Rendell details plans for plugging $1.6 billion gap

HARRISBURG - Gov. Rendell outlined a grim economic forecast for Pennsylvania yesterday, announcing that the state is staring at a projected $1.6 billion budget shortfall.

Still, Rendell said, he believes his administration can plug the budget gap without any increases in broad-based taxes - such as the sales and income taxes - or any further spending cuts.

"This is a crisis," Rendell said at a rare public budget briefing before lawmakers yesterday. "Hopefully, it will be a short-lived crisis . . . but we have to be vigilant and stay on top of things."

To make up for the shortfall, Rendell announced yesterday, he will tap half of the balance - or about $375 million - in the state's Rainy Day reserve fund and divert about $175 million from the sale of oil- and gas-drilling rights on public land.

The governor also said he would rely on an anticipated $450 million in federal aid. He expects that money will be part of a larger aid package for states (yet to be approved) emanating from Washington next year.

The remainder of the $1.6 billion shortfall will be alleviated by about $500 million in spending cuts that Rendell already has detailed over the last few months, including a freeze in wages for roughly 14,000 state employees, as well as $100 million in unused funds left over in state accounts from previous years.

"The situation is extremely dire," said Rep. Dwight Evans (D., Phila.), who chairs the House Appropriations Committee.

Pennsylvania is not alone in facing a worsening financial crisis. Rendell said that 40 other states are having financial problems. And Mayor Nutter said Monday that Philadelphia's five-year budget deficit would top the $1 billion he estimated early last month.

During yesterday's presentation, Rendell said that since the beginning of this fiscal year, revenue collections have been about $658 million - about 7 percent - lower than expected.

And Evans and others pointed out that even with the fixes announced yesterday, the state must still navigate the landscape for the 2009-10 fiscal year budget, which Rendell is scheduled to present in early February.

"Our work doesn't end today," said Evans.

Lawmakers, including many Republicans, generally reacted positively to Rendell's plans for dealing with the projected shortfall.

Still, House Minority Leader Sam Smith (R., Jefferson) urged Rendell during the budget presentation to keep spending in next year's budget at or below this year's $28.3 billion.

The governor made no promises.

He did say yesterday, however, that he believes Pennsylvania would likely end up getting more in aid from the federal government - if such an aid package is approved - than the $450 million he is projecting.

That $450 million is based on the amount of money that Pennsylvania received in 2003, the last time the federal government sent aid to the states to help them deal with budget shortfalls. In 2003, Pennsylvania was allotted $900 million for a two-year period.

"And that economic crisis was nowhere near the one today," said Rendell. "I believe we will get substantially more help from the federal government this time."

Sharon Ward, director of the nonpartisan Harrisburg-based Pennsylvania Budget and Policy Center, said yesterday that she was concerned Rendell's plan to deal with shortfall contained too many one-time fixes, such as tapping the Rainy Day Fund and taking advantage of royalties from oil and gas drilling.

She also urged Rendell and the legislature not to ignore finding new sources of revenue.

Ward ticked off a few options that would not require any broad-based tax increases, such as dropping business-tax credits and closing the loophole that allows Pennsylvania companies to avoid taxes by setting up headquarters in Delaware.

She also supports Rendell's proposal to impose a tax on currently untaxed tobacco products such as pipe and cigar and chewing tobacco, which could raise $60 million.