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Act 1 could bring down curtain on Pa. school construction

November 19, 2006|by DON AINES

CHAMBERSBURG, PA. - Unless funding already is in place, it is going to be difficult for most of Pennsylvania's 501 school districts to get the money needed for new schools under property tax restrictions imposed by Act 1, said Rick Vensel, business manager for the Chambersburg Area School District.

There are 10 exemptions that districts can use to get around caps on tax increases, but some will expire, some rarely will be used and some require court approval, said Vensel, who will make a statewide Webcast on the subject next week to the Pennsylvania Association of School Business Officials.

Electoral debt, the one that most districts likely will use for future school construction, has been around since 1972, but never used, Vensel said.

Act 1, a school property tax reform law enacted this year, requires referendum approval of a budget if a proposed tax increase exceeds an inflationary index set by the state. For Chambersburg in 2007-08, the index is 4.02 percent, Vensel said.

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Many districts, however, incurred construction debt prior to Act 1 passage, or by a 2004 deadline imposed under Act 72, a similar tax reform law rejected by about 80 percent of the state's districts.

Chambersburg incurred $116 million in debt for school construction, and has plans to expand Chambersburg Area Senior High School and create a career and technology program. Similarly, the Waynesboro Area School District incurred debt for a $46 million expansion of its high school.

Tax increases to service existing debt are exempt under Act 1, Vensel said.

Chambersburg also can take advantage of a 60 percent exemption for academic elementary and secondary construction, he said.

The exemption is 60 percent of the average cost of construction for the previous year, Vensel said. Thus, 60 percent of the $137 per square foot it cost to build elementary school academic space in Pennsylvania last year will be exempt from the 4.02 percent cap in Chambersburg.

The square-foot figure for secondary schools is $142, but the exemption is narrower, Vensel said.

For example, a new gymnasium, such as one proposed for the high school, qualifies because physical education will be taught there, but pools and stadiums do not.

School districts will use the 60 percent exemption and grandfathered debt to complete projects over the next few years, Vensel said. After that, virtually no construction will take place without referendum approval, he said.

One method is for a district to include construction costs in its budget and, if that results in a tax increase exceeding the index, ask voters to approve it through a "back-end referendum" in the spring.

The other is electoral debt, in which a district can place a bond issue dealing solely with school construction on the ballot, Vensel said. That could allow a district to pass an annual budget without a referendum while allowing residents to decide construction issues separately.

"It would be clearer to have that separate rather than blended into the budget," Vensel said.

The law, which also combines property tax relief, income tax increases and gaming revenues with tax caps and referendums, is complex, and is a challenge to administer, Vensel said.

"The problem with it is, not only that it's not going to provide much tax relief, but it's so complex, it perplexes the most savvy school administrators, let alone the average taxpayer," said state Rep. Rob Kauffman, R-Franklin/Cumberland.

Kauffman voted against Act 1 after a proposal he supported to broaden the state sales tax to eliminate property taxes died.

The grandfathered debt exemption will expire in a few years, Vensel said. Other exemptions deal with issues other than construction, he said.

An exemption for health-care costs for existing union contracts will later expire, and few districts will qualify for exemptions related to rapidly growing or economically distressed school systems, Vensel said. Another exemption to help districts meet federal No Child Left Behind Act improvement plans is ill-defined, he said.

There is a cap exemption for district contributions to the state retirement system exceeding the index. When the General Assembly changed the retirement system a few years ago to boost pensions, mandatory contributions by districts soared above the rate of inflation.

"That one will pretty much be available statewide," Vensel said.

Exemptions for emergencies or enforcing court orders require court approval to implement, he said.

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