Schools wary of slots-revenue windfall

Mark Scolforo

Tuesday, Dec. 28, 2004 | 11:10 a.m.

HARRISBURG, Pa. -- The Pennsylvania Gaming Control Board held its inaugural meeting earlier this month, and the seven appointees' first actions are being closely watched for indications of how they will approach the countless decisions ahead.

At the same time, a less public but equally weighty decision-making process has already begun, as school boards and superintendents have started to grapple with a question that at first blush may not seem very difficult: Should their districts sign on for a share of the estimated $1 billion in annual gambling proceeds to lower residential property taxes?

The up side, of course, is the money, which the governor's office estimates will yield an average reduction of $333 for residents of owner-occupied housing. But the revenue comes with a few strings attached, and by the end of May school districts face decisions about whether they will participate.

"School districts have come to understand it's a pretty complicated issue and it goes beyond the relatively simple issue of whether or not you want to take advantage of the state money for property-tax relief," said Ronald Cowell, a former state lawmaker who is president of the Education Policy and Research Center, a Harrisburg think tank.

For one thing, accepting the gambling money will make it much more difficult to raise property taxes in the future, as tax increases above the rate of inflation must go before voters in the form of a referendum. A raise-my-taxes plebiscite is a tough sell, regardless of the rationale.

There are exceptions, among them emergencies or disasters, certain forms of debt, rapid enrollment growth and employee pension costs that jump by at least 7.5 percent. Are those provisions wide enough to cover the myriad of potential issues that public schools will face in the future? Each of Pennsylvania's 501 districts will have to reach its own conclusions.

To qualify for the gambling money, districts must increase local earned-income taxes by at least 0.1 percent, which Cowell said could have consequences for local economies. If those taxes go up by more than the minimum required, it could affect where wage-earners, particularly renters, decide to live, he said.

The $1 billion projection was made in a marketing study commissioned by Democrats on the Senate Appropriations Committee, and although the study was performed by a reputable firm, it has never been made public. Actual revenue may be higher or lower, and will undoubtedly fluctuate over time.

"The fact that there is no guarantee that the state will have available any specific amount of money year-to-year also raises question marks for school districts," Cowell said.

That said, some believe the $3 billion in gross proceeds -- the state is taking one-third for property-tax cuts -- could be conservative, given the scope of gambling that was approved.

"We feel pretty confident," said Kate Philips, spokeswoman for Gov. Ed Rendell. "I think that most people feel there will be more revenue at the end of the day than what was actually projected."

Not everyone agrees.

The tax cuts were used to sell the gambling expansion, and a spokesman for House Majority Leader Sam Smith, R-Jefferson, said the hype already may have exceeded the revenue that can reasonably be expected to come in.

"There's no guarantee whatsoever it's going to be that much money," said Smith's spokesman Steve Miskin. "This slots bill was not about property taxes -- it was about slots, it was about gambling."

By New Year's Eve, the second round of mailings to enable homeowners to sign up for the potential tax cut will have arrived in millions of mailboxes around the state -- a form carrying the not-so-clear bureaucratic title of "application for homestead and farmstead exclusion."

The public response to the first wave of mailings in October was generally lukewarm, county assessment offices reported. Whether school boards will show more enthusiasm remains to be seen.