HARRISBURG -- Gov. Ed Rendell is disappointed that the Legislature won't approve a property tax relief package by year's end, but he's hopeful for action by mid-January on a revised plan that could include a half-percentage point increase in the state sales tax.

Mr. Rendell had been threatening to keep legislators in session over the Christmas holiday to achieve a property tax reduction by Dec. 31.

But he backed off that idea yesterday and will instead continue meeting with leaders of the House and Senate Democratic and Republican caucuses.

He said a public hearing will be held Jan. 4 on a tax-cut plan with four main elements, and he hopes both chambers will act on some version of the plan by mid-January.

"Clearly, there needs to be more work" on the tax-cut legislation, Mr. Rendell said yesterday after a closed-door meeting with House and Senate leaders. "We understand our responsibility but we want to get it right. ... We don't want to rush through it."

The main elements of the property tax relief being discussed now include:

Using $1 billion in slots revenue to reduce property taxes statewide by about 20 percent, or $330 a year. That has always been Mr. Rendell's desire, but the slots revenue won't fully arrive until 2007 at the earliest.

Giving additional property tax relief to homeowners through "tax shifting," meaning increasing state sales tax revenues and using the money to cut local property taxes.

Two methods are being discussed: increasing the state's 6 percent sales tax by a half-^-percentage point (in Allegheny and Philadelphia counties, the new rate would be 7.5 percent), or closing some "loopholes'' that now exist for items not subject to the tax. Mr. Rendell said he prefers the latter approach, which would mean subjecting items such as candy, gum, local advertising, direct mail, commercial sports admissions, entertainment tickets, dry cleaning, detective agencies, magazines, personal hygiene products and trailer camps to the sales tax. Depending on how many items are taxed, it could raise up to $2.3 billion.

Giving local municipalities authority to enact additional tax shifting by increasing their earned income tax rates and reducing property taxes on a dollar-for-dollar basis. That was the core of a plan that was passed by the Senate but rejected by the House.

Enacting a "back-end referendum" in which voters in each school district could vote on any school budget that surpassed the rate of inflation.

"All those options remain on the table," the governor said.

Mr. Rendell said he knows such referendums are unpopular with school boards but that voters deserve them as a way to keep school spending under control.

"There will be back-end referendums" in Pennsylvania, as many other states already have, he told reporters yesterday. School board members "have to suck it up and deal with it. People need protection from property tax increases."

He said it will do no good if homeowners get a property tax cut of 20 percent or more from the state only to see it erased by future tax increases by local school boards.

Late Tuesday, the state House approved a tax-relief plan that included raising the personal income tax rate from 3.07 percent to 3.29 percent, but that isn't expected to be part of the final package.

Mr. Rendell said he was disappointed that the Senate and House weren't able to agree on a tax-cut plan this week, but he praised leaders for a new willingness to work together.

House Minority Leader William H. DeWeese, D-Waynesburg, said he's pushing for a shift from property taxes to a higher sales tax. An increase of a half-percentage point would generate $715 million a year in new revenue, he said.

The change would bring the sales tax rate to 6.5 percent in most of the state, and 7.5 percent in Allegheny County and Philadelphia, where the rate already is 7 percent.

That proposal is a clear possibility, Mr. DeWeese said. "It hasn't been vehemently rejected," he said.

Earlier this week, Mr. Rendell said he would not sign a bill that included a tax-rate increase. Yesterday, though, he said he would consider it along with a proposal to tax more items.

A sales tax increase can be palatable if it is coupled with a deep enough reduction in property taxes, Mr. DeWeese contended.

Still, leaders have not reached a clear agreement on whether property taxes should be offset by increases in the income tax or sales tax.

"That is the essence of our conversation," said House Majority Leader David Brightbill, of Lebanon. "We want tax reform by July 1, 2006. That is a very legitimate goal and that is important to taxpayers."

Leaders are expected to meet again in Harrisburg next Thursday ahead of the Jan. 4 hearing to find common ground. The hearing will include discussion of which items should be newly subject to the sales tax.

The House late Tuesday gave a resounding "no" to a Senate plan that would have allowed voters in most school districts to decide whether to shift some of their property taxes to earned income taxes. The bill also included expanded tax rebates for low-income seniors and the use of anticipated gambling money to offset property taxes.

The House was saying "that property tax [relief] has to go beyond providing gaming money and local tax shifts using earned income tax or personal income tax. That is the only one clear message out of [Tuesday] night's vote," said House Majority Leader Sam Smith, R-Punxsutawney.

Mr. Rendell said he's been impressed by the legislative leaders' desire to do something about property tax relief, and decided to relent on his threat to keep legislators in Harrisburg over Christmas if they hadn't passed a plan.

"I am convinced they are determined to do something," he said.