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PrintHARRISBURG -- Gov. Ed Rendell is a man who likes challenges, and he took on some big ones Tuesday when he proposed a fiscal 2010-11 budget that increases state spending by more than $1 billion in a time of recession and proposes eliminating 74 "non-essential" sales-tax exemptions.
The major exemptions, for food, clothing and prescription drugs, would remain in place, however.
With his call to spend just over $29 billion in fiscal 2010-11, Mr. Rendell, who is in his final year in office, also asked the Legislature to enact a new wellhead tax on natural gas pumped from the plentiful areas of Marcellus shale in the state, to finally tax sales of cigars and smokeless tobacco and to spend an additional $355 million on basic education.
PDFAnd he urged legislators to approve the new budget by the deadline of July 1, which would be the first time in his eight years as governor that a complete budget was in place at the start of a new fiscal year.
It didn't take long for Republican legislators and special interests to begin lining up against new taxes and the loss of longtime sales-tax exemptions on dozens of goods and services.
Even some Democrats seemed unenthusiastic about his call to -- beginning in September -- reduce the basic sales tax from 6 percent to 4 percent (from 7 to 5 percent in Allegheny County and 8 to 6 percent in Philadelphia) and begin applying the sales tax to wide range of other sales. Those would include "professional services" fees charged by attorneys, accountants, architects and others; candy/gum sales; sales of newspapers, magazines and direct mail advertising; nonprescription drugs; coin-operated vending machines; helicopters; plus basic cable television; personal hygiene items; flags; dry cleaning; caskets and burial vaults; fish food; airline catering; firewood and dozens of other items.
"But overall, even with the lower rate, it's still a tax increase," said House Republican Whip Mike Turzai of Bradford Woods. "And he's increasing overall spending by over $1 billion next year. That's a concern."
Despite this being Mr. Rendell's last year as governor, he said he would not spend the additional money this year but save it to meet future pension obligations and to make up for federal stimulus money that runs out in 2011.
Mr. Rendell estimated the proposed sales-tax changes would bring in an additional $531 million in the first year -- money he insisted is necessary to ward off a "financial tsunami" resulting from losing $2.8 billion in federal stimulus funds in 2011 and future pension costs for retired state workers and retired teachers, which could rise by as much as $5 billion starting in mid-2012.
Sen. Jay Costa, D-Forest Hills, didn't directly support the sales-tax changes, but said, "It's a conversation we have to have."
The additional sales-tax revenue would be part of something the governor called the "Stimulus Transition Reserve Fund," which, if started in September, would generate $874 million in the first year and an additional $1.4 billion in 2011-12, for a total of $2.3 billion over two years. The fund couldn't be tapped before July 2011, or six months after Mr. Rendell leaves office. It also would receive revenue from the new tax on natural gas, the new tobacco taxes and changes in business taxes.
"The governor has proposed a creative way to begin to address these significant issues" of higher pension costs and the loss of stimulus money, Mr. Costa said.
Another Democrat, Rep. Dan Frankel of Squirrel Hill, praised the governor for "having the foresight to address two impending problems," the pension crisis and the loss of stimulus funds. He said, "We need to scrutinize the exact details" of the sales-tax changes.
But Rep. Daryl Metcalfe, R-Cranberry, lambasted Democrat Rendell, calling him "a spend-a-holic governor" and condemning his "annual budget charade" with its "massive spending increases" in a "bloated $29 billion spending plan."
Mr. Rendell contended that changes to sales tax exemptions are long overdue.
"The sales tax today is a testament to the power of lobbyists and special interests," Mr. Rendell said. "There is little rhyme or reason why we tax some items or services and wholly exclude others, except that in years past someone lobbied to secure favored treatment at the expense of others."
But nothing will happen unless the Legislature enacts the tax changes, and lawmakers will be under heavy pressure from the affected industries not to tax their products and services. Senate President Pro Tem Joe Scarnati, R-Jefferson, said that at first blush, it seems to him that killing 74 sales-tax exemptions has no chance of being approved.
To which Mr. Rendell said, "These are complicated tax issues, and they are new. I'm not surprised [by the lack of positive reaction]. Legislators deserve time to study it. I know it will be an uphill battle."
Sen. Jake Corman, R-Centre, said that before the state begins to amass the new $2.3 billion cache to pay for pensions, it needs to look at "restructuring or reforming" pension costs, perhaps by going more toward defined contribution plans rather than the current defined benefit plans for retirees.
Other major points of the budget speech:
• The state now expects to end the 2009-10 fiscal year on June 30 with a deficit of $525 million, which is worse than the previous estimate of $450 million.
• The budget counts on the federal government giving Pennsylvania an additional $800 million in medical assistance funds for low-income and disabled people, but that isn't guaranteed.
• The 2010-11 budget has $5.5 million for a new class of 100 state police cadets; this year's budget had no funds for more troopers.
• The state Transportation Department budget assumes the feds will approve tolls on Interstate 80, which would give the state more than $900 million to repair and improve roads, bridges and mass transit next year; without the I-80 tolls, the state would only have $450 million for those items.
The lower amount "would be a body blow to mass transit," Mr. Rendell said.
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