Pa. seeks to avoid another budget impasse

HARRISBURG - With less than a month till the end of the fiscal year - and in the shadow of last year's 101-day standoff - Gov. Rendell and legislative leaders sit down at the negotiating table for the first time Thursday to try to reach agreement on a spending plan for 2010-11.

In seven years in office, Rendell has not had an on-time budget, and last year's record impasse led to suspended paychecks for state workers, stalled payments to social service agencies, and migraines for school districts, colleges, and other entities that rely on state funding.

This year - with recession-ravaged revenue trickling in below projections, and most legislators facing reelection - consensus could prove even harder to reach by the June 30 deadline.

"I think we're likely to see the same old scenario play out, where nothing gets done until the last minute, and the governor engages in histrionics and threatens the legislature," said Rep. Doug Reichley (R., Lehigh). "And we're going to miss the deadline."

Rendell is taking a new tack: He is launching a PR campaign to put a face on government investment.

"We want to pull the shower curtain away from the 'lower taxes, less spending' mantra," his chief of staff, Steve Crawford, said Wednesday. "Everybody wants lower taxes and less spending. Everybody is for that. The question is, what is the net effect of lower taxes and less spending?"

If it's any consolation, other states are struggling, too. In Trenton, Gov. Christie is battling legislators and interest groups over cuts needed to close a $767 million budget gap. In Albany, where the budget is two months overdue, New York Gov. David Paterson is threatening to send a list of emergency cuts if legislators can't agree on savings.

In February, Rendell proposed a $29 billion budget that would have increased spending by $1 billion, including an extra $355 million for schools. Republican legislators balked at a plan the lame-duck Democratic governor defended as his no-option response to federal mandates and already negotiated union contracts.

But lower-than-projected state revenue has created a $1.2 billion budget hole that could grow to $1.5 billion by June 30, legislative staffers estimate.

Rendell and House Democrats have proposed limited tax increases and other strategies to provide about $300 million to help close the gap, such as new taxes on natural gas extracted from the lucrative Marcellus Shale reserve, and on cigars and smokeless tobacco, which most other states already tax.

They also want to raise the cigarette tax and close the " Delaware loophole," which allows some businesses in Pennsylvania to avoid some some corporate taxes by keeping Delaware addresses.

Rendell last week scrapped his proposal to lower the sales tax while extending it to cover many items now exempt, from candy and gum to newspapers and gold bullion. He said there was too much election-year opposition from special interests. He had hoped to use some of the proceeds to help meet the state's looming multibillion-dollar pension obligations.

Instead, Rendell said the budget could be balanced with judicious use of federal money and more cutbacks - possibly including layoffs.

The governor asserted that his remaining tax proposals had wide backing. He said at a news conference last week, "It doesn't require a 'profile in courage' to vote for things that the public supports."

There also is still no resolution on the sizable hole in highway funding left by federal rejection of Rendell's plan to put tolls on I-80.

One possible sign of compromise comes from Senate Republicans, who have opposed raising any taxes but now show willingness to consider a Marcellus Shale tax.

But House Democrats failed to muster the votes last week to pass a modified version of Rendell's tax package.

Rep. Nick Kotik (D., Allegheny) said many Democrats were loath to vote for tax increases that they knew the GOP-controlled Senate would not accept. He pointed out that some House Democrats faced tougher reelection fights in November than their Republican counterparts in the Senate, where the GOP rules by a 30-20 margin, compared with Democrats' narrow 104-99 edge in the House.

"The Senate Republicans have more cards in their hands than we do," Kotik said. "They are entrenched. And they have nothing to lose politically by keeping this [budget debate] going."

Erik Arneson, spokesman for Senate Majority leader Dominic Pileggi (R., Delaware), said that that chamber takes the July 1 deadline seriously and that lawmakers hoped to "collaboratively" achieve an early agreement.

Arneson said he did not expect GOP support for new taxes except on natural gas.

Meanwhile, Rendell's chief of staff warned that if lawmakers proposed slashing funding for a specific program, they would likely hear from people whose lives are touched by it.

Legislators can expect "letters, testimonials, even in-person visits," Crawford said. "Statistics are wonderful, but they do not emote."

The Senate Appropriations chairman, however, said the legislative leaders who are to meet with Rendell on Thursday at the governor's mansion faced another real-life fact: State coffers have not yet rebounded from the recession.

"We have to look at the revenues for what they are, not what we wish they were," said Sen. Jake Corman (R., Centre). "It's time to put a spending plan together that's realistic."