Keep in mind, Gov. Rendell is 0-for-7 in delivering a budget on time. He urged lawmakers to help him make the constitutionally mandated June 30th deadline for this – his last budget. “ … as we embark on our work this year, I ask that we do a better job of putting statesmanship ahead of partisanship, and putting the public interest ahead of special interests,” he implored.
Rendell isn’t getting much love from Senate Republicans … the same band of resisters he met last year when he tried to raise the personal income tax to deal with a $3.2 billion deficit. They wouldn’t give in on the PIT and they forced Rendell to spend one billion dollars less this year than last year. Well, now Rendell projects a $525 million shortfall come June 30th. And it gets worse. In 2011, the state faces a $2.3 billion to $2.8 billion shortfall as federal stimulus funding ends. And in 2012, the state’s pension crisis could push our budget deficit over $5.6 billion.
Still, Rendell wants to spend $1.2 billion more than this year (much of it for mandated spending on welfare programs, prisons and previously negotiated contracts), including a $354 million boost for basic education. He’s also counting on nearly $950 million in federal welfare funding that Congress has not yet approved – a pretty big IF - to balance the budget. (The Allentown Morning Call offers a good point/counterpoint on the budget from the right-leaning Commonwealth Foundation and the left-leaning Pennsylvania Budget and Policy Center. And Wally Nunn weighs in for The Philadelphia Inquirer with some interesting observations about PA's dismal fiscal landscape.)
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Rendell warned critics with budget knives in hand, “The truth is, we've cut nearly to the bone, and while I know that we will certainly hear the familiar political calls to simply cut spending as a way to balance the budget, I want everyone to be on notice that I will challenge anyone who makes such a claim to specifically identify the cuts they propose, and explain the real implications for everyone to examine. When it comes to addressing the serious challenges that lay ahead, talk is the only thing that's cheap.”
That threat did not appear to ward off Republican President Pro Tempore Joe Scarnati who also serves as lieutenant governor. “We want to control spending and look at every line item, because despite what the governor says, we are not yet down to the bone. There is still fat left to cut,” he countered.
To pump up revenues, the governor once again calls for taxing cigars and smokeless tobacco, and levying an extraction tax on natural gas drilling - 5 percent of a well's value, plus 4.7 cents per 1,000 cubic feet extracted. Marcellus Shale Coalition president and executive director Kathryn Klaber joins us Friday night. She cautions that development of the industry in Pennsylvania is “moving out of its infancy, but remains very much in an early development phase … We must find productive ways to maximize and increase these impacts for everyone’s benefit, not deter growth.” She reminds viewers that the gas industry has already pumped $10 billion into the Marcellus Shale operations in Pennsylvania and could employ more than 110,000 workers by the end of the year.
Invariably, Rendell’s budgets contain several bold strokes. And he did not fail to deliver a whopper in his final year. He wants to create what he calls a Stimulus Transition Reserve Fund to cushion the blow from disappearing federal stimulus money and our first bills for public-pension obligations. He would endow this fund by using 90 percent of the Marcellus Shale and tobacco tax revenues, and closing business tax loopholes. But he doesn’t stop there. He also wants to eliminate 74 sales-tax exemptions while lowering the sales-tax rate from 6 to 4 percent. Food, clothing, prescription drugs, nonprofit cultural institutions and some agricultural and manufacturing equipment would remain untaxed, but a host of products and services would get taxed – things like candy, gum, dry cleaning, advertising, legal services, personal hygiene products, residential electric bills, tickets to entertainment and sports events and even caskets.
“To those who argue that this is a tax increase that will hurt our citizens and our business competitiveness, I say that the evidence demonstrates otherwise. For the average family, eliminating these loopholes doesn’t impact them one way or the other. But for business, closing loopholes actually will allow many businesses – those who already pay sales taxes – to become more competitive,” the governor argued.
Advocates for small businesses attacked the governor’s plans. "Gov. Rendell today warned lawmakers that a fiscal tsunami is on the horizon. Pennsylvania small-business owners would argue it's already here,” said Kevin Shivers, Pennsylvania state director of the National Federation of Independent Business (NFIB) and a guest on our panel. “Small-business optimism is near its lowest point since the 1980s. The NFIB's most recent index reports that small-business owners continue to reduce their workforces or leave vacant positions unfilled. Owners are reluctant to purchase new equipment or expand. Poor sales are the main culprit cited by most small employers and many do not expect the climate to improve much over the next six months. As small businesses struggle to find customers, Gov. Rendell today proposed a host of new taxes that only will make it tougher for them to get back on solid footing. Proposed taxes on advertising, accounting and legal services only will raise the cost of doing business -- reducing profits even further and preventing any prospects for job creation in the near future.”
Shivers fears the hit small businesses will take when the state inevitably raises taxes to replenish the state’s unemployment trust fund that is $2 billion in the hole. He says 80% of Pennsylvania businesses saw their business taxes go up in 2003. They have slashed prices to try to attract new customers and that has further eroded their profits. “Their message to the governor on his proposed tax increases: 'Thanks, but we already gave at the office.'"
Carolyn Scanlan, president and CEO of the Hospital & Healthsystem Association of Pennsylvania issued a warning about deeper cuts eroding the quality of health care and economic vitality of the medical community. “The Governor’s proposed state budget cuts put the state’s leading employers at risk, by threatening one of the commonwealth’s few sources of economic and employment stability—and jeopardizing patient access to the healing, health, and hope our hospitals provide to Pennsylvanians 24 hours a day, every day of the year,” she said in a HAP press release shortly after the address. HAP represents nearly 250 Pennsylvania acute and specialty care, primary care, sub-acute care, long-term care, home health, and hospice providers across the state. “While non-farm employment in Pennsylvania decreased by 2.59 percent last year, direct hospital employment remained steady, with only a slight decline of 0.15 percent,” she noted. “Pennsylvania’s hospitals are mindful of the budget realities facing Pennsylvania. But the Governor and lawmakers need to ensure that hospitals remain viable employers in their communities, where they can provide access to quality care, jobs and job-growth opportunities, support to other businesses, and overall stimulus to local economic activity.”
For an in-depth analysis of the budgetary challenges confronting states, check out a new Pew Center report. The good news for Pennsylvanians - for now - there is no call for a personal income tax increase. But with Republicans promising not to support more spending, painful cuts, potential state-worker furloughs and a protracted fight cannot be discounted. Please join us Friday night at 8:30 for Smart Talk and let us know what you think of Gov. Rendell's budget plan. Email us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
