2009-02-05 / Local & State

Pa. Shortfall Promises Big Test For Gov, Lawmakers

By Marc Levy ASSOCIATED PRESS WRITER

HARRISBURG, Pa. (AP) - As the nation's economy was plodding to a halt and layoffs were accelerating last summer, Pennsylvania state government's budget shortfall was already growing.

It started in May, when the state recorded its first of what is now nine consecutive monthly shortfalls, and is now so large that it begs comparison to the handful of budget crises that rank as the worst of the past 40 years.

And it promises to entangle Gov. Ed Rendell and state legislators in a protracted battle that is certain to stretch into the summer and possibly into the campaigns for the 2010 elections.

While the Democratic governor and legislative leaders of both parties are pledging to work together in a bipartisan way and erase the shortfall without a major tax increase, some observers question whether they grasp the full extent of the problem or the difficult steps that will have to be taken.

"This was created by an economic storm that is sweeping across the state and nation,'' said Michael L. Young, who studies Pennsylvania state government and runs a Harrisburg-based opinion research firm. "This one is big time. This one is the real thing.''

The budget gap has rocketed to Topic No. 1 on an agenda already choked with unresolved issues: crumbling highways and bridges, a growing number of uninsured and skyrocketing electric bills.

Sensitive decisions over who will pay more and who will get less are likely to expose political fissures, as well as divisions between a second-term governor who leaves office in less than two years and legislators with their own political futures to consider.

Rendell and legislators didn't help themselves last summer when they approved a $28.3 billion budget that increased spending by 4 percent and relied on more than $550 million from one-time sources to prop up spending - even as some lawmakers and senior staff quietly predicted a shortfall of a billion dollars or more.

Rendell now projects that revenues will lag $2.3 billion - or nearly 8 percent - behind expectations when this fiscal year ends on June 30. Maintaining the same services and subsidies in the 2009-10 fiscal year would create an even bigger shortfall after inflation is figured in, Rendell and legislators predict.

So far, Rendell has sought to freeze $500 million in spending and has threatened to lay off state employees unless he gets money-saving concessions from labor unions.

On Wednesday, when he presents his 2009-10 budget to a joint session of the state Senate and House of Representatives, Rendell is expected to lay out his vision for how state operations should make the painful adjustment to the national recession.

The governor is expected to proposed shrinking or eliminating programs. He will scour state accounts for reserves. And he is looking to tax previously untaxed activities, such as sales of chewing tobacco and cigars and the production of natural gas.

All of this has legislators and others recalling the shortfalls of 1991, 1977 and 1971, when budgets were passed with massive tax increases only after events such as long stalemates, high-stakes court challenges, melees on the House floor and state employees going unpaid or getting laid off.

"I think clearly it's going to be one of the biggest challenges we've faced in Harrisburg in a number of years,'' said Allegheny County Sen. Jay Costa, the ranking Democrat on the Appropriations Committee.

The 1991 budget battle is stuck in the memories of many in the Capitol.

In December 1990, then-Gov. Robert P. Casey's budget director, Michael Hershock, announced that the state was staring at a $1 billion shortfall. However, he dismissed the need for a major tax increase.

Less than two months later, Casey proposed $1.7 billion in tax increases. In August 1991, Casey signed a budget with $3.3 billion in new taxes.

Barbara Hafer, who was the state's auditor general and the unsuccessful Republican challenger to Casey's re-election in 1990, said the solution was as bad as the problem.

Legislators, she said, held the budget hostage by demanding money for their pet projects before they would vote for a tax package that they viewed as a political risk.

This time around, legislative leaders must exercise fiscal discipline, said Hafer, who later was elected as state treasurer.

"What is it going to take to pass that budget? That's the question you have to ask,'' Hafer said last week. "Legislators say, 'I need something to run on. I need (money for) my bridge, my street, my school district, my Little League, my baseball field, my fire department' and that becomes expensive.''

In 1971, legislators finally closed a massive shortfall by passing the state's first income tax after a budget impasse that lasted more than a year.

Young warned of a repeat. Legislators may pull out all the stops this year to avoid a broadbased tax increase _ only to find that a still-worsening economy leaves them with no choice in 2010, just months before voters elect a new governor and nine out of 10 legislators, Young said.

"The prospect of a major tax increase in a major gubernatorial year is almost beyond imaginable,'' Young said. "This is a doomsday scenario that we may see.''

If they wonder whether to vote for a major tax increase, legislators can consider this: Research by Young and Franklin & Marshall College pollster G. Terry Madonna found that voters are unlikely to take revenge on legislators because they supported a tax increase.

Re-election rates reached above 95 percent in the elections following tax increases in 1983 and 1991 - leading Madonna and Young to call it the "great tax vote myth.''

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