Debt Referendum Basics

 

Debt Referendum Basics

 

Act 1 of 2006 requires a voter referendum if a school district proposes to raise its rate for property or other school taxes, including personal income taxes, faster than the Act 1 index.
 

 

Over the past 10 years, the laws that affect school construction financing in Pennsylvania have changed considerably. The Pennsylvania Local Government Unit Debt Act of 1996 (LGUDA) is the law in Pennsylvania that covers the issuance of bonds for new construction and capital improvements. To assume debt without voter approval, school districts are met with different debt thresholds. The debt limit for school districts under the LGUDA is one hundred percent of its borrowing base; anything over 100 percent must have voter approval. The maximum limit on the borrowing base, which includes debt the school district already has outstanding, is 225 percent of debt without voter approval.

 

There is no limit on the amount of debt voters can approve in a bond election if a school district exceeds the debt thresholds with voter approval.

 

New bonds will be paid, in part, with revenue generated from an increase in property taxes. A ceiling on local school boards' ability to levy property tax increases was instituted in the Pennsylvania Special Session Act 1 of 2006. The “Act 1 index” determines the maximum that school boards may raise taxes without voter approval by referendum. The formula for the Act 1 index is calculated by averaging the percent increases in the Pennsylvania Statewide Average Weekly Wage (SAWW) and the federal Bureau of Labor and Statistics' Employment Cost Index (ECI) for elementary/secondary schools in the previous year. Beginning in 2012-2013, the index is determined by averaging these numbers over three years.

 

Since its inception, the Act 1 Index has fallen precipitously.

 

 

 

The more limited taxing authority of the Board, coupled with greater expenses for state-mandated liabilities such as pension costs, assures that the new property tax revenue needed to fund a comprehensive high school project will exceed the Act 1 index. Since the funding for the high school cannot be completely met through the existing budget, the Board plans to use an electoral debt exception to pay for the bonds.