Pennsylvania budget sees big shortfall

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HARRISBURG -- Because of rising pension and Medicaid costs, reduced federal Medicaid dollars and a loss of tobacco settlement money, Pennsylvania is facing a $1.2 billion to $1.4 billion budget shortfall, the state's budget secretary said last week.

The gap means Pennsylvania will be looking for creative ways to raise revenue and could take another hard look at pension changes, said Budget Secretary Charles Zogby, speaking at the state Capitol halfway through the budget year.

"The list of options we have for the governor is long," he said.

"I don't think there's anything we can dismiss out of hand," he added, though he ruled out a broad-based tax increase. When questioned about a potential severance tax on natural gas drilling, he said, "I've not understood that to be part of the mix."

Contributing to the budget problem are an estimated $610 million increase in pension costs, a $600 million increase in Medicaid costs, a loss of about $300 million from the federal government in Medicaid matching funds due to a recalculation of a formula and at least $170 million less than anticipated in tobacco settlement funds due to a decision by an arbitration panel earlier this year.

A statement from the left-leaning Pennsylvania Budget and Policy Center said "a decade of corporate tax reductions are a major contributor to Pennsylvania's long-term inability to produce enough revenue to meet the state's obligations," citing declines in corporate taxes, new tax credits, new "improvement zones" for development in mid-sized cities and other tax law changes.

Earlier this month, Senate Democratic leaders put forth several proposals they say would aid the state in raising revenue, such as expanding Medicaid; $36 million in additional tobacco taxes on products such as "roll-your-own" cigarettes; making changes to state-owned liquor stores for $125 million in revenue; eliminating a discount on sales tax to large retailers for an additional $40 million in revenue; and freezing the elimination of the capital stock and franchise tax, which could provide another $75 million to the state, caucus leaders say.

By state law, the Legislature is required to pass a budget by June 30.

Kate Giammarise: kgiammarise@post-gazette.com or 1-717-787-4254.


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