Corbett wants to strip many of those exceptions out, and he wants the issue to be resolved with the budget, which makes steep cuts to public education and could force school districts across the state to raise taxes.
By late Thursday night, the bill had cleared the House in a 109-86 party-line vote, but had not yet been approved by the Senate. And the governor said he would not sign the budget without it.
"He will only sign the budget if he gets the [schools] tax bill with it," Corbett spokeswoman Kelli Roberts said Thursday night.
Pennsylvania's budget has not been approved by the June 30 deadline for the last eight years. Corbett, a Republican, had wanted to make an on-time spending plan a priority. And the odds of having one were in his favor because both legislative chambers are GOP-controlled.
Few had predicted the school tax bill would, at the eleventh hour, bring the process to a halt.
Early in the day, the legislature was on course to send the main budget bill, with several related measures, to Corbett's desk.
By midday, harried legislative leaders began gathering behind closed doors to work out an agreement on the Act 1 changes.
Top Senate Republicans said there was disagreement over whether eliminating some of those exemptions would place too many restrictions on districts that have construction debt or that need new buildings.
Act 1, passed under Gov. Ed Rendell, requires that voters have a say on tax hikes if they exceed the state-set inflation rate, which is related to state and federal wages. (It was adjusted to allow poorer districts to raise taxes at a higher rate without a referendum.)
But the law allowed for taxes to be raised in 13 spending categories without triggering a referendum. That meant that only a handful of districts actually had to put their tax increases up for a vote. Almost all of those that did lost.
The 13 categories included special-education costs above the inflation rate; pension system payments above inflation; and tax increases related to school construction projects or to paying off construction debt.
Act 1's requirement of submitting property-tax hikes to voters doesn't affect Philadelphia, where residents are facing the second property-tax increase in as many years. The law is designed to give Philadelphians some wage-tax relief instead.
The bill being negotiated Thursday would eliminate most exceptions, but would leave a few popular ones, including special-education-spending increases and payments into the state pension system.
Though payments on construction debt incurred before Act 1 passed would still be allowed - as would debt for a specific spending project approved by voters - it would do away with the exemption for school construction.
That made some Republican senators unhappy.
Senate President Pro Tempore Joe Scarnati (R., Jefferson) said late Thursday afternoon that he would have to "count noses" on whether the bill would pass muster in his chamber.
Asked Thursday evening whether there would be a resolution, Senate Majority Leader Dominic Pileggi (R., Delaware) said, "We are getting closer."
Corbett made clear early in the week that he wanted the Act 1 changes with the budget.
Overall, the $27.15 billion budget deal is about 3 percent less than the current budget. It would let Corbett stick to his campaign pledges not to raise taxes - including no new levy on extraction of natural gas from the Marcellus Shale - and to rein in spending.
But it would come at a cost.
Although the negotiated budget deal restores some money to public schools and state-supported universities, they would still take hefty financial hits. Also facing steep cuts are public welfare programs for the poor, including food pantries, job training, and drug and alcohol programs.
In kindergarten-through-12th-grade public education, the negotiated budget would restore about $269 million, or almost a quarter, of the $1.1 billion that Corbett had proposed to cut in the budget he unveiled in March.
The deal would put $100 million back into the popular Accountability Block Grant program, widely used to expand or maintain all-day kindergarten and to fund other early-education programs, and $130 million back for basic education aid, the state's main subsidy to school districts.
But many school officials are hardly cheering, saying the lion's share of funds legislators had restored would go to wealthier districts.
Advocates for the poor, too, are saying the budget would strike a blow to the most vulnerable. They point to a nearly 50 percent cut to job training and to programs that help families pay for day care so they can work.
Republicans have said this budget is the best they could craft given the constraints they were facing, including a bad economy and an unwavering commitment to not raise taxes in Pennsylvania.
Contact staff writer Angela Couloumbis at 717-787-5934
Inquirer staff writer John Manganaro contributed
to this article.