Large apartment building owners will face higher taxes in a tentative budget that is under the State College Borough Council's review.

The proposed $26.4 million budget, open for public comment at 7:30 tonight in the council's chambers in the State College Municipal Building, 243 S. Allen St., would shift the real estate tax burden from homeowners to commercial properties, borough manager Tom Fountaine said.

"The shift in taxes would more fairly capture revenue from across the board, as opposed to previously when the burden was disproportionately placed on owner-occupied property and the earned income tax," he said.

Real estate taxes will be the primary revenue for the borough's $14.9 million general fund, a part of the overall budget that funds borough services. Real estate assessments would bring in about $4.2 million in 2006, compared to roughly $3.6 million from earned income tax.

That marks a shift from previous years, when income taxes brought in several hundred dollars more revenue than real estate taxes.

The shift in revenue sources is the effect of eliminating the business privilege tax, Fountaine said, which council repealed in October.

Most council members said eliminating the tax, which charges $1.50 per $1,000 of gross income for businesses, would force large commercial properties to pay more for the borough services they use and allow the borough to better compete for businesses.

"Basically, a hated tax that's really unfair will be gone, and we'll be on a level playing field with all the other municipalities around us when it comes to not paying this tax," council member Jim Meyer said.

The loss of revenue from the tax, about $900,000, will be covered by a 1.8-mill property tax increase. Each mill brings $1 of tax revenue for each $1,000 of a property's assessed value.

Apartment building owners will feel that increase, but most homeowners won't, council member Jeff Kern said. In October, council also passed a homestead exemption act that would exclude the first $25,000 of assessed property value on each owner-occupied home.

Kern predicted that large apartment buildings would pass their tax increase on to tenants, but he said it would result in only a few extra dollars each month.

The 1.8-mill increase is part of a 2.7-mill rise in property taxes in this year's budget, Fountaine said. With the increase, the borough will also cover lost revenue from another business tax caused by a change in state law, as well as contribute money to a regional park program.

Overall, the budget isn't as tight as the borough expected, council member Craig Humphrey said.

"Generally, I think the budget is very well balanced," he said. "There's no significant squeezes that I see."

Although the borough does have a surplus this year, Humphrey said he thinks it could have been more if the business privilege tax hadn't been repealed.

"That [$900,000] could have been used to protect the surplus in the budget," said Humphrey, who voted against the repeal. "But no one else thought that way."

Council member Cathy Dauler said borough staff vacancies and overestimated costs of health care caused the surplus.

"Last year, the picture looked really bleak," she said. "Last year, they were calculating expenses at more than they were actually realized."

New to this year's budget is a program for Web-based services, which would make taxes payable online, as well as several community-outreach programs, estimated at $30,000.

Those would include the revival of a quarterly borough newsletter to residents, a resident satisfaction survey of borough services and a program to enhance communication between the borough and neighborhood associations.