HARRISBURG -- When it comes to helping fraternal and veterans groups that use "small games of chance" to raise funds for charity, the state Legislature giveth and the state Legislature taketh away.

As part of a proposed $27.9 billion budget for fiscal 2009-10, legislative leaders want to increase the weekly limits on prizes for games such as raffles, punchboards and pull tabs.

For years, that limit has been $5,000, but new legislation would lift it to $20,000 a week. Also, under Senate Bill 211, the maximum prize in any one small game of chance would increase from $500 to $1,000.

Groups like the Veterans of Foreign Wars and Elks see the higher prize limit as the good part of the bill. The bad part is that for the first time, the Legislature would impose a tax of 20 percent on the profit the clubs retain after paying the winners.

The tax would affect only fraternal, ethnic and veterans organizations -- as well as volunteer fire companies -- that have a state-issued liquor license.

Legislators, always on the lookout for new revenue, think the new tax could raise up to $40 million to $45 million a year for the state, said Senate President Pro Tem Joe Scarnati, R-Jefferson.

The higher prize limits also would apply for church fundraisers and youth associations that use raffles or other small games to raise funds. However, the new 20 percent tax would not apply to those groups. The tax also doesn't apply to profits from any bingo games.

"We are not going after midget football or Little League or the Boy Scouts or churches or bingo games,'' Mr. Scarnati said.

Groups like the VFW, American Legion, Elks, Moose and some ethnic and sportmen's clubs have, for a long time, wanted the Legislature to raise the $5,000 weekly limit on prizes, so they can raise more money for the charities they help.

The new weekly prize limit of $20,000 isn't final, however, because the budget debate isn't over. A vote on the 2009-10 budget is at least a week away.

This year, the state is facing the worst economic conditions since the 1930s, and revenues have dropped off sharply. The just-ended fiscal year of 2008-09 had a deficit of more than $3 billion.

That has forced legislators to scramble for new ways to raise revenue. Earlier this year, someone came up with the idea of raising the prize limit on raffles and punchboard games, but also imposing a first-time tax on the clubs, Mr. Scarnati said. He is hoping that the higher prize limit "will more than offset what the clubs are losing by having to pay the tax."

The people who win money at small games of chance wouldn't have to pay the new state tax on their winnings. It's just the clubs that would have to pay, based on their net profits.

"Some components of this bill will be controversial, but we are trying not to hurt any organization or group," said Mr. Scarnati.

There are some complaints about added paperwork under the new bill. Clubs must submit annual reports to the state, listing their gross receipts from games of chance, expenses related to conducting those games, the amount of prizes paid out and state how the proceeds from the games were used and disbursed.

Rep. Tim Solobay, D-Canonsburg, has been trying for a long time to raise the prize limits on small games of chance. His bill, House Bill 169, would do that, but it wouldn't impose a tax on nonprofit groups with liquor licenses.

He said such groups are already facing obstacles with their games of chance due to stiff competition from the state lottery and, for the past five years, from state-authorized slots casinos.

"I hate to see us do this to nonprofits like the American Legion or the Sons of Italy or the Polish National Alliance," he said.

He said he doesn't think the 20 percent tax would generate $40 million a year for the state. If that is true, he said, the total raised by small games of chance would have to be $200 million, which he thinks is an over-estimate.

"I don't think the profit of all the clubs together is that much," he said.

Rep. Matt Smith, D-Mt. Lebanon, said that rather than imposing a 20 percent tax on groups that use small games of chance, "We should instead raise the table games license fee for casino operators to $20 million."

The size of that one-time license fee isn't set in stone yet, but support has been coalescing around a $15 million fee. Mr. Smith said that an additional $5 million for the table games license fee, when paid by the nine casinos now open, would generate $45 million, or roughly the same amount expected this year from the tax on small games of chance.

He said he's trying help "VFWs, local fire companies and other organizations that form the backbone of our communities" avoid a new tax.

Casino operators would certainly fight a $20 million license fee. They are already on record in favor of a $10 million fee.

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