Rendell expects difficult year for state budget
Though a $1.5 billion shortfall is possible, he is counting on economic growth to avoid it.
HARRISBURG - With the economy in a downturn, Gov. Rendell is predicting his toughest budgeting season since his first year in office.
However, he's still counting on economic growth in the coming year, though at a slower pace than the previous three years, and he isn't ready to institute any austerity measures.
Budgetmakers and economists say it's too early to know whether Pennsylvania's financial situation will turn dire.
A $1.5 billion shortfall is not out of the question in the fiscal year that starts July 1, Senate Republican budget analysts say. But administration officials counter that everything would have to go wrong to lead to such a scenario.
Pennsylvania has a budget this year of $27.2 billion, and the latest revenue figures, from Dec. 31, show the state with a $176 million surplus.
The governor has dismissed the idea of proposing a tax increase when he delivers a 2008-09 spending plan to the legislature on Feb. 5, but he said spending on initiatives such as public school grants will have to reflect a more modest outlook.
"We're still going to have growth next year, the forecast is, but it's going to be much slower," Rendell said, citing a forecast from the economics firm Global Insight Inc.
At the same time, costs will rise, in particular the tab to provide medical care for the state's growing elderly population, he said.
The state's expected pension contribution of about $675 million this year is projected to more than double in five years. More people are expected to join Medicaid rolls. And the state prison population is growing by more than 1,000 a year at an annual cost of about $34,000 per inmate.
Rendell's budget secretary, Michael Masch, said most of the nation's economic fundamentals looked good despite the slowing trend, and he called any prediction of a $1.5 billion shortfall a worst-case scenario.
"That is a pessimistic, but possible, future," Masch said. "I will tell you, it's not the one we are assuming, because it assumes everything goes wrong, and it doesn't have to."
The December figures show that overall hiring in Pennsylvania slowed in 2007, inflation picked up, and revenue collection softened.
With the housing-sales market in shambles, the state's collection of realty transfer tax revenue was 18 percent behind where it was at this point a year ago.
Collection of corporate net income tax revenue is almost 10 percent behind and sales tax revenue is up by just a half-percent. Inflation in the Northeastern states last year was pegged at 3.8 percent.
Still, personal income tax revenue, on which the state government leans more than any other single tax, is up more than 5 percent. And lottery revenue, which supports prescription drugs and nursing home care for low-income seniors, is up 4 percent.
