Revenue from PA slot machines to deliver 10 percent cut on property tax bills

Slot machines were legalized in 2004 on the promise of tax cuts, and revenues helped expand a property tax and rent rebate program last year for low-income seniors. The tax cuts will be the first after much anticipation by homeowners, as well as gambling opponents and proponents. "It took us a while to get here, but we are finally here," said Michael Masch, the budget secretary for Gov. Ed Rendell.

The number of taxpayers eligible for a reduction, and the number of people who will actually receive a reduction, was not immediately clear. The Rendell administration said Tuesday that, based on Census estimates, there are 3.1 million home and farm owners outside Philadelphia who would be eligible. To receive a reduction, home and farm owners outside Philadelphia must have completed and returned an application sent by the county. The number of people who did so will not be known until May, Education Department spokesman Michael Race said. In addition, the city of Philadelphia does not have an exact figure for how many people pay the city's wage tax, although the Pennsylvania Intergovernmental Cooperation Authority estimated that it is more than 900,000, based on partial city figures.

Regardless, some will benefit more than others. Based on a formula developed by the Legislature and the governor's office, the slots money will be weighted toward homeowners in school districts where property taxes are relatively high and incomes and property values are low. Also, low-income elderly homeowners and suburban homeowners who work in Philadelphia will get help two different ways, making them likely to see bigger average tax bill reductions.

Pennsylvanians won't be the only ones to benefit. People who work in Philadelphia and live in New Jersey, Delaware and other states also will get the benefit of the lower city wage tax. To date, the state has collected $905 million from slot machines to reduce taxes since the first slot machine lit up at Mohegan Sun at Pocono Downs in November 2006. Based on the amount of slots revenue expected by Oct. 15, the state will distribute $612 million for the tax cuts and another $48.5 million from slots revenue for the property tax and rent rebate program for low-income seniors, while keeping about $273 million in reserve. Nearly $87 million will be set aside to cut Philadelphia's wage tax rate in 2009. The resident rate will decline to 3.93 percent from 4.169 percent and the nonresident rate will decline to 3.5 percent from 3.685 percent.

Masch said he decided to keep some extra money in reserve, beyond the $100 million that is mandated, to ensure that the size of the next year's tax cuts are at least the same as this year's. After that, more slot-machine casinos are expected to open, boosting revenues until they are expected to provide $1 billion in tax cuts in 2012, Masch said. Seven slots casinos are now operating in Pennsylvania. Four more slots casinos, including two in Philadelphia, are licensed but have yet to open, while state gambling regulators have not issued three licenses, including two resort licenses that allow a relatively small number of slot machines on site.

Corzine tells mayors he's staying with aid-cutting plan.

Corzine said he would be willing to phase in those cuts, but only if offsetting cuts were made elsewhere in the state's budget. "I believe it's time to take drastic, transformative steps," Corzine said. "Just because there's been push-back doesn't mean I'm not still strongly committed" to the proposed cuts.

Corzine is trying to prod New Jersey's small towns - 330 have populations below 10,000 - to merge or consolidate services. New Jersey, the fourth-smallest state, is crowded with little governments: There are 566 municipalities, 616 school districts, and 486 local authorities. So many governments, with their own police and public-works departments and school superintendents and court buildings, are expensive and help make property taxes the nation's highest, state officials say. To offset his proposed municipal aid cuts, Corzine proposes a $32 million fund to reward towns that merge or share services.

The proposed cuts are part of Corzine's effort to rein in spending and reduce state debt. He has proposed a $33 billion state spending plan for fiscal 2009, down from $33.5 billion this year. The municipal aid in his budget is $1.576 billion, down from $1.744 billion.

Municipalities, especially the small ones, have vociferously opposed Corzine's plan, saying it would force them to raise property taxes, cut vital services, or both. The 130 mayors at yesterday's conference gave Corzine polite applause before and after he spoke, but were largely unmoved.

"I had hoped we'd get some glimmer of hope today," said William G. Dressel, executive director of the New Jersey State League of Municipalities. "I was rather disappointed." Hopewell Mayor Paul Anzano said that his Mercer County borough of about 2,000 people already shared 85 percent of its services with neighboring towns, and that Corzine's plan offered no reward for that. "Just because government is small doesn't mean it's inefficient," said Anzano, who said Hopewell stood to lose $130,000 from a $2.5 million budget.

Jack Severson, mayor of Laurel Springs in Camden County, said Corzine "said the two words I wanted to hear: 'phase in.' " Laurel Springs, a borough of about 1,900, stands to lose about $291,000 out of a $2.5 million budget and would have to raise property taxes, Severson said. If the borough could deal with the cuts in stages, it would ease the pain, he said. "There wasn't much else heartening that we could take from that speech," Severson said.

Colleen Mahr, mayor of Fanwood in Union County and the new president of the mayors' organization, chided Corzine for his population-based cuts. "It's critical that reductions be equitable and fair," she said. "They should not rely on some arbitrary population number." Corzine rejected that argument, saying the "only arbitrary factor is the amount of revenue we take in."

