Pennsylvania budget deficit $1 billion and growing

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HARRISBURG -- After state revenue officials disclosed Monday that the state budget deficit has ballooned to more than $1 billion, Gov. Ed Rendell urged the Legislature to approve a combination of spending cuts, new taxes and revenue transfers that he said would erase the huge pool of red ink.

The deficit for the fiscal year that ends June 30 grew considerably worse in April, due to the ongoing damage to state tax revenues being done by the recession. At the end of March the deficit stood at $720 million, but it swelled by an additional $290 million in the past month and now tops $1 billion.

The biggest problems were with corporate tax revenues, which were $147 million below what had been expected, and personal income tax revenue, $129 million below estimates.

Sen. Jake Corman, R-Centre, chairman of the Senate Appropriations Committee, estimated the deficit could hit $1.5 billion by the end of fiscal 2009-10 on June 30. He called on Mr. Rendell to make at least $1 billion in cuts to the $29 billion spending plan that the governor has proposed for fiscal 2010-11.

That budget starts July 1. One area for trimming, Mr. Corman said, could be the $355 million in additional spending for public education that Mr. Rendell has proposed. Mr. Rendell replied that Mr. Corman should give teachers and school administrators specifics on how much less they'll have to spend in fiscal 2010-11, and also tell homeowners how their school property taxes are likely to increase if state aid to education is reduced.

Mr. Rendell proposed three ways to erase the $1 billion deficit -- some new taxes, some spending cuts (including laying off state workers) and transfers from some budget line items, including what has been called a $200 million "slush fund" for legislative leaders.

Tax changes include:

• Enacting a first-time tax on sales of smokeless tobacco and cigars, generating $41 million in new revenue; supporters say Pennsylvania is the only state that doesn't tax chewing tobacco and one of only two states that doesn't tax cigars.

• Placing a new severance tax on natural gas pumped from Marcellus shale areas, raising $160 million; supporters said most other states with Marcellus shale have such a severance tax, but the natural gas industry is strongly fighting its enactment in Pennsylvania.

• Ending a "vendor discount" that gives a financial break to retailers who pay sales taxes on time, adding $73 million for state coffers; Mr. Rendell said there is no sense in giving giant chains like Wal-Mart and Target an unneeded windfall.

• Enacting "combined reporting," also known as ending the "Delaware loophole," where some large corporations avoid paying taxes in this state by setting up subsidiaries based in Delaware; Mr. Rendell said such a change would bring an additional $66 million.

• Benefitting from a change in federal Medicare Part D policy being made by the Obama administration, saving the state $275 million.

• Transferring $150 million from a fund that pays out state tax refunds, because it has an overage.

• Saving an unspecified amount of money by laying off more state workers, or by forcing some to take unpaid furloughs; plus, perhaps, cuts in social service programs run by counties, such as drug and alcohol counseling or mental health and retardation.

• One-time transfers from certain budget line items -- in particular, a $200 million administrative account, sometimes called a "slush fund," that legislative leaders use to keep staffers working in case of a budget impasse, such as the 101-day impasse that happened last year.

The governor did not propose increases in "across-the-board taxes," such as the personal income tax or the sales tax. Mr. Corman said there is no support in any of the four legislative caucuses for increasing those taxes, especially not in a year when legislators must run for re-election. Last year Mr. Rendell suggested an increase in the income tax, but even Democrats ran away from that idea.

Mr. Corman still is hoping a state budget for 2010-11 can be adopted by the deadline of July 1, but he couldn't rule out a repeat of the impasse that occurred last summer. He said he prefers spending cuts to any kind of new tax or tax increase.

Mr. Rendell said Mr. Corman should tell state employees how many more of them he'd like to lay off rather than approving the tobacco and natural gas taxes, which Mr. Rendell said the public approves of, according to recent polls.

Bureau Chief Tom Barnes: or 1-717-787-4254.


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