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(March 2004) It's easy to get caught up in the rhetoric: $1 billion in property tax relief! Everyone - or at least every homeowner - gets a tax reduction! However, the amount depends on who you are and where you live.

Missing in the debate over property tax relief and expanded legalized gambling is the potential impact on education funding and on different types of taxpayers in Pennsylvania. An IssuesPA examination of the proposals suggests six likely results.

1. There would be an increase in the state share for education - but no increase in total education spending.
Spending per pupil wouldn't change under current proposals. Since the focus is on property tax relief, the total amount of money available for every school district - combining state, local and federal tax dollars - would remain the same. Under the property tax relief proposals, the state's total share of spending on education is projected to increase from 34% to 43% on average. However, this shift in spending only provides local tax relief for owner-occupied properties (homesteads and farmsteads) and contributes no additional dollars for education.

2. The proposals would provide greater relief for districts with higher property taxes.
The formula for distributing state-generated gambling revenues is weighted evenly between tax effort and wealth. However, provisions specifying a minimum percent of property tax relief tip the scales in favor of districts with relatively high tax effort regardless of wealth. For example, the formula alone may award a particular district only 3.5% property tax relief - or roughly $3 million. When a provision for minimum property tax relief of 10% is applied, the district would receive nearly $9 million. The proposals also include a maximum limit on the percent of property tax relief, and to a lesser extent, property tax relief in districts with tax high effort and low wealth could be restricted by the upper limits.

The tilt toward taxpayers in higher-tax-effort school districts increases as more money from gambling becomes available. The formula raises minimum and maximum relief percentages -- and therefore dollars - as gambling revenue grows. A boost in limits also could increase the number of districts affected by the minimum requirement. As gambling revenues grow, the losers are taxpayers in districts in the middle - those unaffected by the increasing minimums and maximums -- because they receive less, as a portion of the total, so that others at either end of the scale can get more relief.

Bottom line? High-wealth school districts levying the highest property taxes would get proportionately more relief. Taxpayers in districts with high taxes and minimal wealth are second. All others seem to fall behind.

3. The proposals seem to encourage taxpayers to "spend more to get more."
Because tax effort, in conjunction with minimum relief, plays a large role in the distribution formula, it appears taxpayers in wealthier school districts would benefit even more if they approve referenda to increase their tax effort, which wealthier districts are more likely to do. This consequence - a potential widening of the spending gap - becomes even more apparent when property tax relief is measured on a dollars-per-student basis.

4. The proposals reward taxpayers in districts with understated personal income.
A key element in the formula is the definition of "income." Because the state personal income tax is the defined base, only taxable income would be counted. The biggest omission is retirement income. A second is income earned in New York by residents of bedroom communities in northeastern Pennsylvania, because New York and Pennsylvania don't have a reciprocity agreement regarding state income taxes. Both of these factors result in an understated income base for the state formula in districts with a high proportion of people with untaxed income. These districts appear to be less wealthy than they really are, which would increase their share of gambling revenue.

5. Renters would lose under these proposals.
Homeowners and farmstead owners would see varying amounts of property tax relief. In general, renters would see none. In fact, working renters - low-income families, young professionals and others who do not own their homes -- would pay more because of mandated income tax increases. The exception? Renters in Philadelphia, who are subject to the Philadelphia wage tax (which would be reduced instead of lowering the city's property tax under the current proposals).

6. Retirees at all income levels would win big.
Retirees stand to benefit from the property tax relief proposals more than working Pennsylvanians. Retirees who own their homes would get property tax relief (unless they live in Philadelphia) and wouldn't have to pay any additional income taxes on their eligible retirement income.

In the end, who should benefit from property tax relief? Those with the highest tax effort? Those with the least wealth? Retirees? Or some combination? Are the potential outcomes of the proposals on track? Lots of difficult questions, the kind that the state's policymakers and the public in general should be debating now, before final action is taken.

One more question - what do you think? Click here and tell IssuesPA.