Trends in Pennsylvania Intergovernmental Revenue: From Act 511 to Act 72 by David Davare

David Davare (second from right) is the director of research services for the Pennsylvania School Boards Association. Davare provided an overview of the changes in state funding of municipalities and school districts over the years and an analysis of the relationships between local and state governments and school districts. Davare deals with school districts in terms of economic development. He explained that school districts are dealing with revenue changes such as subsidies and special education funding due to intergovernmental trends. Davare showed a graph to illustrate why school district tax dollars keep increasing compared to state contributions, and explained that state educational mandates, special education services, and the No Child Left Behind Act are major reasons for the rise in expenditures. Davare reminded participants that education is the only public service mandated by the state constitution.

Property tax was the original tax-base sharing in Pennsylvania. All the taxing jurisdictions shared the same tax base. However, municipal entities prefer residential development and school districts prefer commercial development. The school district tax base is dependent on property value and personal income, but school districts have increased the personal income contribution at much different rates in PA from 1979 to 1999. The market value of homes indicates how much state aid municipalities will get for their schools. However, school districts have very little time to provide input in economic development decisions before they are approved by counties or municipalities. Davare noted that school districts are important in economic development because they make up about 70% of the average property tax bill; they cover several municipal jurisdictions, and perhaps overlap counties. Davare explained that although the intent of economic development is to address blighted areas with vacant properties so that they can increase their tax base and increase employment through development, municipalities do this based on entire jurisdictions instead of targeted areas. This does not make sense in terms of strengthening the community, and it creates competition for residents because of differences in property tax rates. School districts want to take part in economic development, but do not have the opportunity to deal with zoning issues and changes, which can lead to more students in the district, problems with space, and transportation issues. Davare said school boards need to ask municipal governments for more time and greater roles in economic development decisions, and they should hold public hearings on the decisions and joint meetings with the municipal governments, because economic development and zoning decisions can greatly affect school districts.

Finally, Davare explained how Act 72 tax reform provides homestead exemption and limits tax increases without voter approval. It will require school districts to shift away from property tax to higher earned income tax and offsets from state gaming revenue. Davare noted that people will react to earned income tax increases and property tax reductions, and these changes will greatly affect school districts in the near future.