Calculation of tax rates needed to Calculation of tax rates needed to offset revenue lossesoffset revenue losses

Target $ Amt. $ 9,770,322Target $ Amt. $ 9,770,322 Taxable Compensation + Net Profits = Taxable Compensation + Net Profits =

$746,413,791 $746,413,791 $ 9,770,322 /$746,413,791=1.3% EIT Increase$ 9,770,322 /$746,413,791=1.3% EIT Increase

This would increase the EIT from 0.5% to 1.8%This would increase the EIT from 0.5% to 1.8% Target $ Amt. $ 4,885,161Target $ Amt. $ 4,885,161 Taxable Compensation + Net Profits = Taxable Compensation + Net Profits =

$746,413,791 $746,413,791 $ 4,885,161 / $746,413,791 = .65% EIT Increase$ 4,885,161 / $746,413,791 = .65% EIT Increase

This would increase the EIT from 0.5% to 1.2% (Act 1 This would increase the EIT from 0.5% to 1.2% (Act 1 requires rounding to the nearest tenth of a percentrequires rounding to the nearest tenth of a percent

District Revenue and District Revenue and Tax TrendsTax Trends

Recent District Revenue TrendsRecent District Revenue TrendsWHSD Revenue Trends

$28,000,000

$30,000,000

$32,000,000

$34,000,000

$36,000,000

$38,000,000

$40,000,000

$42,000,000

$44,000,000

$46,000,000

$48,000,000

1992 1994 1996 1998 2000 2002 2004 2006

Nominal Revenues

Real Revenues

Average annual growth in real revenue =0.7%

Compare with 1% average annual growth in personal income for Allegheny County over the same period

(University Center for Social and Urban ResearchSabina Deitrick and Christopher Briem)

District EIT Tax Revenue TrendsDistrict EIT Tax Revenue TrendsEIT Tax Trends

$2,300,000

$2,500,000

$2,700,000

$2,900,000

$3,100,000

$3,300,000

$3,500,000

$3,700,000

1992 1994 1996 1998 2000 2002 2004 2006

EIT (Nominal)

EIT(Real)

EIT as a % of RevenueEIT as a % of RevenueEIT as Pecent of Revenue

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

9.00%

9.50%

1992 1994 1996 1998 2000 2002 2004 2006

District Real Estate Tax TrendsDistrict Real Estate Tax Trends

$22,000,000

$24,000,000

$26,000,000

$28,000,000

$30,000,000

$32,000,000

$34,000,000

$36,000,000

$38,000,000

$40,000,000

1992 1994 1996 1998 2000 2002 2004 2006

Real Estate Taxes (Nominal)

Real Estate Taxes (Real)

Property Tax as a % of District Property Tax as a % of District RevenueRevenue

Real Estate Tax as Percent of Revenue

80.50%

81.00%

81.50%

82.00%

82.50%

83.00%

83.50%

1992 1994 1996 1998 2000 2002 2004 2006

District Enrollment TrendsDistrict Enrollment TrendsEnrollment

5500

5600

5700

5800

5900

6000

6100

6200

1992 1994 1996 1998 2000 2002 2004 2006

District spending per studentDistrict spending per studentReal Revenue per Student (1994 $)

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

1992 1994 1996 1998 2000 2002 2004 2006

For comparison, PA statewide average expenditure per pupil in 2004 (deflated to 1994 $$) was $7610

(Data from U.S. Statistical Abstract)

Property vs. EIT as a % of District Property vs. EIT as a % of District RevenueRevenue

