Budget stalls over spending disputes

State total expected to top $27 billion

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HARRISBURG -- Gov. Ed Rendell and state legislative leaders say they're optimistic they'll reach an agreement in the next 27 days on a new state budget that probably will top $27 billion.

But ongoing disputes over just how much the state should spend in 2007-08, the specific programs that will be funded or cut, and whether taxes must be raised to pay for all the spending are threatening to keep officials from meeting the June 30 deadline.

"Senate Republicans believe this budget can and should be done on time with no tax increases and that's what we are pushing for,'' said Senate GOP spokesman Erik Arneson. "The only way this budget process will go past June 30 is if the governor is unreasonable in negotiations.''

Rendell spokesman Chuck Ardo said the governor continues to "pursue the progressive agenda he laid out in February and is not prepared to give up on any of its critical parts,'' including controversial moves such as increasing the sales tax to 7 percent statewide, imposing a 6.17 percent tax on oil company profits to fund mass transit and hiking taxes on tobacco.

Longtime Capitol watcher Michael Young, of Michael Young Strategic Research, said that legislative leaders and Mr. Rendell "are playing a game of 'chicken' over the budget. Or call it a poker game, where both sides are trying to convince the other they'll go to the brink if they have to.''

Ten days ago, the House sent a general fund budget of $27.3 billion to the Senate, on a mostly party-line vote. Almost all House Republicans voted no on the proposal, which largely reflects the $27.3 billion spending package that Mr. Rendell had proposed in February.

The House-passed budget differs from the February proposal in one key respect -- it doesn't call for any tax increases. Even though the House would spend $1.2 billion over the 2006-07 budget of $26.1 billion, Democrats think it can be funded by using a budget surplus that's expected to reach at least $500 million by June 30, plus perhaps $400 million from the state's "rainy day" fund, with additional revenue possible from a continued growth in sales and income tax revenues projected over the next 12 months.

But House Republican leader Sam Smith, of Punxsutawney, said Friday that no money should be taken out of the rainy day fund, because that money is needed for economic recessions and other emergencies. "Some Democrats have a healthy appetite for spending nearly everything they can get their hands on,'' he said.

Mr. Smith said he hasn't given up on getting the budget's bottom line below $27.3 billion, so that rainy day money isn't needed. Republicans have questioned several of the governor's priorities, such as education mandates costing at least $200 million for laptop computers in schools and an expansion of pre-kindergarten programs. Republicans have also criticized the growth in welfare costs.

The 2007-08 budget that passed the House is 4.6 percent higher than the current budget, which is a fairly modest increase by state standards. Most budgets in the Rendell years have been in the 5 percent-6 percent range of increase over the previous year. But Mr. Smith complained that the House-passed budget doesn't include numerous important items, which will ultimately jack up the bottom line beyond $27.3 billion unless cuts are also made.

Items not yet included in the budget include at least $100 million in so-called "walking around money,'' or community revitalization grants that go for legislators' pet projects in their home districts. Republicans may also try to restore money that was cut by Mr. Rendell for "science in motion'' vans that travel to rural schools, money to help counties fund full-time district attorneys and money for local police to check on gun purchasers.

Another item not now in the budget is increased funding for mass transit. Mr. Smith said the governor's proposed oil profits tax is "dead,'' and he was pessimistic that additional state funding would be approved by June 30. He called on transit agencies to eliminate their budget deficits by cutting routes and raising fares.

Republicans also contend that Democrats -- in order to hold the 2007-08 general fund to $27.3 billion -- "offloaded'' items to other sources of revenue. For example, the administration shifted $20 million needed for the Department of Aging from the general fund to the state Lottery Fund, and shifted $40 million for state police costs over to the Motor License Fund, said Steve Miskin, a Smith spokesman.

Mr. Miskin contends that if all the additional spending items were lumped into the general fund, the growth in spending would be closer to 6 percent or 7 percent instead of 4.6 percent. Some conservative Republican legislators are calling for holding the spending increase to the rate of inflation, or about 3 percent.

Matthew Brouillette, of the Commonwealth Foundation, a conservative think tank, said the Legislature should not approve any tax increases but instead should put "Pennsylvania's obese state government on a spending diet.''

He called for limiting the annual growth in state spending to a "reasonable index of inflation,'' plus "reducing the tax burden on job creators (i.e., businesses) and families.''

Mr. Rendell is not, however, backing down from the seven new or higher taxes he proposed in February. In order to accomplish his goals for energy, the environment, health care changes and transportation improvements, he said, "some sort of revenue increase'' may still be needed.

While officials maintain their public optimism about meeting the June 30 deadline, Rendell aide Steven M. Crawford sent out a letter recently warning that if the budget isn't resolved on time, 26,000 "nonessential'' state workers would be furloughed sometime in July, while another 2,000 workers who are not covered by the federal Fair Labor Standards Act would have to continuing working but wouldn't be paid right away.

"Clearly, this could result in an interruption of state services,'' such as drivers license centers, state parks, museums and historic sites, plus welcome centers on interstates, he warned.

House and Senate Republican and Democratic leaders have begun meeting in private to try to craft a budget that legislators and Mr. Rendell can accept.

Will a final budget be adopted by June 30? "It all depends on the governor's demand to raise taxes. If he is dead set on doing that, it could be a very long summer,'' Mr. Brouillette said.

"It's an open secret about the closed-door budget meetings, but they will not cure what ails Pennsylvania, and talks will likely spill over into July,'' said Eric Epstein, of Rock the Capital, a citizens group that fought against the 2005 legislative pay raise.

Mr. Young said it could take until mid-July, but doesn't see "a protracted budget impasse'' lasting several months, as happened in 2003. He said, "The governor doesn't want a shutdown of state government, and the Legislature doesn't want to remind people about how much voters hate them.''

The budget negotiations are by no means the only contentious issues facing officials in June. Mr. Rendell continues to urge legislators to adopt his plan to lease the Pennsylvania Turnpike to a private company, a deal that could produce as much as $965 million a year, money he'd use to fix 6,000 deteriorated bridges and thousands of miles of rundown highways.

But the politically powerful Turnpike Commission is fighting the idea, and even many Democratic legislators are wary of such a deal. If legislators reject the Rendell lease plan, they still need to come up with money to fix roads and bridges, which could require other unpalatable options, such as increasing the state's 31-cent-a-gallon gasoline tax by 12 cents or raising the fees for drivers licenses and car registration renewals.

And legislators still haven't acted on reducing the size of the General Assembly, limiting themselves to a set number of terms, making it easier for the public to gain access to records and putting limits on campaign financing.

If budget talks drag on for most of June, the road funding issue, the transit aid issue and government reforms will probably have to wait until the Legislature returns this fall.


Bureau Chief Tom Barnes can be reached at tbarnes@post-gazette.com or 717-787-4254.


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