HARRISBURG -- Next year's economic growth forecasts will have an impact on this week's state budget negotiations.

The deadline for approving a budget is June 30 -- Thursday -- but that deadline is more of a guideline, since lawmakers are often in Harrisburg into July's early days.

Whenever it happens, Democrats and Republicans must come to an agreement on how Pennsylvania's economy will fare during the 2005-06 fiscal year. That agreement on economic growth, and thus an agreement on available tax revenues, must be set before arriving at a final spending figure.

That's because fractional differences in growth projections translate into big differences in revenue projections -- millions of dollars. If one analyst is projecting growth of 2.9 percent, and another is projecting growth of 3.3 percent, that's a difference of $96 million in revenue within a $24 billion budget.

"It's one of the first things that we do," said Al Bowman, policy director for the House Appropriations Committee.

"We'll sit down with the governor and settle on a number. ... It's a matter of what numbers we're looking at. A lot of that is just getting at the same page."

To project economic growth, the state assesses several historical indicators -- job growth, gross state product, retail sales, wages, corporate profits, national forecasts -- and uses those factors to make an educated guess as to how the economy will grow over the next year.

That guess is vital to setting a budget.

Gov. Ed Rendell, in February, proposed a 2005-06 budget that had cuts to benefits for Medicaid recipients, and also to legislative grant funds -- called WAMs or walking around money -- that pay for projects in lawmakers' home districts.

But the House GOP says it has an alternative that would restore the Medicaid cuts, restore WAMs, and even make $116 million in additional tax cuts -- shaving the state's personal income tax rate, as well as making some business tax cuts.

So where would their extra money come from?

Some of it, they say, would come from making tiny departmental cuts, or finding pockets of money that are hidden away. Some would come from trimming the governor's education proposals. And some would come from the state's surplus -- the nearly $500 million in revenue that will go unspent during the budget year that officially ends Thursday, minus the $290 million that's already earmarked for next year's budget.

But the rest of the money would come from differences in forecasting, said state Rep. Brett Feese, a Republican and the chairman of the House Appropriations Committee. At a luncheon yesterday, Feese said that House Republicans are forecasting "economic growth" of 2.9 percent, while the governor's team is projecting "flat" growth.

"They're saying that we might not grow at all and we won't have any extra money," Feese said after the luncheon.

Yet Susan Hooper, spokeswoman for budget Secretary Michael Masch, said the Rendell administration is projecting growth of 3.3 percent, not flat growth. Through Hooper, Masch said that the Rendell administration is largely relying on national gross domestic product forecasts to predict the state's economic growth.

While the governor's team is not suggesting there won't be economic growth, it is, however, suggesting, that growth may have peaked -- the economy had been improving since 2001, but peaked in 2004 with a 4.5 percent improvement.

In 2005 and 2006, according to the governor's forecasters, the projected growth declines -- a 3.5 percent improvement for this year and about 3.3 percent for 2006, as measured by gross domestic product, which is essentially the value of all the goods and services produced in a country, set against a baseline year.