Based on average percentage from 2004-2005 revenue data

Home owners vs. RentersHome owners vs. Renters

District Renters vs. Owners

58%

42%

Own

Rent

From 2000 Census Data

District Households and IncomeDistrict Households and Income

BoroughBorough HouseholdsHouseholdsMedian Median IncomeIncome

BraddockBraddock 11601160 $18,473$18,473

Braddock HillsBraddock Hills 10181018 $30,382$30,382

ChalfantChalfant 405405 $33,125$33,125

ChurchillChurchill 15211521 $67,321$67,321

East PittsburghEast Pittsburgh 948948 $21,286$21,286

EdgewoodEdgewood 16391639 $52,153$52,153

Forest HillsForest Hills 30573057 $44,922$44,922

North BraddockNorth Braddock 26342634 $24,335$24,335

RankinRankin 10071007 $13,832$13,832

SwissvaleSwissvale 46864686 $31,523$31,523

Turtle CreekTurtle Creek 27202720 $30,057$30,057

WilkinsWilkins 32373237 $37,439$37,439

Our RecommendationOur Recommendation

Issues Bearing on Our Issues Bearing on Our RecommendationRecommendation

How will a change in the district’s tax How will a change in the district’s tax structure affect the municipalities which structure affect the municipalities which make up the district?make up the district? All neighboring districts are going through the All neighboring districts are going through the

same process and making recommendations same process and making recommendations that, even for the minimum option, will alter that, even for the minimum option, will alter the existing pattern of wage and property the existing pattern of wage and property taxestaxes

Issues Bearing on Our Issues Bearing on Our RecommendationRecommendation

Voter approval of tax shifts will cause EIT rates Voter approval of tax shifts will cause EIT rates for municipalities countywide to varyfor municipalities countywide to vary

Plum Borough’s TSC has recommended the Plum Borough’s TSC has recommended the minimum optionminimum option For their district, this requires an EIT increase of For their district, this requires an EIT increase of

0.9%, for a total EIT rate of 1.4% for the district0.9%, for a total EIT rate of 1.4% for the district Compare with the WHSD EIT rate of 1.3% for the Compare with the WHSD EIT rate of 1.3% for the

minimumminimum PASBO statewide survey shows districts leaning PASBO statewide survey shows districts leaning

toward the minimum option requiring EIT increases in toward the minimum option requiring EIT increases in the range of 0.6%-1% the range of 0.6%-1%

Issues Bearing on Our Issues Bearing on Our RecommendationRecommendation

Good reasons to shift taxes from property Good reasons to shift taxes from property to incometo income Assessment issuesAssessment issues Property value movements frequently at odds Property value movements frequently at odds

with local economic conditionswith local economic conditions Inequity of requiring homeowners (58% of Inequity of requiring homeowners (58% of

district) to pay 84% of the school taxdistrict) to pay 84% of the school tax Act 1’s approach to shifting the tax burden Act 1’s approach to shifting the tax burden

is deeply flawed, howeveris deeply flawed, however

Issues Bearing on Our Issues Bearing on Our RecommendationRecommendation

Thought experiment: WHSD voters adopt Thought experiment: WHSD voters adopt Act 1, but neighbors don’tAct 1, but neighbors don’t Economic effects of changes in the tax Economic effects of changes in the tax

structurestructure• Effect on housing values is ambiguous. Lower Effect on housing values is ambiguous. Lower

property taxes alone will increase demand for property taxes alone will increase demand for housing leading to an increase in housing value. housing leading to an increase in housing value. However, EIT increase will tend to reduce demand.However, EIT increase will tend to reduce demand.

Retirees are an exception, since they can lower property Retirees are an exception, since they can lower property taxes without paying the EIT increasetaxes without paying the EIT increase

Predicts in-migration of seniorsPredicts in-migration of seniors

Issues Bearing on Our Issues Bearing on Our RecommendationRecommendation

Thought experiment: WHSD voters adopt Thought experiment: WHSD voters adopt Act 1, but neighbors don’tAct 1, but neighbors don’t Economic effects of changes in the tax Economic effects of changes in the tax

structurestructure• For rental markets, EIT increase should lead to For rental markets, EIT increase should lead to

reduced rents (and reduced net profits from rental reduced rents (and reduced net profits from rental properties) because of a reduction in rental properties) because of a reduction in rental demand due to the higher EITdemand due to the higher EIT

