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Despite $1.3 billion gap, Pa. lawmakers to let spending plan become law

HARRISBURG - Legislators recessed Monday without a deal on how to pay for the $31.5 billion state budget, extending the uncertainty amid signs of impact on the state's credit rating and new legal challenges.

HARRISBURG - Legislators recessed Monday without a deal on how to pay for the $31.5 billion state budget, extending the uncertainty amid signs of impact on the state's credit rating and new legal challenges.

Passed by legislators but neither signed nor vetoed by Gov. Wolf, the unbalanced spending plan was set to lapse into law at 12:01 a.m. Tuesday.

Budget negotiators said the following day would be critical in determining whether the governor and the Republican-controlled legislature can agree on how to plug the projected $1.3 billion shortfall - possibly from expanded gambling, or taxes on cigarettes.

"The next 24 hours will tell the tale of whether we are going to have an agreement or whether all sides retreat back to their own corners," House Majority Leader Dave Reed (R., Indiana) said Monday after an hours-long meeting with Wolf and legislative leaders.

Reed stopped short of saying what would occur should all sides fail to come up with a revenue-generating plan to support the spending bill.

Several rank-and-file legislators said privately that they believe the House and Senate will send lawmakers home for the summer with or without a deal if negotiations drag on for more than a few days.

Neither Reed nor other leaders would discuss what progress, if any, negotiators have made.

Wolf, a Democrat, said Sunday that he would allow the $31.5 billion spending blueprint - a 5 percent increase over last year's - to become law without his signature Tuesday. The spending plan was approved by the legislature just hours before the July 1 start of the new fiscal year - but legislators never passed corresponding legislation detailing how they would get the revenue to support it.

Wolf's decision immediately raised constitutional questions.

The state constitution requires a balanced budget. No one can recall the last time a budget became law without a bill describing precisely what revenues would prop it up.

Credit rating agency S&P Global Ratings in a statement Monday signaled that Pennsylvania could face a credit downgrade if it did not resolve the revenue issue and budget imbalance.

"Pennsylvania's current revenue structure does not fully fund the spending plan, and assuming adoption of this plan, lawmakers would need to increase revenues by approximately $1.2 billion to balance the budget," the statement said.

A group of conservative legislators said they believe Wolf abrogated his constitutional duty to ensure a balanced budget, and said they were considering a legal challenge.

They cited a state Supreme Court decision from 1932 in which the court directed the state to plug a deficit by evenly cutting spending across all agencies until the expenses matched available revenues. Legally mandated expenses would be exempted from cuts under that scenario.

"He can't wash his hands of this," Rep. Rick Saccone (R., Allegheny) said of Wolf. Wolf administration officials have said their interpretation of state law is that it is the legislature's responsibility to ensure that there is enough money to support the budget.

House Republicans have proposed raising an additional $1 billion through expanding gambling, changing the way wine is sold in the state, raising tobacco taxes, and instituting a tax amnesty plan.

But Wolf and Republican leaders have questioned whether the House's plan relies on unrealistic revenue projections.

And top Senate Republicans have expressed concerns over the House's plans for raising by $1 the tax on a pack of cigarettes, even as negotiators have wrangled over whether to continue exempting cigars and smokeless tobacco from similar taxes.

Senate leaders have also expressed misgivings about the breadth of the House's gambling expansion proposal, which would legalize online gambling and allow slots in airports and offtrack betting parlors.

None of those disagreements has been resolved, Reed said Monday.

But, he said, "we are moving closer to the finish line. There are still outstanding issues, but they are getting smaller in scope."

Both chambers are expected to reconvene Tuesday afternoon.

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