By Peter Jackson, Associated Press, Yahoo! News, May 26, 2005

This article can be used with Land and Freedom US History Lesson 20, Land: Our National Heritage, and Economics Lesson20, on Trade-offs, Real and Fake.

HARRISBURG, Pa. -- It seemed a political masterstroke: Legalize slot machines to lure back residents flocking to casinos in neighboring states, then use the revenue to give Pennsylvania's homeowners a tax cut of historic proportions.

But nearly a year after Gov. Ed Rendell got the Legislature to sign on, the tax-cut portion of the plan has gone awry.

To the governor's dismay, many Pennsylvania school boards are deciding they don't want to participate in the plan -- which would provide an average $330 in tax relief per household, or $1 billion in all.

The first-term Democratic governor now feels snookered and says it was a mistake to give school boards the power to stop the tax cuts from being passed along to homeowners.

Why are Property Taxes so Unpopular? It may be asked: If the tax on land values is so advantageous a mode of raising revenue, how is it that so many other taxes are resorted to in preference by all governments?      The answer is obvious: The tax on land values falls upon the owners of land, and there is no way in which they can shift the burden upon any one else. Hence a large and powerful class is directly interested in keeping down the tax on land values and substituting, as a means for raising the required revenue, taxes on other things....      There is thus a definite and powerful interest opposed to the taxation of land values; but to the other taxes upon which modern governments so largely rely there is no special opposition. The ingenuity of statesmen has been exerted in devising schemes of taxation that drain the wages of labour and the earnings of capital. Nearly all of these taxes are ultimately paid by the consumer; and he pays them in a way that does not call his attention to the fact -- pays them in such small amounts and in such insidious modes that he does not notice it.... -- Henry George,Progress and Poverty(1879)

"It's enormously frustrating to me that the school boards haven't seen or recognized what we've tried to do here," he said Tuesday.

The governor made slot machine gambling and tax relief the centerpiece of his 2002 campaign, and his solid victory gave Democrats the power to finally get the deal through the GOP-controlled Legislature last July.

The idea behind the tax relief plan was not only to shrink homeowners' tax bills but also to reduce school dependence on property taxes. To qualify for a share of the gambling revenue, school boards that decide to participate must raise local income taxes and agree to seek voter approval for future property-tax increases that exceed inflation.

Just days before Monday's deadline, school boards across Pennsylvania were spurning the aid offer by a 3-1 margin -- though a majority of homeowners across the state have indicated they want the cuts. Only about half of the 501 boards had taken formal action.

Critics of the plan say it hamstrings the boards by giving local voters the power, through referendums, to block property-tax increases.

"Basically, this does nothing beneficial for the school district," said Ronald A. Weaner, president of the school board in Gettysburg, which has opted out of the tax relief.

School boards say they also are reluctant to sign on now because no slot parlors are licensed yet and the 14 authorized under the new gambling law are not expected to be generating the projected hundreds of millions in revenue until 2007. What's more, they question whether the state's cut will reach $1 billion.

The law that legalized slots also may be in trouble. The state Supreme Court could rule any day on a lawsuit filed by gambling foes and good-government advocates alleging that the process legislators used to pass the law violated the state constitution.

"There's a sense of a lot of uncertainty among our members," said Tom J. Gentzel, executive director of the state school boards group. "They're making essentially an irrevocable decision."

The stakes are huge for Rendell, who is expected to seek another four-year term next year, said Mike Young, a pollster and political researcher in Hershey.

The Legislature reconvenes June 6, and several lawmakers have introduced bills to make participation mandatory or at least to give local voters a chance to override school boards.

Rendell has used the pending bills to prod boards into signing up. He has warned that limits on their taxation authority may be forced on them -- with even stricter rules than those provided under the current law.

House Majority Leader Sam Smith, a Republican, sees no majority support for any kind of retaliation against the school boards, his spokesman said.

"We think we need to wait until after the deadline and see who is in and who is out and find out why," said the spokesman, Stephen Miskin. If action is taken, "whatever it is, it should not be out of a sense of retribution."

Things to Think About

1. Why did Governor Rendell believe that slot machines would be a good revenue source for Pennsylvania schools?

2. Why do many of Pennsylvania's school boards disagree?

3. Under the Governor's plan, what revenue sources would replace the cut in property taxes?

4. Do you think it would be a good idea to reduce school districts' dependence on property taxes? Why, or why not?

5. How would Henry George explain the current debate over school funding in Pennsylvania?

6. What will be the effect on neighboring states if Pennsylvania chooses to allow slot machine gambling?