Predicts outflow of higher income renters and inflow of Predicts outflow of higher income renters and inflow of lower income renterslower income renters

Issues Bearing on Our Issues Bearing on Our RecommendationRecommendation

Opposite thought experiment would reverse Opposite thought experiment would reverse these conclusionsthese conclusions

The critical question here is how important are The critical question here is how important are tax changes in determining whether people tax changes in determining whether people move?move? Economic evidence is mixedEconomic evidence is mixed

• Young people move the mostYoung people move the most• Empirical studies of effects of taxes find evidence that Empirical studies of effects of taxes find evidence that

business location decisions are sensitive to property and business location decisions are sensitive to property and sales taxes, while employment decisions are sensitive to sales taxes, while employment decisions are sensitive to income taxesincome taxes

What evidence do we see in Allegheny County data?What evidence do we see in Allegheny County data?

Current Tax Patterns across Current Tax Patterns across Allegheny CountyAllegheny County

School EIT Rate

0

0.1

0.2

0.3

0.4

0.5

0.6 EIT rates are currently limited by PA law

Current Tax Patterns across Current Tax Patterns across Allegheny CountyAllegheny County

School District Millages

0

5

10

15

20

25

30

35

40

District

Mil

lag

e

Current Tax Patterns across Current Tax Patterns across Allegheny CountyAllegheny County

Municipality Millages

0

2

4

6

8

10

12

14

16

Aleppo

Tow

nship

Baldwin

Tow

nship

Ben A

von H

eight

s Bor

ough

Braddo

ck B

oroug

h

Bridge

ville

Boroug

h

Cheswick

Bor

ough

City o

f McK

eesp

ort

Crafto

n Bor

ough

East D

eer T

ownship

Edgew

orth

Bor

ough

Etna B

orou

gh

Forwar

d Towns

hip

Glassp

ort B

orou

gh

Harmar

Tow

nship

Homestead

Bor

ough

Kenne

dy T

owns

hip

Liberty

Boro

ugh

McK

ees R

ocks

Bor

ough

Mou

nt Leb

anon

North B

radd

ock B

oroug

h

Oakm

ont B

orou

gh

Penn

Hills T

owns

hip

Pleasa

nt H

ills B

orou

gh

Reserv

e Tow

nship

Rosslyn

Far

ms B

orou

gh

Sewick

ley H

ills B

oroug

h

South

Park

Towns

hip

Stowe

Townsh

ip

Turtle

Cre

ek B

oroug

h

Wall B

orou

gh

West

Miffl

in Bor

ough

White

hall B

oroug

h

Distribution of Population Changes Distribution of Population Changes Across Allegheny CountyAcross Allegheny County

Possible Impact of Millage Differences?Possible Impact of Millage Differences?Millage vs. Population Change

0

2

4

6

8

10

12

-15 -10 -5 0 5 10 15

Percent Change in Population

Mu

nic

ipa

l M

illa

ge

20

01

Coordination ProblemCoordination Problem Suppose our voters approve this but Suppose our voters approve this but

neighboring voters rejectneighboring voters reject We now have incentives in place for We now have incentives in place for

seniors to either relocate from other seniors to either relocate from other districts to take advantage of lower districts to take advantage of lower property taxes, and for younger, working property taxes, and for younger, working families to move out (or not move in) to families to move out (or not move in) to avoid the high EIT taxavoid the high EIT tax

Equilibrium in the game is for everyone to Equilibrium in the game is for everyone to opt out.opt out.

