HARRISBURG -- Gov. Ed Rendell's latest pronouncements on the unresolved 2009-10 state budget should make natural gas drillers smile but might make cigarette buyers want to reach quickly for another smoke.

Mr. Rendell said yesterday that a proposed "extraction tax" on natural gas taken from areas of underground Marcellus shale in Pennsylvania is off the table for this year, but it could be reconsidered early next year when the 2010-11 state budget is being drafted.

Mr. Rendell also told reporters that "it's possible" the previously proposed 10-cent-per-pack increase in the state cigarette tax could be boosted to 25 cents a pack, as legislative Democrats and Republicans try to narrow their differences over a spending package for the fiscal year that began July 1.

Natural gas industry officials, along with some Republican legislators, have criticized the proposed Marcellus shale gas tax as stunting the growth of the gas industry in Pennsylvania, which is expected to produce hundreds of new jobs.

When Mr. Rendell first proposed his 2009-10 budget in February, the price of natural gas had gone as high as $13 per thousand cubic feet, and Mr. Rendell thought his tax could bring in about $100 million for the state this year. But the price of natural gas now has dropped to less than $3 per thousand cubic feet, so the tax would bring in far less than originally forecast.

Mr. Rendell said he wants to work with the gas industry to develop a "fair tax" proposal. "We want to get the industry's input," he said.

Senate Republican spokesman Erik Arneson said Mr. Rendell is "acknowledging the obvious" by dropping the Marcellus shale tax. Enacting such a tax "at this time makes no economic sense" and didn't have support in the Legislature.

Increasing the cigarette tax by 25 cents a pack could generate an extra $150 million this year. Mr. Rendell has also proposed a first-time excise tax on cigars and smokeless tobacco, which could raise about $40 million.

Other revenue-raising ideas that have some support are postponing the phaseout of a tax on business assets (which could raise about $370 million in 2009-10) and expanding legalized gambling by letting casinos add table games (which could produce $90 million in one-time license fees this year and then recurring tax revenue starting in 2010-11).

Mr. Rendell said he doesn't know when a budget will finally be worked out, but hoped that a verbal agreement could reached by the end of next week. It will take a few days to print it and then debate it. He hoped the House and Senate could approve it during the week of Sept. 14, but there are no guarantees.

A step toward a final budget could begin today, when the six-member, House-Senate conference committee will hold its first meeting in a month. Mr. Rendell said he was disappointed that the panel made almost no progress during two days of meetings in late July.

One item the panel may debate is whether to remove some of the current exemptions to the state sales tax. Mr. Rendell said he thinks the only exemptions that should be retained are the ones for food, clothing and pharmaceuticals. He said lobbyists for special interests have, over the years, gotten things such as candy, gum, legal services, advertising and many other items exempted from the tax, which deprives the state of revenue.

Democrat Rendell and Senate Republicans still haven't agreed on the most basic item for a budget -- a bottom line. Mr. Rendell is talking of spending in the range of $28 billion to $28.2 billion this year, while Republicans recently mentioned $27.5 billion. Mr. Rendell has come down from his original $28.9 billion figure and the GOP has come up from its $27.1 billion figure, but more compromise will be needed.

"We can't get this budget resolved without everyone feeling some pain," Mr. Rendell said.