HARRISBURG -- Even as the Legislature prepares to vote on a $28.2 billion budget that draws heavily on one-time dollars, Senate officials say a $1 billion deficit could pile up in the next 12 months and force additional cuts or tax increases.

The foundering national economy that slowed state tax collections ripped a large hole in the spending plan that Gov. Ed Rendell originally proposed in February. But budget negotiators tapped surpluses and postponed certain payments to free up more than $500 million that helped avert deeper spending cuts in the fiscal year that started Tuesday.

Sen. Gibson E. Armstrong, who chairs the Appropriations Committee, said he expects a deficit at the end of the fiscal year of between $800 million and $1.2 billion.

If that should materialize, the Rendell administration can put off hiring, scrounge cash that is sitting unspent in state accounts or dip into the state's main emergency fund, nicknamed the "rainy day fund," said Armstrong, R-Lancaster.

In the closed-door budget negotiations among Rendell, legislative leaders and senior aides, Republicans sought to cut spending, but had to compromise, Armstrong said.

"You had to get something you could get enough votes on and if you sliced another ($300 million to $400 million), you couldn't get the votes for it," he said.

The budget deal carries no broad-based tax or fee increases, and does not tap into the state's $750 million budget reserve.

Rendell and his advisers have refused to discuss specifics about the budget since closing a handshake deal on the spending plan early Monday. Legislative leaders have released few details about it, but have held closed-door briefings for rank-and-file lawmakers.

The House and Senate remained in session Thursday night, with votes on a final document expected Friday before the chambers take their traditional two-month summer break from Harrisburg.

Paul Dlugolecki, a senior Democratic staff aide to the Senate Appropriations Committee, said a tax increase could be necessary if the state ends up with $1 billion deficit.

"If this economy continues its downturn, we could easily get up that high," Dlugolecki said. "Two billion is not out of the question."

The state constitution requires a balanced budget.

The state's economic forecasting consultant, Global Insight, has predicted four to six quarters of anemic to flat growth, suggesting that the economy could begin to turn around in 2009, said Rendell's chief budget adviser, Michael Masch.

In light of the worsening economy, Masch said Thursday he built the budget around a conservative revenue growth projection of 2.5 percent to 3 percent, and that the administration saved up hundreds of millions of dollars over the past six months by negotiating better contracts, letting vacant positions go unfilled, and other steps.

"Our take on the budget we are about to adopt is that it puts Pennsylvania in a very good position to be prepared to weather whatever comes next," Masch said.

Budget makers decided to scrap plans to transfer a $138 million chunk of surplus into the rainy day fund, drew on more than $200 million in unspent money from various accounts and tapped revenue from the state recycling fund, liquor stores and lottery to pay some bills.

They also put off $114 million in planned contributions to the pension fund for public school employees, a payment proposed to help diminish the impact of an expect spike in costs in the coming years. And the Rendell administration is saving money by delaying a payment to companies that manage the medical care of Medicaid recipients.

In the last economic downturn, Rendell's predecessor, Republican Gov. Mark Schweiker, raised more than $1.7 billion by increasing taxes, draining budget reserves and borrowing from a state industrial development financing agency. Rendell then raised taxes by $1 billion. Both governors found places to cut spending, including libraries and environmental programs.

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