County Survey ResultsCounty Survey ResultsLocal Tax Study Commission Survey Results

DISTRICT Local Tax Study Commission Recommendation

AVONWORTH An increase of .1% in the EIT rate

BETHEL PARK A .1% increase in EIT

CARLYNTON The minimum and the collection of a PIT at 1.4%

CHARTIERS VALLEY A .7% increase in the EIT to fund the minimum Homestead

CORNELL A .68% increase in EIT to fund the minimum Homestead exclusion

ELIZABETH FORWARD a .1% EIT

HAMPTON A PIT at the minimum Homestead level

KEYSTONE OAKS A move to PIT with the rate set at 1.2% (.7% funding the real estate tax reduction)

MONTOUR An EIT increase of 1.00% to fund the minimum Homestead exemption

MOON AREA A .80% EIT increase to fund the minimum Homestead exemption

MT. LEBANON It is expected that Mt. Lebanon's commission is going to recommend a minimum .9% EIT

NORTH HILLS An increase in the EIT of .1%

NORTHGATE a .1% EIT

PENN HILLS No tax shift but the Board would then go with the minimum at .9% increase for the referendum

PINE-RICHLAND

Minimum exclusion, 0.8% EIT increase

PLUM A .9% EIT to fund the minimum Homestead exemption

QUAKER VALLEY A .6% increase in EIT to fund the minimum exemption of approximately $760

SHALER Not official but looks like the recommendation will be the .1% EIT

WEST ALLEGHENY

Seems likely that commission will not make a recommendation but will give reasons why they are not doing so. Board will probably go with a +1% EIT referendum question and recommend people vote no.

WEST MIFFLIN A 1.0% EIT increase to fund the minimum Homestead exemption

WILKINSBURG A .1% increase in EIT

WOODLAND HILLS Minimum EIT and go to 1.2% from .5%

Our recommendationOur recommendation

Since opting out is not a choice for the Since opting out is not a choice for the board, we recommendboard, we recommend Minimum optionMinimum option

• Property tax reduction of $405Property tax reduction of $405• EIT increase of 0.7%EIT increase of 0.7%

Work to have this voted down or rescindedWork to have this voted down or rescinded

Referendum Question Option 1Referendum Question Option 1

““Do you favor imposing an additional Do you favor imposing an additional 0.7% earned income tax? The revenue 0.7% earned income tax? The revenue generated from the increased tax rate will generated from the increased tax rate will be used to reduce taxes on qualified be used to reduce taxes on qualified residential properties by $405. The current residential properties by $405. The current earned income tax rate is 0.5%.”earned income tax rate is 0.5%.”

Consequences of RejectionConsequences of Rejection Act 1 caps school districts’ ability to raise millages Act 1 caps school districts’ ability to raise millages

by tying them to an index which is the average of by tying them to an index which is the average of Statewide Average Weekly Wage (SAWW)Statewide Average Weekly Wage (SAWW)

• A state measure of wage increases using earnings dataA state measure of wage increases using earnings data

• Captures most sectors of industry within the stateCaptures most sectors of industry within the state

• Typically the inflation number unions focus on when formulating Typically the inflation number unions focus on when formulating wage demandswage demands

Employment Cost Index for Elementary and Secondary Employment Cost Index for Elementary and Secondary Education (ECI)Education (ECI)

• A national measure of compensation cost increasesA national measure of compensation cost increases

• Tracks employment costs specific to the public education sectorTracks employment costs specific to the public education sector

Potential Impact of Cap Potential Impact of Cap SAWW vs ECI

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

1980 1985 1990 1995 2000 2005 2010

ECI

SAWW

Index

What Happens When the District What Happens When the District Reaches the Index?Reaches the Index?

There are three options:There are three options:1.1. Cut programs and reduce costs Cut programs and reduce costs

2.2. Request exceptions for extraordinary costs or Request exceptions for extraordinary costs or circumstances that are beyond the district’s circumstances that are beyond the district’s control (ten identified areas in Act 1)control (ten identified areas in Act 1)

3.3. Back-end referendum for tax increase (i.e. a Back-end referendum for tax increase (i.e. a referendum question on the primary ballot)referendum question on the primary ballot)