Axing Tax is Right for the City of Philadelphia

The personal property tax is a tax on stocks and bonds owned by investors. It especially hit trusts managed by city banks and trust companies.        A similar tax was declared unconstitutional in North Carolina. A suit, challenging the tax here is before the Pennsylvania Supreme Court and it's expected to be decided soon. Because of the North Carolina decision, it is anticipated that the personal property tax also will be declared unconstitutional in Pennsylvania.       

In anticipation that decision, suburban counties surrounding Philadelphia repealed it in their jurisdictions. Trust departments felt that it was their obligation, as a result, to move trust operations and trust employees out of the city to the suburbs.       

If the city failed to repeal the tax, the bankers said it would be their obligation to their trust customers to make the move to the suburbs permanent.       

The mayor would have preferred to keep the tax, and the $17 million it raised in revenue. The administration tried to find a way to do exactly that, but it found out that even under a revised provision that might have made the tax constitutional, the city would still lose most of the revenue. So Rendell threw in the towel and decided to just kill the tax.       

Council President Street said the issue came down to perceptions. It was an issue of keeping businesses and jobs in the city and staying competitive with the suburbs.      

The banks have agreed to bring those trust employees back into the city.       

When the tax is repealed, that will solve that problem.       

Commendably, the mayor and council president have pledged a more prudent path in their repeal proposals than their suburban counterparts. When the suburban counties eliminated the personal property tax, the counties increased real estate taxes to make up for the lost revenue.       

Philadelphia will cut its budget to match the losses in personal property tax dollars. That stands in stark contrast with the suburban strategy.       

Looming out there, however, is the chance that the city and the suburbs might be required to refund personal property taxes paid during the past three years. That could amount to a one-time hit of $58 million to the city budget to pay for those refunds. If that happens, Rendell and Street hope to get the Legislature to make up the difference, an unlikely prospect.       

As both Rendell and Street acknowledge, the city is at a competitive disadvantage with its suburban neighbors when it comes to business taxes.       

Making that disadvantage deeper would run counter to Philadelphia's financial strategy. As Rendell said, the city should be in the position of growing its tax base, not encouraging more jobs to leave.

It's the right move.

Split-Rate Property Tax?

How about a split-rate property tax?  The burden would be placed on land value, rather than buildings and improvements. Split-rate taxation already is allowed under state law for some municipalities and school districts.

Legislation has been proposed to expand the list of governments that would be eligible. Proponents said an emphasis on land value would encourage development of properties (the rationale being, if you're going to pay more taxes, you might as well do more with the property) while discouraging slumlord-type speculation (it would be expensive to have land sit around and do nothing) and development of open space cities would become increasingly attractive and competitive.

That is what was proffered at "Public Finance Alternatives -- A Philadelphia Regional Forum," sponsored by the Pennsylvania Fair Tax Coalition at the Friends Meeting House on Arch Street in Philadelphia.

The tax is in place in Washington, a city of 16,000 that is 30 miles southwest of Pittsburgh. Mayor L. Anthony Spossey, one of the panelists, called himself "a firm believer" in the split-rate system.

"This was a way for some meaningful tax reform that we could establish without having to wait for some mandate from an upper level of government," Spossey said.

Richard S. Rybeck, an administrator with the Department of Public Works in Washington, D.C., said split-rate taxation offered opportunities for revitalizing cities and saving green space.

"In order to protect and preserve the countryside, we must have viable and vibrant cities," Rybeck said. "And one of the threats to the countryside is the fact that our cities are not healthy" and development and related activities are "spilling out, almost like refugees fleeing from the cities."

With a tax that targets land value, "people don't have an economic incentive to prematurely convert land that's being appropriately used for agriculture or conservation," Rybeck said.

Joshua Vincent, director of the Center for the Study of Economics, said such a tax system could be helpful to Philadelphia, but would have less of an impact than elsewhere because of Philadelphia's reliance on the wage tax.

However, with a split-rate tax, most Philadelphia homeowners would realize an immediate savings, Vincent said.  Those who would pay more, for example, would be the owners of "the big abandoned mud flats" along the Schuylkill and Delaware.

Joanne R. Denworth, president of the Pennsylvania Environmental Council, described an analysis commissioned by the council that recommended regional revenue sharing between Philadelphia and its neighbors.

She also noted that much of the attention in the tax-reform debate had been focused on legislation that would shift the burden away from property taxes and onto local sales or income taxes.

Then, an apparently impressed Denworth added, "The arguments that people have made here have made me think about, well, maybe that isn't the thing to do. Maybe there are other approaches." Our Source: Robert Moran of  Inquirer Harrisburg Bureau.

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Pennsylvania Department of Revenue offers Property Tax services on the  Internet

After April 15, the Department will provide the down-loadable forms to claim the Property Tax Rebate, which are due by July 1.