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Sunday, July 20, 2003

By Johnna A. Pro, Post-Gazette Staff Writer

HARRISBURG -- After a marathon session of voting that lasted 13 hours, state House members early yesterday passed key pieces of legislation that would expand legalized gambling, provide property tax reform and give small funding increases to school districts.

The final votes came in rapid succession starting at 2:30 a.m., a full 12 hours after debate began on legislation that ultimately may significantly alter the way Pennsylvania pays for education.

"I think it was an extraordinary evening," said a bleary-eyed House Speaker John M. Perzel, R-Philadelphia, "We've been working with the governor since the first day he was elected. We've met with him over 50 times, and with his people, to come up with ways [to do this]."

Although the legislation provides the foundation for Gov. Ed Rendell's "Plan for a New Pennsylvania," none of the measures is likely to withstand a wholesale scrutiny of the state Senate or the governor's administration.

The Rendell administration wants a broader education package that includes new programs; Senate Republicans like property tax relief but not gambling; and Senate Democrats are furious that their House counterparts overhauled the original gaming legislation, which they were integral in shaping.

As a result, Pennsylvanians are likely to see weeks, or even months, of heated debate, behind-the-scenes machinations and rising political rhetoric before a deal to change education funding and property tax reform is finalized.

"Unless there is a substantial increase in education, we could be waiting until Thanksgiving," said Rendell, signaling his disappointment that the legislation did not include his proposals for pre-kindergarten, full-day kindergarten, smaller class sizes and a host of other programs. He will veto the measure if it gets to his desk.

But Rendell said at an appearance yesterday at an American Legion convention in Monroeville that he ultimately believes the administration, the Republican majorities in the House and Senate, and the Democrats who back him, will reach an agreement to use slot machine revenues as a catalyst for at least $1 billion in school property tax reductions statewide.

"I am confident that they know the stakes and they will get together and work out a compromise," Rendell said.

Rendell initially wanted to pay for his agenda, including tax reform, education and economic development, by raising the state's personal income tax rate from 2.8 percent to 3.75 percent; using $300 million from slot machine revenues; closing business tax loopholes; and adding a series of smaller taxes and fees.

But lawmakers from both parties balked at a 34 percent personal income tax increase and are trying to craft agreements that will advance the Democratic governor's agenda while tempering concerns of Republicans who control the Legislature.

The revenues from expanded gambling, projected by the House to be $1 billion in this budget year, would fuel school property tax reform as part of a two-tiered plan that shifts the burden of school financing to the state, a policy Democrats support, while offering property tax reform, which Republicans support.

Separately, the administration still needs additional money to pay for Rendell's early education initiatives and other innovations that carry a price tag of $559 million.

The bill passed by the House provides funding for the basic school operations, but nothing more. A similar bill passed by the Senate last month included an additional $15 million allocation for a Head Start program.

"We continue to work with the governor to come to a compromise over some of his early education initiatives that are in his overall proposal," said House Majority Leader Samuel H. Smith, R-Punxsutawney. "There are still some differences there because of the tax consequences of pulling all that together."

Those tax consequences could mean a small increase in the personal income tax, a statewide drink tax or application of the sales tax to some clothing items. Republicans aren't keen on any of those choices but have to negotiate over the proposals because House and Senate Democrats will uphold Rendell's veto if he gets an education bill that lacks funds for new programs.

"We would like to, when we get an agreement, do that last three parts of the package that are left out," Perzel said. "We can do the revenue enhancements, we can do education . . . and the economic stimulus package if we get to that."

A $2 billion economic stimulus proposal also is part of Rendell's agenda. Negotiations over that legislation are stalled over several issues including how much venture capital money would be included.

The school funding legislation that passed the House would increase the basic education subsidy this year in the state's 501 school districts by 2.8 percent over last year. Special education would get a 4.5 percent increase and vocational technical programs would get 2.5 percent more.

The measure passed by a vote of 190-11 and included support from House Democrats even though they oppose the bill.

"This bill that's in front of us does, in fact, not reflect the governor's priorities," said Rep. Mike Veon, D-Beaver, the Democratic Whip on the House floor.

But Smith said that the legislation to give schools at least a nominal increase was necessary because districts still don't know how much money they will receive from the state this budget year. Rendell vetoed the $4 billion basic education subsidy that was in the 2003-04 budget, forcing negotiations on his agenda.

The tax reform legislation, which passed in a vote of 198 to 3, details how $1 billion in gaming license fees and revenues would be allocated to the state's school districts.

Combined with the earlier legislation that would expand gambling in the Commonwealth, the measure sets up a new statewide taxing system that shifts the largest burden of school financing to the Commonwealth.

The proposal requires every school district in the state to raise its earned income tax by one-tenth of a percentage point and then lower its property taxes by an equal amount to receive a share of the gambling money.

District shares of gambling revenue would be determined by a formula that takes into account factors including current state aid, average daily attendance and poverty rates.

Relief from the state would be smaller in wealthy districts and larger in poorer ones.

Most school districts also would be required to hold referendums in November to ask voters if they want additional property tax relief in exchange for having to pay an even higher earned income tax or a personal income tax, which also would be levied on dividends and interest.

The legislation limits the amount of property tax relief a district may provide and prevents property taxes from creeping back up unless voters agree.

The maximum additional property tax relief would be equal to half the median value of homes in the school district. For example, if the median value of homes in a district was $50,000, the district could exempt $25,000 of each home's value from taxation.

Districts such as Pittsburgh and distressed districts that already use a homestead exemption would not be required to hold the referendum. They include: Clairton, Duquesne, East Allegheny, Highlands, South Allegheny, Steel Valley, Sto-Rox and Wilkinsburg.

Districts would be permitted to impose earned income or personal income taxes sufficient to offset the full cost of the property tax exemptions.

Districts could not raise property taxes beyond the rate of inflation without voter approval.