Budget passage a protracted process

In years past, Gov. Rendell and legislative leaders would be gearing up by now for marathon backroom negotiations, usually emerging sometime over the Fourth of July holiday with an agreement on the new state budget.

This year - today, the last day of the constitutional budget deadline - there is not even a pretense of a deal in the works.

The governor and Republicans who control the Senate are so far apart in the fundamentals of enacting a state budget that talks are expected to stretch weeks into July and possibly beyond.

Rendell said yesterday that state offices would remain open and that residents should not notice any difference, even though most state workers could eventually go unpaid. In fact, the 253 members of the General Assembly will become the first casualties of the stalemate tomorrow because they get paid on the first of the month. Rendell's last complete paycheck is set for July 10.

But for the majority of state workers – and budget negotiators – the new deadline of sorts is July 17. That's the date most of the 80,000 state employees will begin working without pay because that's their first payday of the new budget year.

Rendell has said they would receive retroactive pay within four weeks after the budget has been approved, but that concerns union leaders who say many state workers live paycheck to paycheck. The state is working to provide no-interest loans through the Pennsylvania State Employees Credit Union.

Still, state government operations will remain open thanks to a recent court decision that prevented furloughs like the one imposed in a budget standoff in 2007.

"July 17 is the new operational budget deadline," said G. Terry Madonna, a political analyst and pollster at Franklin and Marshall College. "That's the date at which there will be more pain, more grousing, and more attention paid by the public."

Rendell attributes seven straight years of missed deadlines to what he calls "ambitious" budgets - this year, he is proposing a spending plan of just under $29 billion - that have invested new levels of funding in education, energy, and business development.

Senate Republicans - who control that chamber - say other governors with ambitious agendas have gotten budgets done on time.

"He's the only governor for whom the June 30 date is of not much importance," said Senate Majority Leader Dominic Pileggi (R., Delaware).

The central issue is how to plug the $3.2 billion budget shortfall. Rendell has proposed a three-year hike in the personal income tax from 3.07 percent to 3.57 percent, an increase of more than 16 percent. He also has recommended new taxes on smokeless tobacco and natural gas extraction, and a 10-cents-a-pack increase in the cigarette tax, as well as using most of the state's $750 million Rainy Day Fund.

The governor yesterday reiterated that he did not believe the state could enact a spending plan that did not include ways to raise new revenues.

"I don't say that with any joy," Rendell said. "There are no winners or losers here. Everyone's a loser, no matter what we do, whether we cut or whether we raise revenue. This is not a good situation. We all lose."

But Senate Republicans - and some Democrats - are dead-set against an income-tax increase, saying it would be a hardship for working families. A family making $50,000 would pay about $5 more a week in taxes.

Pileggi said Republicans' "main focus" is to stop what he calls Rendell's "massive" $1.5 billion tax hike.

His feelings are echoed by members of the newly formed "Blue Dog" caucus of moderately conservative House Democrats from the southwestern part of the state, whose votes will be critical for any tax increase.

"We have grave reservations about an income-tax proposal," said Rep. Nick Kotik of Allegheny County, who estimates there are at least 20 and maybe as many as 40 members of the Democratic-controlled House who share his view. "Raising taxes on the middle class in the midst of a recession is not the way to go."

Rendell counters that the income tax, which is supported by Democratic leaders in the House and Senate, is the fairest of all possible levies because lower-income families (making under $32,000 a year) and the elderly living on Social Security or pensions are exempt from the tax.

Rendell says without the income-tax hike, critical programs would be cut, federal matching funds lost, and local governments forced to boost taxes to fund mandated social-service programs.

Senate Republican leaders accuse Rendell of spreading "doomsday" scenarios and say counties can afford to tighten their belts and absorb another 2 percent cut without having to raise taxes.

This year's budget negotiations are proving to be even more difficult - some would say more acrimonious - than those of prior years in no small part because of the deep recession.

But privately, Rendell officials and political observers say that unlike 2003 - the year of the last state income-tax increase - Senate Republican leaders who have headed the chamber since then are taking a more hard-line approach on taxes.

"The players are different," said Madonna. "The ideological differences are more profound, and they are less likely to compromise."

The Senate approved a GOP proposal to pare back the budget to $27.3 billion earlier this month, with steep cuts to education and health-care programs. Rendell used the Republican plan to make $500 million in new cuts last week but said some of the GOP proposals went too deep for him to support. The administration also said that proposal was now roughly $1.5 billion out of balance.

Rendell and legislative leaders met at the governor's mansion last night. Pileggi said the Senate Republicans would try to convince Rendell to halt his call for a tax increase and respond to Rendell's request to explain budget cuts in their spending plan.

But it appears the various parties are heading into at least 21/2 weeks of drawn-out talks, seven-day sessions, and increasingly frayed nerves for everyone in the Capitol.

It remained unclear where leaders stood on a proposed "stopgap" budget to keep government operations beyond July 17. Rendell, who had initially said he was receptive to it, and Senate Democrats seem to be less supportive now, while Senate Republicans are open to the idea.

Rendell said that he was prepared to go "as long as I have to."

"We'd rather get it right than get it done on time," he said.