TAX NEWS - JUNE 2010

Pennsylvania Tax: State budget season begins

HARRISBURG - State lawmakers return today to face the fiscal problems of "budget season" but with fewer realistic options available than last year to solve them.

The size of the state tax revenue shortfall at $1.2 billion and counting is daunting, taxpayers are in an angry mood, the economy remains fragile with high unemployment and the demand by the needy for social services is unabated.

At the first major budget negotiating session between Gov. Ed Rendell and legislative leaders last week, the players discussed more spending cuts, smaller targeted tax hikes and transfers from special state funds to the General Fund to erase the deficit. But large-scale tax hikes or another major expansion of gambling are not on the horizon.

As with last year, Harrisburg is counting on federal aid through the stimulus program and other avenues to balance the state government's fiscal ledger.

Rendell anticipates the size of the 2010-11 budget will be somewhere under $29 billion, while Senate Republican leaders say current revenues will only support a $27.5 billion budget. So future negotiations will focus on arriving at a compromise budget number between those two markers.

The House and Senate are scheduled in session each week up to the June 30 deadline for passing the budget. This sets the stage for a merry-go-round of events at the Capitol with rallies by advocacy groups seeking to influence spending decisions, endless party caucuses and greater uncertainty than usual with chamber voting schedules. The schedule also accommodates zany observances such as "seersucker suit" day where politicians and lobbyists wearing blue-and-white striped suits gather for a group photo.

Election-year politics is part of this mix with the legislative caucuses holding their major fundraisers outdoors in the Harrisburg metro area. The Senate Republican Campaign Committee will hold its "Summer Hoopla" on June 15 at a picnic ground; the House Democratic Campaign Committee has a June 22 fundraiser featuring a picnic and a Harrisburg Senators baseball game.

House and Senate committees will meet frequently to move a plethora of bills through the pipeline before the summer recess. One bill awaiting final action would toughen penalties for distracted driving.

Some signs are emerging that a first-time state severance tax on natural gas production may become part of the budget package. A severance tax was discussed at last week's negotiating session. Senate Majority Leader Dominic Pileggi, R-Chester, said the framework for a severance tax has yet to be determined and his caucus will be keenly interested in the myriad details of such a tax.

A number of House Democratic lawmakers representing Northeastern Pennsylvania voted for a 5 percent severance tax at one point during last year's budget debate. They say their continued support for a severance tax depends on the details, too.

The severance tax rate is negotiable, but any enabling legislation must earmark revenues to help local communities in the Marcellus Shale drilling areas, reclaimed disrupted land and strengthen state environmental enforcement, said Rep. Eddie Day Pashinski, D-Wilkes-Barre.

Other proposals would levy a tax on smokeless tobacco and increase the state cigarette tax.

Rendell threw an early bouquet to House Republican lawmakers saying he will support some cost-cutting ideas they offered last month. These include steps to achieve more accuracy in tax refund payments and greater use of electronic credit cards to make purchases.

But Rendell said he will wage a fight to increase spending on education programs. His initial budget sought a $354 million increase in that area.

"Education drives everything," he added.