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(March 2004) The goal? Property tax relief through expanded legalized gambling in Pennsylvania. Though the details remain under debate, legislation like House Bill 113 PN 2822 offers some pretty good clues about how Pennsylvania's gambling jackpot would be distributed. IssuesPA created a model of the formula in HB 113, one of the proposals pending before the legislature, to look inside the numbers.

The quest? Examine the formula's impact at two levels: $600 million (the minimum amount of new gambling revenue required for property tax relief) and $1.25 billion (where the highest minimum and maximum levels of relief would kick in). The results are projections using available data and best estimates. Some elements, such as the definite number of qualifying homestead and farmstead properties, can only be determined through implementation.

In the proposals, each district (except Philadelphia) would receive an amount of money from the state for property tax relief, based on a formula. Added to this amount is a local match from increased local earned income taxes. Together, they add up to the total property tax relief available to homeowners in the district.

This analysis uses two measures of comparison. First, property tax relief on a per student basis - that is, the total property tax relief available to a district, divided by the number of students it has. Second, dollars of relief per eligible homestead or farmstead (owner-occupied property).

For more details about the formula, click here.

Property Tax Relief Per Student

Total property tax relief per student - from $600 million in state gambling revenues plus revenue from the local earned income tax increase - would range from $1,111 in Lower Merion (Montgomery County) to $191 in West Greene (Greene County). The statewide median (middle or typical amount) would be $416. Those receiving the most dollars per student include mostly wealthy districts. Twenty of the top 25 in this category would be in Philadelphia's four suburban counties. At the other end, those receiving the least per student are primarily low-wealth school districts.

The local share of property tax relief seems a bit like sleight of hand: taking money from one pocket -- earned income tax-- and giving back to another --property tax relief-(except renters). It's all local tax money. So what might the distribution look like if only state gambling revenue is considered? From $734 per student in Wallingford-Swarthmore School District (Delaware County) to $121 per student in Lower Merion School District (Montgomery County). Fewer of the top 25 are in the suburban counties of Philadelphia - but still nearly half. Also, suburban districts near Philadelphia would receive gambling revenue to replace that portion of local earned income tax increases that would not be collected from commuters who pay Philadelphia's wage tax instead.

Estimated Property Tax Relief Per Student

As gambling revenue grows, many of the wealthiest districts remain at the top in dollars-per-student. But several districts with relatively low wealth but high tax effort join the top of the list. Those at the bottom of the list remain essentially unchanged - still the least wealthy school districts.

To see the results, district-by-district, click here.

What about Property Tax Relief Per Homestead?

From the homeowners' perspective, three groups of districts would receive the most relief in dollars-per-homestead.

• Urbanized areas with relatively little wealth but high tax effort are at the top, including medium-sized cities such as York, Harrisburg, Allentown and Lancaster and smaller areas such as Oil City and Duquesne.
• School districts that border New York or are along major transportation routes to New York also are at the top of the list. Why? A portion of their income isn't in state income tax records and therefore isn't counted in the property tax relief formula. There's no reciprocal income tax agreement between New York and Pennsylvania. The effect is to skew these districts' apparent tax effort and consequently raise their level of tax relief.
• Many well-off districts remain near the top of the list simply because of the minimum levels of relief the proposals would guarantee.

How do minimums and maximums impact results?

The proposals assure residents in every district receive at least a minimum percentage property tax reduction. At the other end, there's a cap on the maximum percentage reduction. These minimums and maximums increase as available gambling revenue grows. The table below shows the number of districts impacted by minimums and maximums at each funding level.

Districts Impacted by Minimums and Maximums

Over 25% of Pennsylvania's districts would be impacted by the minimums and maximums if only $600 million in gambling revenues were available. That jumps to as many as 40% if gambling revenues grow to $1.25 billion.

Minimums and maximums greatly impact how state funds are distributed. Assuming $600 million in gambling revenues available for property tax relief, almost $63 million would be distributed to bring all districts up to the minimum. For example, Lower Merion School District (Montgomery County) would get $55,190 (or $8.37 per student) before the minimum guarantee is applied. That would jump to $7.3 million after the 10% minimum is applied.

At the other end of the spectrum, roughly $13 million would not be distributed to districts limited by the cap. For example, Reading City School District (Berks County) would receive $7.2 million (or $503 per student) under the formula if there were no cap - and $5.3 million ($370 per student) once the 40% cap is applied.

So what does all this mean?

How much taxpayers can expect in property tax relief depends on district tax effort, the application of minimums and maximums, the total amount of gambling revenue available, and more. If the objective is to reduce the burden on those who pay the most for their schools, this formula works, though relying on state personal income tax data as a measure of district wealth creates distortions.

If the objective is to bridge the spending gap between high-spending and low-spending districts, this plan misses the mark. Although this plan is intrinsically linked to education finance, it does not change the overall spending per student - just the source of funds. If the objective is to provide relief to those who can least afford to pay, the formula misses the mark there, too.