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Thursday, July 10, 2003

By Johnna A. Pro, Post-Gazette Staff Writer

HARRISBURG -- Lawmakers may impose the sales tax on clothing items that cost more than $100 as part of a plan to roll back property taxes in the commonwealth.

The proposal is the latest of several being discussed behind closed doors as legislators and the Rendell administration seek a compromise solution to pay for the governor's "Plan for a New Pennsylvania."

Imposing a sales tax on pricier clothing might end up being part of a larger proposal which includes using gambling money and local tax options to provide property tax relief and fund school programs.

"It's one of the many options under consideration," said David G. Argall, R-Schuylkill, chairman of the House Appropriations Committee. "We're trying to wade through all of the ideas and see what makes the most sense at this time."

"That flips on and off the table," said House Minority Leader H. William DeWeese, D-Waynesburg. "I don't know whether it will survive the negotiations. It's under consideration."

The tax on pricier clothing is different from a proposal suggested by the Commonwealth Caucus, a bipartisan group of legislators. That group is pushing a plan to reduce the sales tax to 4 percent and impose it on food, clothing and professional services, which are currently exempted from the levy.

Discussions in the capital have reached a feverish pitch as legislative leaders and their top staff people try to reach consensus on a plan to pay for Rendell's proposals.

The governor wants to give Pennsylvanians $1.5 billion in school property tax cuts, add new programs in schools, plug a projected $704 million revenue shortfall in the budget and fund a $2 billion economic stimulus package.

The governor wanted to pay for his plan by increasing the personal income tax rate from 2.8 percent to 3.75 percent and expanding gambling to include slot machines at the state's horse racing tracks. He also wanted to increase the state's beer tax and Motor Vehicle Code fines.

Rendell vetoed the state's $4 billion basic education subsidy in the new budget, forcing negotiations with the Republican-controlled Legislature, where there is little appetite for increasing the income tax. The governor's decision also gave new power to the outnumbered Democrats because they can sustain any veto by Rendell in either chamber.

Because control is now spread more evenly in the Capitol, consensus is a must. Key negotiations are under way, especially between House Republicans and Democrats, because most of the legislation awaits action in that chamber.

Democratic Whip Mike Veon said last night that, as lawmakers looked at revenue streams, they were going through an "exercise" to see which options on the menu would be palatable to the lawmakers.

The sales tax on clothing items of $100 or more could raise as much as $170 million annually. With the exception of some luxury items like furs, clothing is exempt from Pennsylvania's 6 percent sales tax.

"That is a concept that was brought up seriously for the first time [yesterday,] and we're interested in feedback on it," said Erik Arneson, chief of staff to Senate Republican Leader David J. Brightbill, R-Lebanon. "We haven't vetted it with our members and we didn't shoot it down out of the box. I know there is interest in using the sales tax as a piece of whatever is developed."

With little interest for an income tax increase, negotiators for the House and the administration have come up with a plan that would raise $1 billion in gambling money by increasing the number of venues for slot machines. Rendell's original plan had fewer slot machines.

The gambling proceeds would be combined with a local property tax rebate option, a plan favored by Republicans.

Under the plan, school districts that want to get state funding would be required to hold referendums in which voters would decide if they wanted to roll back local property taxes in exchange for the local earned income tax, which is imposed solely on wages. School districts also would have the option of imposing a local personal income tax, which is imposed on wages and other income like investments.

The districts would then get state funding for programs.

Negotiators were still trying to decide last night on the formula for distributing the funding, although Republicans and Democrats agree that the share would be based on a district's need. "The greater the capacity of the locals to shoulder the burden, the lower the state share would be," said Kate Philips, the governor's press secretary.

The most-talked-about option is a sliding ratio whereby the state would return to districts a multiplier of what they roll back in property taxes. If a school district reduces its property tax by $1 million, for example, it could receive $5 million from the state. The ratio might be on a sliding scale, so that wealthier districts would receive less money and poorer districts would get a larger return.

The key drawback of the plan is that it's predicated on gambling revenue. While House members support various forms of gambling, the Senate is less enthusiastic.

Any final plan that includes gambling will be contingent on a fragile coalition of six Republican who've already voted in favor of slots at the horse racing tracks.

"We're going to go very carefully and make sure that everything is coordinated with the Republican senators who support slots," Rendell said earlier this week.

Brightbill, the Senate's Republican leader, who opposes any gambling measure, concedes that his six colleagues wield substantial influence because any final deal will have to satisfy them. They are Joe Conti, R-Bucks; Jane M. Earll, R-Erie; Edwin B. Erickson, R-Delaware; Dominic F. Pileggi and Robert J. Thompson, both R-Chester; and Robert M. Tomlinson, R-Bucks, author of the original slots legislation.

Johnna Pro can be reached at jpro@post-gazette.com or 412-263-1574.