Sunday, December 07, 2003

By Tom Barnes, Post-Gazette Harrisburg Bureau

HARRISBURG -- A bipartisan group of state Senate leaders will meet privately tonight to craft a budget proposal calling for a slight increase in the personal income tax rate.

Nothing is set in stone, but Senate Democratic leader Robert Mellow, of Lackawanna, said the new rate could be anywhere from just below 3 percent to no more than 3.1 percent. The income tax rate has been 2.8 percent for the past decade.

Sen. Robert Thompson, R-Chester, is shooting for a new rate that is no higher than 3 percent. Raising the income tax rate to that level would cost a taxpayer who earns $50,000 a year an extra $100.

But Thompson, who chairs the Appropriations Committee, said, "Even 3 percent will be a hard sell for some of our caucus members." Some Republican senators want to limit the new tax rate to no more than 2.95 percent, while others oppose any increase at all.

General Assembly leaders are trying to complete work by Christmas on the state budget. It would include the new income tax rate, combined, perhaps, with a new tax on cell phones and a higher tax on cigarettes. Extending the 6 percent sales tax to the sale of alcohol by the drink in bars and restaurants is another revenue-raising possibility.

On the expenditure side, the budget would include $4.3 billion in subsidies for the state's 501 school districts. Some districts have had to take out loans to keep schools open while they wait for overdue state aid.

Senators said schools and libraries had been especially vocal in demanding overdue state aid. "It's crunch time" for the Legislature, Thompson said. "This [budget process] has gone on entirely too long. It's time to put this turkey to bed."

The new income tax rate, if approved by the Senate, House and Gov. Ed Rendell, would probably take effect Jan. 1. The aid for school districts would be retroactive to July 1. School districts have missed their August and October payments from the state, and a third payment is due this month.

The proposed new income tax rate is the product of closed-door discussions held by Mellow; Thompson; Senate Republican Leader David Brightbill, of Lebanon; and Sen. Vincent Fumo, D-Philadelphia. Tonight's session will be the third private meeting of those four.

"I've been impressed with the meetings we've had," Mellow said. "There has been a genuine interest" in resolving the budget stalemate, which has lasted since March.

For senators to meet at the Capitol on a Sunday night is "very unusual," Mellow said. "It shows the importance of the budget issue at this point in time. We're not coming back here just to watch the NFL Sunday night game on television. I could do that at home."

Brightbill aide Erik Arneson said he also saw progress at the bipartisan meetings. He cautioned, however, that the party leaders still had to brief their full caucuses -- 28 Republicans and 21 Democrats -- on the budget details and then round up at least 26 votes to pass it. A vote probably won't be taken until the week of Dec. 15.

The Senate is only one-third of the puzzle. Rendell and the state House also have to approve the personal income tax increase, but they've indicated a willingness to raise that tax.

The House approved a package Oct. 21 that called for an income tax rate of 3.25 percent Jan. 1, which would fall back to 3.1 percent July 1. But Mellow said he didn't like the idea of changing the tax rate halfway through the year. "It would be a bookkeeping nightmare," he said.

Under the House plan, the income tax increase, along with some other revenue measures, would have raised about $1.1 billion to fund about $450 million in education spending and $500 million in funding restorations for libraries, mass transit, sewage treatment programs, and drug, alcohol and other human service programs. The House plan included up to $200 million in legislative grants, so-called walking-around money, which House members use to fund pet projects in their home districts, such as roads, bridges, ball fields and parks.

The House package included $200 million in increases for basic education plus $250 million for Rendell's new programs, such as pre-kindergarten classes, full-day kindergarten, tutoring and smaller class sizes. Senate Republicans are willing to approve about $12 million in new spending, however. The Senate also cut out the House grants.

"We continue to believe there is a very limited amount of new education spending that can be done" in the current fiscal year, which ends June 30, Arneson said.

Mellow said library officials in his area of northeastern Pennsylvania had been especially vocal in asking for more state funding.

"The e-mail I've been getting from libraries is incredible," he said. A budget signed by Rendell in March gave libraries statewide about $37 million, half of what they got last year. "We'll restore some of that, but probably not all," Mellow said.

The Senate has trimmed at least $300 million from the $1.1 billion House package but the bottom line of the package that will pass the Senate isn't known, senators said.

Mellow said that by raising the personal income tax to 3 percent, the state would net about $500 million more on a full-year basis. But because the higher tax would go into effect Jan. 1, the state would get only six months worth of the higher tax this fiscal year, which started July 1. The state also has $450 million available this year in unspent federal funding that can be used for existing programs.

The income tax isn't the only tax levy being considered. Senators say it's likely the cigarette tax (now at $1 per pack) will be raised by 25 cents a pack, as Rendell has suggested, to bring in an additional $220 million for the MCare fund. That's a state fund that helps doctors pay their malpractice insurance premiums. Rendell is trying to pacify doctors, some of whom claim they might leave the state if they don't get help with the high cost of insurance.

The Senate also is looking at whether to raise up to $200 million by extending a gross receipts tax to cell phone usage and interstate phone calls.

It's difficult to know exactly what taxes will be raised, Mellow added, until the Legislature settles on the bottom line for spending on education, libraries, drug and alcohol programs and other programs. That probably won't be known for at least another week.

"There's still some homework to be done," Thompson said.

E-mail this story   Print this story