Possible breakthrough in Pa.'s budget stalemate?

HARRISBURG - For the first time in their five-month-old standoff, Gov. Wolf and Republican legislators indicated Monday that they had reached a tentative agreement on key pieces of the long-overdue state budget.

Republican leaders in the Senate and House told reporters that a $30.26 billion spending plan would likely boost education funding, use a sales-tax hike to generate property-tax relief, and bring changes to the public pension and State Store systems.

"After months of obstruction, we've made real progress on a budget deal," Wolf said in a Monday evening email to his campaign supporters. "For the first time, I'm optimistic we can see the light at the end of the tunnel."

Both sides cautioned that many details remained unresolved - and there seemed to be disagreement about the scope of the pact. It also was poised to address contentious legislative topics that have lingered in the Capitol for years.

"We're not done by any stretch," said Senate Majority Leader Jake Corman (R., Centre).

Neither side would discuss how or when they reached a breakthrough, when a budget proposal might be ready for legislators to consider, or how soon the money would flow again to the schools, offices, and agencies that have struggled to remain afloat without state aid for months. Several predicted an agreement by Thanksgiving.

But the framework they disclosed suggested victories for both Wolf and the Republican-controlled legislature - as well as some concessions.

The governor, for example, would secure the boost in education funding that he has made a centerpiece of his budget, but abandon his plan to impose a new tax on natural gas drilling.

Republicans would win their battle to privatize aspects of liquor stores and enact reforms to the pension system, issues they have spent years pushing. But the GOP leaders who have uniformly opposed broad-based tax increases would have to approve one in the sales tax - even though an offset would occur in property taxes.

Bill Patton, spokesman for House Democrats, noted that any final deal was likely to include pluses and minuses for both sides.

"That's compromise," he said.

The deal would call for raising the state sales tax from 6 percent to 7.25 percent, Corman said. That would create about $2 billion in new revenue, which could cover a major property tax reduction and permit the state to increase basic education funding by $350 million in the current fiscal year. Special education would receive an additional $50 million in funding as well, Corman said.

Wolf's spokesman, Jeff Sheridan, said Republican leaders had agreed to a larger education package: an additional $50 million more for prekindergarten this year, as well as $300 million combined for basic education, special education, and prekindergarten next year.

Corman, however, said the focus was on this year alone.

Also unclear was the distribution formula for the new money, and how any property-tax reductions would occur.

Corman and House Majority Leader Dave Reed (R., Indiana) said Republicans would likely want assurances that local school boards could not simply raise their millage rates after the reductions took place.

Patton said Democrats have opposed that concept in the past.

On pensions, Corman said the sides were discussing a plan that would provide newly hired state government and public school employees with both a traditional pension plan - although less generous than what current employees get - and a 401(k)-style plan with a 2 percent employer contribution. The changes would save the state $12.5 billion in the coming decades, Corman said.

Reed also said a cigarette tax was still under discussion, as was the potential for gambling expansion.

Reed, Corman, and Sheridan had no details on how or what a liquor privatization plan might look like.

Republicans, however, were united in saying that there will be no new tax on the extraction of natural gas from the Marcellus Shale - a funding source Wolf has repeatedly lobbied for throughout his first year in office.

The Democratic governor and Republican legislators have for months struggled to agree on any specific numbers for the long-overdue spending plan, which added heft to Monday's revelations.

Both sides said last week they had been inching closer to a final accord, but offered no specifics on how or where they were making progress. Now, all said they were cautiously optimistic.

"We do not have an agreement, by any stretch, on a budget yet," Corman said. "But at least, for the first time, we are moving ahead. We seem to be on the same track. Whether we can move the remaining issues along remains to be seen."

cpalmer@phillynews.com

609-217-8305@cs_palmer