TAX NEWS - June 2010

Pennsylvania Tax: Property tax relief

Don't think for one minute, David Campbell says, that school districts benefit from Pennsylvania's gambling industry.

That might surprise many Valley residents who believe that the statewide legalization of slot machines in 2004 would lead directly to funding for public education, be it to pay for building projects, books or teachers' salaries, or be applied to school budgets — and render tax increases extinct.

Not so, says Campbell, superintendent of the Line Mountain School District.

"Gambling money was part of the (homestead and farmstead exclusions of Act 72 of 2004) and has been paid every year to districts in a revenue-neutral form to districts," he said.

Act 72 of 2004, passed by the General Assembly under Gov. Ed Rendell even though at least half of Pennsylvanians at the time opposed gambling — has benefited only property owners.

"I think that is how it got passed," Campbell said, "people thinking it would fund public education."

He blames politicians — not necessarily from the Valley, whose legislators, he said, are conservative — for perpetuating the myth.

"It is disingenuous to lead folks to believe gambling money has helped schools, and that it is an additional source of revenue," said Campbell, whose school board has heard taxpayers question increases in the wake of legalized gambling.

"People believe that," he said. "Gambling money," he reiterated, "although a benefit to the property owner, is revenue-neutral proposition for districts."

What financial benefit property owners realize from gambling revenue may be lost or minimized with tax increases planned in the Danville, Lewisburg, Line Mountain, Midd-West, Mifflinburg, Milton, Shikellamy and Selinsgrove school district budgets for 2010-2011.

Basically, the legalization of gambling has become a wash.

Gaming revenue does not enter the state's General Fund.

Forty-five percent of casinos' total gross terminal revenue benefits casino operators; 12 percent, the state's horse-track industry; 5 percent, the state's Gaming Economic Development and Tourism fund; and 4 percent, local governments where gaming facilities are located.

The remaining 34 percent is for property tax relief.

In short, two-thirds of gaming revenue benefits the gaming industry.

"I don't want to smack the governor," Campbell said. "He's been good to public education. But he sold it as helping public education."

Taxpayers in the Line Mountain district, which is finishing a $17 million buildings project, are about $25 "to the good over the past three years" when comparing tax increases and property tax relief, Campbell said.

Susan Hooper, communications director of the Office of the Budget, in Harrisburg, said Act 1 of 2006 was enacted to ease the financial burden of home ownership by "providing school districts the means to lower property taxes to homeowners, especially senior citizens, via the funding provided by gaming revenue."

Act 1 is similar to Act 72, according to the Penn State local tax reform education project. But unlike Act 27, all local school districts automatically are subject to Act 1's provisions, with no local choice about whether to participate.

Four-fifths of the state's 501 school districts in 2004 rejected Act 72.

When school district costs rise, directors have to raise taxes, or cut services and projects.

Some of the increases are needed to fund teacher retirements and benefits — the state's pension crisis, said school district business managers in Danville, Mifflinburg and Selinsgrove.

"But if it were not for the property tax relief the commonwealth is providing, the property owners in these districts would be paying even higher taxes," Hooper insisted.

The estimated amount of tax relief per household from gaming revenue this year ranges from about $45 to more than $600, based on the relative wealth of the school district. Relative wealth is determined by the district's taxes and income base.

The amount varies by school district, not by individual households within a school district.

In other words, each homeowner in a school district receives the same amount, regardless of the value of his or her house.

Commonwealth Budget Secretary Mary Soderberg certified on April 15 that $616.5 million will be available in 2010-2011 in state-funded local tax relief. Gaming revenue from April 15 through Oct. 15 is projected to add $367.7 million to the relief fund.

When combined with the expansion of the senior citizen Property Tax/Rent Rebate program, total state-funded property tax relief will reach $772.5 million in 2011, she said.

Older Pennsylvanians in particular benefit from the commonwealth's use of gaming revenue to provide property tax relief.

Nearly 600,000 senior citizens will be eligible this year for additional relief through the state's Property Tax/Rent Rebate Program. Approximately 123,000 older adults will not pay school property taxes again this year because of the state-funded property tax relief.

Many more will receive rebates, in addition to the property tax relief that all homeowners receive.

All of this, Soderberg added, "is welcome news for Pennsylvanians who are still coping with the effects of the prolonged national recession."

School districts receive their share of property tax relief in two equal installments, in August and October.

Taking into account the funding for the enhanced Property Tax/Rent Rebate program, the Budget Office estimates that there has been $2.4 billion in total property tax relief since 2006.

Still, Campbell, Line Mountain's superintendent, has been outspoken about gambling revenue.

"I personally do not condone gambling," he said. "In addition to the disingenuous notion that gambling is helping fund education, I feel it is an inappropriate message to send our children, that through gambling we can help fund education."

Meanwhile, with another state budget battle looming, a question remains: Why is Pennsylvania in such dire financial straits despite its welcome mat to casinos?

Gaming revenues were never intended to balance the state budget, Hooper said.

"Pennsylvania's budget problems are the result of the global economic recession that began in September 2008 and that has affected nearly every other state in the country too," Hooper said. "The recession has led to a drop in commonwealth revenues and an increase in the need for social services for Pennsylvanians who themselves have been affected by the recession through job loss or other personal difficulties.

"These two factors," she said, "have led to the tremendous strains on the state budget."