Act 1 is legislation passed in June 2006 to help Pennsylvania school districts reduce property taxes by shifting the tax burden and utilizing gaming revenue. Also known as the Pennsylvania Taxpayer Relief Act, it is designed to give voters a say in the school district’s budgeting process. Act 1 replaced an earlier law called Act 72, which was optional for school districts. However, Act 1 is not optional. All districts are required to abide by its regulations, even if they choose not to accept revenue from state-controlled gambling provided through the act.As required by the act, Methacton School District formed a Local Tax Study Commission comprised of diverse members of the community who studied the district’s existing tax structure and demographics and held public meetings to hear residents’ opinions. The committee’s purpose was to recommend to the Board of School Directors whether it would be better to increase the earned income tax (EIT) or implement a new tax called a personal income tax (PIT) as a way to shift the tax burden from property owners to wage earners or those earning money from investments. The committee recommended an increase of 1 percent in the EIT, which taxes wages but does not tax investments or retirement income, placing more of the tax burden on those who are working and less on those who are retired. The current EIT is 0.5 percent for the school district, so an increase of 1 percent would have raised the taxes owed to Methacton to 1.5 percent. Although the school board accepted the committee's recommendation on May 15, 2007, referendum voters decided that they did not want a change to the current EIT of 0.5 percent, and no change was implemented.
Along with tax relief, Act 1 was also designed to limit school district spending by requiring districts to keep budgetary increases at or below an annual index set by the state. If a district needs to raise taxes above that index, it is required to ask voters to approve the increase through a separate referendum. Recognizing that in some years school districts may face expenses that are beyond their control or are unforeseen, Act 1 allows school districts to seek exceptions for budgetary increases over the index in certain circumstances. If these exceptions are approved, districts are allowed to increase their budgets over the index without going to referendum.