IFO Forecasts Lower Property Tax Revenue in Future

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 that 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] .