Rendell signs budget, ending stalemate

HARRISBURG - Gov. Ed Rendell signed a $27.8 billion state budget Friday night, bringing an end to one of Harrisburg's hardest-fought political battles in decades.

The action restores state aid to public schools, early education programs and a host of nonprofit and county-run social service programs that have struggled to keep their doors open during the 101 days Pennsylvania has been without a full budget.

"This budget after months and months of wrangling ... produced a good result for the people of Pennsylvania," Mr. Rendell said at a press conference.

But the governor signed the budget bill privately, saying there is no reason to celebrate because of the long delay in enacting it.

The state is processing $3 billion of back payments to state aid recipients, said Budget Secretary Mary Soderberg, describing how checks will be readied for electronic transfers by Wednesday.

The budget that won final approval in the Senate on a 42-7 vote hikes a tax on smokers, imposes a pass-through tax on managed-care organizations, delays the phaseout of a state business tax and opens more state forest land to natural gas drilling. In a last-minute compromise, the state Department of Conservation and Natural Resources was given more flexibility in determining how much forest land is leased.

Left out of the budget are proposed taxes on small games of chance licensees and natural gas production that generated political controversy in recent weeks.

The budget relies on $400 million in new taxes and a transfer of revenues from special funds to erase an accumulated $3.3 billion deficit from fiscal 2008-09 and deal with projected future deficits.

State spending will be reduced from the previous year under this budget, a departure from normal practice. A number of state programs are at their lowest level of funding in years.

Even though Pennsylvania is draining its entire "rainy day" reserve fund, state officials are still using $2.6 billion in federal stimulus money to balance this budget. Much of the stimulus money is earmarked for education and medical assistance programs, which serve two million Pennsylvanians.

Hard times

The budget is borne out of hard economic times not seen since the Great Depression of the 1930s. The stock market crash of one year ago was the catalyst for massive job layoffs and a sharp drop in state tax revenues.

"The state's budget deficit could not have been predicted," said Senate Minority Leader Robert Mellow, D-22, Peckville. "Regardless of the dire circumstances and extreme challenges in crafting the 2009-10 budget, finding a solution took too long.

"For those impacted by the budget logjam, I extend my apologies."

The budget passage means state aid will flow to social service agencies, and school districts will no longer have to borrow money to compensate for missing state payments, said House Majority Leader Todd Eachus, D-116, Hazleton.

The end of the budget fight was marked by behind-the-scenes wrangling among the state's elected leaders over a balance-of-power issue: authorizing a legislative fiscal office to act as a counterweight to the executive branch in making official revenue estimates.

It was only after Mr. Rendell and leaders of the four caucuses struck agreement Friday afternoon on a timetable for establishing this new office that a necessary fiscal bill was approved by both chambers. Mr. Rendell then signed this fiscal bill as part of the budget package.

One budget-related issue remains to be worked out. The House and Senate need to reconcile differences over legislation to legalize table games such as roulette and blackjack at slots casinos. The main sticking point is the state tax rate on table games. The Senate passed the bill Friday, 29-20, and is designed to raise $200 million from taxes and fees for the cash-strapped state government. The two chambers plan to resume debate on that issue next week.

However, lawmakers are linking approval of so-called "nonpreferred" or discretionary appropriation bills for higher education institutions like Pennsylvania State University and the University of Pittsburgh with the table-game legislation.

The table-game bill will provide the revenues needed to support aid to the nonpreferred schools, Mr. Eachus said.

Winners bow to losers

The new budget has few winners and many losers.

The state subsidy for school districts receives a 5 percent increase, due to Mr. Rendell's insistence on giving priority to education programs and the influx of federal stimulus dollars. The budget maintains spending for early education programs that were launched during Mr. Rendell's tenure.

Commonwealth Medical College in Scranton receives $4 million. The medical school was appropriated the same amount last year, but Mr. Rendell blue-lined $600,000 of that as revenue deficits mounted.

The budget signing brings a formal end to the Scranton State School for the Deaf. The budget provides $5.4 million in transition aid to transform the Scranton campus into a branch of the nonprofit Western Pennsylvania School for the Deaf.

State programs to aid economic development, protect the environment and offer public recreation take a hit in the new budget.

- State parks receive $50 million, a 20 percent cut for an agency that has already laid off part-time workers and scaled back operations.

- State aid for flood control projects is cut 3 percent.

- A job training program created in the 1980s to help laid-off manufacturing workers is cut 50 percent.

- State TV marketing to attract tourists falls to $6 million, a funding level not seen in decades.

- The five heritage parks in Northeast Pennsylvania will receive no state aid for the first time since the program was created by Gov. Robert Casey in the early 1990s.

Local governments will feel the pinch, too.

- State subsidy for public libraries is down 20 percent.

- Human Services Development Fund, an umbrella program for county-run social services, receives $29 million, down 17 percent.

- County courts receive $30.2 million, down $3.2 million. The shortfall is being addressed by legislation to hike fees on civil actions in local courts.

The resolution of the budget crisis came after a marathon legislative session in which one or both chambers have been in session daily for the past 10 days. House and Senate leaders used an array of procedural votes to try to show their caucuses in a better light as public patience with the budget delay wore exceedingly thin.

One event stands out as a key turning point to move the protracted dispute toward resolution. It's the plan by the Rendell administration to levy a gross receipts tax on managed care organizations to replace a state assessment that expired last month. The state hopes to receive millions in extra federal Medicaid dollars as a result and then reimburse the organizations for the tax they pay.

Adding this revenue source enabled budget negotiators to drop controversial tax proposals that couldn't muster enough votes in either the House or Senate.

Contact the writer: rswift@timesshamrock.com From impasse to bill passed

- February: Gov. Ed Rendell unveils a proposed $29 billion budget.

- May: Senate approves $27.3 billion budget with $1.7 billion in spending cuts. Rendell administration campaigns against Senate budget. The House and Senate are in recess for most of the month.

- June: As deficit climbs above $3 billion, Mr. Rendell proposes 16 percent hike in personal-income tax.

- June 30: Budget deadline passes.

- July 17: Payless paydays arrive for state employees. Workers hold rallies at state Capitol throughout July.

- Aug. 5: $11 billion stopgap budget is enacted, restoring pay for state employees. Plan does not include aid for social services. County workers hold weekly rallies throughout the summer on Courthouse Square.

- Sept. 11: Three-caucus budget reached.

- Sept. 18: Budget agreement includes Mr. Rendell and is announced at a news conference.

- Oct. 1: After three months without budget, the agreement begins to unravel as disagreement emerges over details.

- Oct. 7: The House approves a $27.8 billion budget bill with compromise language agreeable to Senate Republicans.

- Oct. 9: The Senate passes the budget bill, and Mr. Rendell signs it into law, ending a 101-day stalemate