Corbett faces a fiscal mess in Pennsylvania

The budget is out of whack. A bigger hole looms next year. And the state faces a multibillion-dollar pension shortfall.

When Republican Tom Corbett takes office in January as governor of Pennsylvania, he will confront a fiscal crisis.

That crisis, though smaller in scope, is not unlike what President Obama faced when he took power. The difference is, the state can't run a deficit. Pennsylvania's constitution requires the state to balance its books with taxes or budget cuts.

Some in his own party say Corbett may have to renege on a pledge not to impose a tax on drilling in the Marcellus Shale gas fields. He'll surely face opposition to his plan to sell the state's 620 union-manned liquor stores. And every proposed budget cut will be fought by lobbyists and constituent groups.

Hard choices are certain.

With the loss of federal stimulus funds next year, a budget gap could widen to $4 billion. The state also needs to fill a $472 million hole for highway capital projects. The extra pension costs, which escalate in 2013, could be from $3 billion to $5 billion; even Corbett isn't sure.

Gov. Rendell, leaving office after eight years, said Wednesday that Corbett's pledge to not raise taxes means he'll have to dramatically reduce education funding and "eviscerate" economic development programs.

"We meted out a lot of pain when we reduced line items by 5 percent," said a somber Rendell. "Is it technically possible? I suppose. Could he find $3 billion [to cut]? Probably. Could he find $2 billion to cover pensions? Probably not."

Philadelphia, in particular, could take a hit because it depends so heavily on the state to cover its school costs.

But two former Republican governors said Corbett's aims - while difficult - are achievable.

"He's not under any illusion on the nature of the problem and how tough it's going to be," said Richard L. Thornburgh, who was governor from 1979 through 1986. "But I think Tom would agree with me that a tough job is sometimes the only job worth doing."

Mark S. Schweiker, the former lieutenant governor who held the top post for 15 months in 2001 and 2002, said "straight talk" would be essential for Corbett as he tries to line up legislative and public support for bad-tasting medicine.

Corbett proposes to strip some costly perks and pork-barrel accounts from state House and Senate members, who may have contrary ideas.

He wants to cut the size of government, which means cutting people's jobs. He may have to slash or at least trim programs for community aid, health, and transportation - all of which have constituencies that will clamor to be heard.

"The reality is that for the foreseeable future, perhaps one or two fiscal years, government has to shrink," Schweiker said Wednesday.

With his party in control of the legislature, Corbett "will have an opportunity to work with the leadership in both houses to take a common approach to problem-solving," Thornburgh said.

But he'll have to step carefully. In a similar position, President Obama found that his party-mates in Congress had agendas that often conflicted with his own.

After six years as attorney general, Corbett knows his way around the Capitol, Thornburgh said. "It's a lot easier to convince people that cuts are in order if you are willing to take some of the heat yourself."

Corbett's style has been described as top-down. He depends on a rigid chain of command, perhaps a reflection of his 14 years in the National Guard. Aides have said he is collaborative but also can flash a temper.

(His wife, Susan, told the Pittsburgh Post-Gazette: "The only thing that makes him cranky is if he doesn't get lunch, and that happened a few times on the campaign trail.")

Corbett said repeatedly during the campaign that he would cut state spending "across the board" and that nothing was immune from the ax.

But he was vague in saying where he'd cut. He said he hadn't fully decided and would wait to share ideas with legislative leaders.

He did mention cutting state car fleets and the discretionary accounts legislators use to fund projects in home districts. He said he hoped to reduce welfare fraud.

He said: "I believe there are a lot of savings to be had out there - only because there are a lot of different state employees who have come up to me - I've got their names - and have said, 'I know where you can save money.' "

Some things Corbett wants to do - such as selling off the state liquor stores for upward of $2 billion - have been goals of Republican governors for decades.

The last GOP push for this, in the 1990s, was stopped by unions out to protect the jobs of retail clerks and by midstate Republicans who fretted about the moral cost of less-restricted alcohol sales.

Alan Paul Novak, a former state GOP chairman, said the time may now be right to privatize the much-maligned liquor system; the depth of the state's problems may soften opposition.

"What assets does the state still have?" asked Novak, who serves on a Chester County economic development board. "I don't know that there are any more casinos you can build."

The problem with the budget cuts Corbett has identified is that they don't add up to what the state may need.

And they don't address a $3 billion to $5 billion shortfall in pension payments for state employees that the state will have to deal with come 2013.

That gap may have to be closed by borrowing. In the long term, Corbett has said, the fund will have to be shored up by cutting benefits for newly hired workers.

State Rep. Sam Rohrer of Berks County, Corbett's GOP opponent in the May primary, said a governor has to look at three areas if he wants to save "real money" - education, Medicaid, and prisons. Corbett, he said, was ducking on all three.

Rendell, with the legislature, has worked year by year to increase state funding for education.

Celebrating his election Tuesday night, Corbett said New Jersey's popular GOP governor, Christopher J. Christie, would be his role model. Christie has cut education funding in his first year.

Corbett has promised to spend more in one area - early childhood education.

Almost alone among Republicans - never mind Democrats - Corbett opposes any severance tax on Marcellus Shale gas. Legislative leaders had promised to enact a tax this year, but could not reach a deal with Rendell.

On Wednesday, House GOP leader Sam Smith of Jefferson County may have given Corbett wiggle room by saying the chamber's newly elected Republican majority - while still opposing a tax per se - "would look at a way for industry to contribute to local municipalities to help out with the impact" of drilling.

Former Republican Gov. Tom Ridge - whose lobbying firm now counts the industry among its clients - has said a tax is reasonable and would not impact household consumers.

Schweiker joined him in that view Wednesday, saying Corbett might be able to justify a change of mind on his no-tax pledge when he comes up for reelection in 2014.

"My individual opinion is that most Pennsylvanians - and many operators of the gas industry - would accept a fair tax level," Schweiker said.

State Sen. Daylin Leach (D., Montgomery) called Corbett's pledge "fiscal insanity."

"Could you imagine the head of a family saying, 'OK, money is tight, so we'll cut down to two meals a day, and buy no new clothes, but none of us can go out and bring in more income?' " Leach said.

"The family would look at that person and say, "You're out of your mind.' "