Rendell's call broke state budget gridlock

Legislature OKs $26 billion plan for state spending

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HARRISBURG -- About 11 p.m. Saturday, chances seemed nil that the state Legislature would approve a $26 billion budget for the 2006-07 fiscal year.

More on the state budget

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The spending package, which Gov. Ed Rendell was anxious to see enacted, had become caught in crossfire between Senate Democrats and Republicans.

Sen. Vincent Fumo, D-Philadelphia, delivered an ultimatum to GOP Senate leaders, who were anxious to act on the budget and go home for the summer. He said Democrats wouldn't vote for the budget until the Senate changed the 2004 slots law to give the state Gaming Control Board power to pre-empt decisions by local officials who can use local zoning rules to determine where the two casinos in Philadelphia will be located.

The stalemate caused the budget battle to drag on into the wee hours of yesterday morning and forced Mr. Rendell to make a phone call to Mr. Fumo to break the logjam.

Giving the gaming board that power to overrule local officials in Philadelphia would be a good move, Mr. Rendell told Mr. Fumo, but this wasn't the right time for it. Mr. Fumo then made the governor's feelings known and publicly apologized to his colleagues for the delay.

The budget, which had been approved about four hours earlier by the state House, was then approved 28-21, with Democrats providing most of the votes. In Western Pennsylvania, senators and representatives voted mostly along party lines with all Democrats voting for the budget and all Republicans voting against it except Rep. Michael Diven, R-Brookline.

Mr. Rendell called a 2 a.m. press conference to quickly sign the spending package for the fiscal year that had started at 12:01 a.m. Saturday.

For the fourth time in Mr. Rendell's four years in office, the budget was enacted after the June 30 deadline. Mr. Rendell scoffed that nobody cared about that except for the news media.

The budget was a big victory for the incumbent Democrat, who got most of the items he'd proposed back in February, including:

nearly $300 million in new tax breaks for business.

Cover All Kids, a plan to extend health insurance to more lower-income families that can't afford insurance for their children.

a 7.5 percent overall increase, to $11 billion statewide, in basic education funds for state school districts.

a $50 million increase, to $250 million, in the Accountability Block Grant, which school districts use for pre-kindergarten or all-day kindergarten programs or tutoring in subjects such as math.

a new $25 million program that provides tax breaks for parents who save for their children's college education.

$75 million for libraries statewide, a $14 million increase over 2005-06.

an additional $3 million for an alternate fuels program designed to lessen state dependence on foreign oil.

Many Republicans, however, whacked the new budget as "excessive and bloated." All the opposition in the Senate, and most of the opponents in the House, were Republicans.

State Rep. Daryl Metcalfe, R-Cranberry, complained about a large increase in welfare spending. The $235 million increase brought 2006-07 welfare spending to more than $9 billion. Welfare and education are always the two biggest items in the budget.

Not surprisingly, Republican gubernatorial candidate Lynn Swann panned the budget, criticizing Mr. Rendell for using up the entire 2005-06 surplus of over $700 million for new spending.

He said the increase in the $26.1 billion budget was twice the rate of inflation.

"Simple math indicates you can't spend at twice the rate of inflation and not soon run out of money," Mr. Swann said. "This out-of-control budget will dramatically hinder Pennsylvania's economy for the next several years."

Mr. Rendell sharply disagreed with Republicans and Matthew Brouillette, president of a conservative think tank called the Commonwealth Foundation, on how much the new budget rose over the 2005-06 budget.

Mr. Rendell said that it was only about 5.8 percent over the final figure for 2005-06 spending of $24.7 billion.

But Mr. Brouillette said a better figure of comparison was the original $24.3 billion budget enacted last July. (Another $400 million in supplemental spending was added during the course of the fiscal year.)

Mr. Brouillette said his was an "apples to apples" budget comparison, putting the new spending package at 7.5 percent more than last year, which he said is unacceptably high.

He also criticized Republican legislators, who control both chambers, for helping Mr. Rendell approve "a pork-laden, self-serving budget that grows spending at an unsustainable rate for taxpayers."

Critics said that a year from now, the state may not enjoy the $700 million surplus of this year, which could force legislators to increase personal income taxes in 2007.

Mr. Rendell did take one notable political issue away from Republicans, however, in getting nearly $300 million in business tax cuts. Mr. Swann has been criticizing the governor, saying he has not done enough to help business development.

The biggest is an accelerated phase-out of the capital stock and franchise tax, a levy on a company's physical assets. It had already dropped to 4.99 percent in January, but now will drop by another 1/10 of a percent (to 4.89 percent). That will cost the state $249 million. The tax will be completely phased out by 2011.

The budget also increases the net operating loss allowed for firms. It will now be capped at $3 million a year instead of $2 million.

This permits a company to carry over a financial loss in one fiscal year to a year when it made a profit, as a way of decreasing its state taxes. This provision is especially important to start-up companies, which often lose money in their early years.

Bureau Chief Tom Barnes can be reached at or 717-787-4254.


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