HARRISBURG -- Hope for a resolution to the state's long-running budget impasse was dashed last night, as House Democrats rejected two key revenue-raising ideas in a $27.9 billion budget deal that had been reached with Senate Republican leaders.
Democrats, who control the House by a 104-99 margin, said a firm "no" to a proposed 20 percent tax on "small games of chance" -- but not bingo -- run by fraternal and veterans groups, and they also rejected the idea of extending the state sales tax to arts and cultural event tickets.
Both those ideas had stirred up strong resistance among VFWs, Elks and volunteer firefighters, who use raffles and other small games of chance to raise money for local charities.
Arts and cultural groups in Pittsburgh and Philadelphia roared loudly against having the sales tax placed on tickets to their events, saying they were barely making money and couldn't afford the higher costs.
To make up for the loss of revenue caused by dumping those two taxes, House Democrats endorsed a proposed severance tax on natural gas pumped from underground areas of Marcellus shale throughout the state. Senate Republicans are staunchly opposed to that tax, and it almost certainly will be a major stumbling block in future budget talks.
The state budget for 2009-10 is already three months late, and no one is predicting how much longer it could take to get the House and Senate to agree on one proposal.
"As the governor said at the press conference today, he still supports the deal, but he recognized that this was a possibility," said Rendell spokesman Gary Tuma. "He said he wants the Senate to consider the House changes soon and if they don't agree, then take action to get the budget to the conference committee to resolve the differences as quickly as possible."
In another controversial move last night, House Democrats voted to impose a tax on cigars and smokeless tobacco. Most other states already impose such a tax, but legislators here have been reluctant to take that step.
The tax code bill approved by House Democrats makes another controversial move. It significantly increases a proposed tax on revenue from table games at casinos. Instead of a 12 percent or 18 percent tax, as has been discussed, the new tax rate would be a hefty 34 percent on table games. Also, instead of a one-time licensing fee of $10 million, casinos would have to pay a $20 million fee for table games.
Casino officials are certain to oppose the higher rates. A letter from four casinos, including the Rivers Casino in Pittsburgh, came out just a few hours before the Democrats approved the new taxing proposals. The letter favored a $10 million license fee for table games and a 12 percent tax rate on table game revenues.
Adding table games to casinos "can only be maximized if the licensing fee and tax rate on gaming revenue are optimized to yield the highest possible returns," casino officials said.
Casino officials say that table games are "much more labor intensive" than slots, so that profits are less from table games. If the tax rate is too high, casinos have threatened not to add table games, thus costing the state additional revenue.
But Rep. Bob Belfanti, D-Northumberland, was proud of the stand Democrats took. "We have stood firm against big tobacco and big casinos," he said. "Fire companies and veterans clubs pour a lot of money into community programs and we didn't want to tax them."
House Democratic leader Todd Eachus said the tax on small games of chance run by fire halls and veterans groups -- as well as extending the sales tax to arts tickets -- "were complete nonstarters for our caucus."
Rep. Dan Frankel, D-Squirrel Hill said he favored "ending Pennsylvania's status as one of the few states that doesn't tax natural gas companies on the valuable fuel they extract from our soil, and ending our bizarre practice of being the only state that doesn't tax cigars or smokeless tobacco."
Republicans were upset at the Democratic tax plan.
"We stand with the people of Pennsylvania against new taxes," said House Republican leader Sam Smith. As for the tax on natural gas, he said, "It's wrong to say (to natural gas companies) 'Welcome to Pennsylvania. Here's a new tax.' "
"Talk about core values -- Democrats' core value is taxing," added Rep. Ron Marsico, R-Dauphin. "There's all kinds of taxes in this. They say there's no broad-based taxes, but there may as well be."
"These tax increases, if they come to fruition, would be very bad news for Pennsylvania," contended Matthew Brouillette of the Commonwealth Foundation, a conservative group.
But a liberal think tank, the Pennsylvania Budget and Policy Center, defended the Marcellus shale severance tax, saying such a tax "is very common" in many states. The tax revenue would pay for "infrastructure, environmental and social costs" resulting from increased gas drilling, it said.
Rep. Dwight Evans, D-Philadelphia, said the Democratic plan avoids unpopular increases in the state sales tax or personal income tax. He said the Democratic budget's bottom line is still $27.9 billion -- the same amount as a Senate-House budget proposal unveiled two weeks ago. He said the amount to be spent in 2009-10 is actually lower than the $28.2 billion spent in fiscal 2008-09, which is something Republicans wanted.
However, Senate Republicans, who had endorsed the so-called three-caucus $27.9 billion budget two weeks ago, have been strongly against creating a Marcellus shale natural gas tax, fearing it could hamper a new gas industry in the state.
"If the House passes this revenue package, we are back to square one with budget negotiations," Senate GOP spokesman Erik Arneson said last night.
The new Democratic tax code bill was approved along party lines by the House Rules Committee last night, with 16 Democrats in favor and 12 Republicans against. It is set for a vote in the full House tonight and is expected to be approved, again along party lines, and sent to the Senate.
The significant differences between what the Senate wants and what the House Democrats want may have to be worked out in a conference committee, but the differences are now so stark that it likely will take days or possibly weeks.
The proposed sales tax on arts groups and the small games of chance tax elements were part of a three-caucus budget deal announced two weeks ago by Senate Republicans and Democrats and House Democratic leaders. But after two days of closed caucus meetings on the budget, rank-and-file Democrats made it clear to their leaders that they wouldn't vote for those two taxing options.
The new Democratic tax plan retains several aspects of the three-caucus budget plan. It keeps a 25-cent increase in the tax on a pack of cigarettes. It would now be $1.60 per pack.
Other elements of the previous budget deal are also retained, including increasing the amount of state forest land that will be available for natural gas drilling, a tax amnesty program for people who still owe state taxes and a 33 percent cut in existing tax credit programs, including one for film credits.
Tracie Mauriello contributed to this report. Tom Barnes can be reached at email@example.com or 717-787-4254.