HARRISBURG -- In an effort to reach a compromise with legislators on a state budget for 2007-08, Gov. Ed Rendell said today he's dropping his demand for an increase in the sales tax and also his plan for an oil company profits tax. He also put off until fall action on three other revenue-raising ideas for his health care program.

He told reporters he thinks it's possible for him to reach a budget agreement with the state House and Senate by the current deadline of Sunday, but added that such a deal could still fall through. He said he's willing to work for one or two weeks in July in order to get a proper budget.

Mr. Rendell said that due to the good performance of the state economy, the current fiscal year will end Saturday with a surplus of between $500 million and $550 million. That, he said, removes the need to increase the sales tax from 6 percent to 7 percent statewide (and from 7 percent to 8 percent in Allegheny and Philadelphia counties).

Mr. Rendell has proposed a budget of $27.3 billion, while the Republican-controlled Senate approved one of $27 billion last week. There is still haggling to be done over that $300 million difference. Mr. Rendell said he still wants more funding than the Senate approved for laptop computers in high schools, pre-kindergarten classes statewide, job-training programs and economic development programs.

There's another key bill, yet to be approved, that would greatly affect Pittsburgh and Philadelphia. The 2004 slots law created a new "gaming economic development fund'' that gets 5 percent of the gross revenue raised by slots. But separate legislation is still needed to permit that money to be spent, said Budget Secretary Michael Masch.

In Pittsburgh, the gaming money would go to help finance the new Penguins' arena. In Philadelphia it would go to expand the convention center. Mr. Rendell said this authorization bill must be approved by the Legislature before summer recess or the state won't be able to sell bonds this summer for those two major projects, which would drive up borrowing costs and possibly delay the projects.

The governor also said he wants the Legislature to approve transportation funding of about $1 billion a year -- not $750 million, as legislators have talked about. The money would likely be a $1 billion a year bond issue for up to 20 years. That means it's borrowed money, paid back with Pennsylvania Turnpike toll revenues and tolls from I-80, starting probably in 2010. He said that $500 million a year in new revenue should go for mass transit systems and the other half for roads and bridge improvements.

Mr. Rendell said even $1 billion would be considerably less than the $1.7 billion he called for spending in February. He had planned to raise that money by leasing the turnpike to a private operator and putting a new tax on oil company profits. He was resigned to dropping those two ideas.

The governor is also shelving, until fall, three revenue-raising parts of his Prescription for Pennsylvania plan, which seeks to extend health insurance to 800,000 uninsured adults.

He wants to raise the cigarette tax, extend the sales tax to smokeless tobacco and require employers that don't supply health insurance to workers to pay a 3 percent payroll tax. Republicans and business interests have strongly opposed the payroll tax, and action on those idea will have to wait until fall, he said.

But he still wants legislative action, by Sunday, on his plan to add a small (less than $6 a year) assessment on household electric bills to pay for an $850 million program of "smart metering'' in the state, which he said will allow people to save about $70 a year on their electric bills. And he also wants to increase municipal dumping fees by $2.75 a ton in order to raise money for cleaning up hazardous waste disposal.

More details in tomorrow's Pittsburgh Post-Gazette.