HARRISBURG -- Gov. Ed Rendell has devised a startling and controversial plan to generate $550 million a year for tuition assistance for 175,000 Pennsylvania college students -- by legalizing thousands of video poker machines in bars, taverns, restaurants and private clubs across the state.

Students would be eligible if their families earn up to $100,000 a year and if they attend one of Pennsylvania's 14 community colleges or the 14 universities in the State System of Higher Education. The maximum annual grant would be $7,600.

Mr. Rendell is expected to push for his sweeping video poker plan today during his 2009-10 budget speech.

State Education Secretary Gerald Zahorchak said there is "a crisis'' in college funding for many parents, who can't meet the ever-rising costs as their family savings dwindle or they lose their jobs.

"As the national economy has soured,'' he said, "many families have been operating in crisis mode, taking out second mortgages, amassing credit card debt or taking other drastic measures to make ends meet.''

The Rendell plan could give "tuition relief'' as early as this fall -- but only if the Legislature enacts the video poker bill this spring.

Acting state Revenue Secretary Stephen Stetler and State Police Commissioner Frank Pawlowski contended that illegal video poker machines have been used in bars and taverns for years.

"This plan would create a dedicated funding source for tuition by bringing video poker out of the shadows,'' said Mr. Stetler.

"Video poker already exists in Pennsylvania -- it's widespread,'' said Mr. Pawlowski.

"There are about 17,000 video poker machines in operation illegally [at bars, taverns and clubs] in Pennsylvania, about 10,000 in Western Pennsylvania and 7,000 in Eastern Pennsylvania.''

Joe Pintola, president of the Washington-Greene-Fayette chapter of the Pennsylvania Tavern Association, said the statewide group has been seeking legalized video poker for 20 years to make up for declining alcohol sales.

The owner of Hungry Jose's in Washington, Pa., Mr. Pintola estimated that 75 percent or more of bars and taverns in his area already use such gambling devices to supplement their revenue.

"Little guys have had to turn to some kind of gray gambling, technically illegally, to try to make an extra buck," Mr. Pintola said.

Establishments that pay a licensing fee to their local municipality -- usually ranging from $50 to $500 -- are allowed to have video poker machines just like jukeboxes, but the machines are supposed to be played "for amusement only."

Bars or clubs and their machine vendors can illegally arrange to have a "knock-off" switch on the machine that counts credits for each new player. The bar staff will have an arrangement, mostly with regular customers, to pay off those whose play results in a net gain of credits instead of losses.

The Pennsylvania Gaming Control Board has been distributing grants to law enforcement agencies around the state to crack down on that activity. The board sees it as a threat to the state's licensed casinos, which have their own slots and video poker machines.

Those casino operators, who each paid $50 million for licenses to operate, might offer their own input about competition from any newly legalized gambling.

Pennsylvania's 2004 slots law calls for a refund of those licensing fees if the state increases the number of "permissible licensed facilities." Mr. Stetler said he does not believe such refunds apply to the governor's proposal.

Yesterday, a spokesman for The Meadows Racetrack & Casino said it was too soon to comment on the governor's proposal.

Under the Rendell plan, bars, taverns and other establishments with state liquor licenses could each have up to five video poker machines. With an estimated 18,000 or so such establishments, state officials think $130 million would be generated initially, with $550 million a year within four years or so.

The state would place a 50 percent tax on the net gaming revenue -- what remains after winners have been paid. The bar owner would get the other half. All video poker machines would be electronically connected to the state's central computer system, as the thousands of slot machines in casinos are now.

Mr. Stetler said the video poker system would not be regulated by the state Gaming Control Board, which oversees the seven casinos. He said state police would regulate it and make sure no more illegal machines are in use.

House Republicans reacted negatively to the video poker plan.

Rep. Douglas Reichley, R-Lehigh, said it's true that some bars now have illegal gambling devices, but added, "Prostitution is illegal too, so what's next? Legalizing prostitution?''

Rep. Mike Vereb, R-Montgomery, called it "barbaric to legalize gaming in neighborhoods. This is a major expansion of gambling, no matter how they spin it.''

Rep. David Levdansky, D-Forward, believes local governments should get a cut of the revenue.

Rep. Frank Dermody, D-Oakmont, has a bill that would legalize video poker machines only in bars in Allegheny County. He said the bars need the revenue because they are losing customers to the state's seven slots casinos and because of a new public smoking ban.

West Virginia legalized video poker and other slot machine gambling in bars and clubs in 2001, and it is regulated by the West Virginia Lottery.

A lottery spokeswoman said the bar and club machines generated $411 million overall in the last fiscal year, with the state claiming a little more than half that amount. The operators, who can have five machines in bars and 10 in fraternal clubs, retained the rest of the income.