Pa. struggles to craft budget

From the Inquirer.

With economic forecasts dire, Pa. struggles to craft budget
By Amy Worden and Angela Couloumbis Posted on Mon, Apr. 27, 2009
Inquirer Harrisburg Bureau

HARRISBURG - With a new state revenue report likely to deliver more bad news this week and a budget deadline looming, legislative leaders are buckling down to craft a spending plan amid a dire economic climate.

If the first quarter is an indication, April revenue figures - usually among the year's strongest because of tax payments - will come in hundreds of millions of dollars below estimate.

So far this year, revenues have lagged nearly 8 percent below estimate, adding to the struggle Gov. Rendell and lawmakers are facing to close a widening shortfall in the state's current budget ahead of the June 30 deadline to enact the new one.

The current shortfall is $2.6 billion, up $300 million from just two months ago.

"I'd say Pennsylvania is pretty typical in the problems that it's encountering, but certainly a lot of states are much worse," said Corina Eckl, fiscal program director for the National Conference of State Legislatures.

The conference last week released a report that found states would have to address a cumulative $281 billion budget gap that would continue to 2011, and likely beyond.

While Pennsylvania's shortfall is still smaller than those of some states, including New Jersey at $3.3 billion, continued slumping revenues might force further cutbacks.

So far, Rendell has avoided drastic measures that other governors, such as California Gov. Arnold Schwarzenegger, have had to take: notably, ordering state employee furloughs and closing state offices.

The Rendell administration and the state's largest public-employee unions reached a tentative agreement earlier this month to avoid furloughs. Under a cost-cutting plan, the state would temporarily reduce its contribution to the fund that administers worker health-care benefits by 20 percent over the next 15 months, at a savings of $200 million.

Meanwhile, Senate and House leaders from both parties have been meeting to reach an agreement for next year's budget despite being split by ideological differences: Democrats say some tax increase will be necessary along with program cuts, while Republicans are adamant about deeper cuts and no additional taxes.

"We think under the Rendell proposal that we can balance the budget for the next four years," said Rep. Dwight Evans (D., Phila.), chairman of the House Appropriations Committee. "We're looking at a $10 billion problem in four years if nothing is done."

In his proposed $29 billion state budget unveiled in early February, Rendell said he wanted to increase spending for education and health care, while proposing limited taxes to cover shortfalls, such as an increase in the cigarette tax and new taxes on smokeless tobacco and gas drilling. He also proposed legalizing video poker as a way to help community college students cover tuition costs.

The governor has not proposed raising broad-based taxes such as income or sales, and wants to cut the rate of the capital stock and franchise tax that businesses pay.

Evans said the final budget would need to use a full menu of funding sources, including roughly $10 billion in federal stimulus dollars expected to flow into Pennsylvania over two years.

While recognizing cuts must be made in many areas, he said, he supports the governor's new investments in education and health care and will fight to preserve them.

"There will have to be compromise," Evans said. "Everything is on the table."

It will have to be to get the support of Republicans who control the Senate.

In an interview last week, Senate Majority Leader Dominic Pileggi (R., Delaware) said his caucus' problem with Rendell's proposed budget was basic but critical: His members do not agree with the spending level the governor is advocating.

Pileggi said his caucus wanted to make sure that the state wasn't unduly relying on the influx of federal stimulus dollars - which will last for only two years - to make ends meet. He said lawmakers needed to "look out at least to a three- or four-year horizon" and make sure that whatever state spending was approved could be sustained even when the federal money ran out.

"The stimulus money presents both a benefit in the short run, but also a trap in the long run if not used properly," Pileggi said. "We could be in a position where, if we think only in the short term, we are faced with the need for a drastic tax increase or the need for a drastic cut in services when the federal stimulus funding expires."

Right now, Pileggi said, "there is no support in our caucus for the spending levels established in the governor's budget proposal." He said his caucus was scouring the budget line by line to come up with "spending levels that are sustainable" and hoped to have that alternative complete in the next three weeks.

"Whether the governor and the [Democratic] leadership in the House are able to accept that product or agree to that remains to be seen," said Pileggi.

Other Republicans opposed to any new taxes have bristled at program cuts to some of their pet programs in agriculture and land conservation.

Rep. Mario Civera (R., Delaware), the ranking Republican on the House Appropriations Committee, said taxes - even limited ones - were not on the table for GOP lawmakers.

"The caucus has no intention of looking at tax increases," said Civera. He said special legislative accounts and the governor's spending lines could be further reduced.

Civera said he intended to make a line-by-line budget and revenue presentation to his caucus in the coming weeks, so lawmakers would understand the reality of the fiscal crisis.

"We're talking about a $3 billion situation here," he said, referring to the state's current budget gap. "This is the worst I've seen it in 30 years in the legislature."

Rendell spokesman Chuck Ardo said the governor was willing to work with legislative leaders to reach an agreement but would not compromise the state's fiscal health just to get a budget completed by July 1.

Since Rendell took office in 2003, no budget has been passed on time.

"The governor remains committed to seeing the commonwealth move forward - and there is no end date for that commitment," Ardo said.

He added: "I think that providing odds on the timing of the budget may be a violation of the gaming law."