Governor, Legislative Leaders Announce Budget Deal

Governor Ed Rendell and the leaders of three legislative caucuses announced a $27.95 billion budget agreement Friday night. It may still take another 10 days after the announcement before final passage occurs.

Governor Rendell and legislative leaders declined to release details of the budget agreement at a joint press conference Friday evening, saying lawmakers needed to review the plan first. The Governor said that added revenues should produce a balanced budget this year and next. He also said the plan met his requirements on education, health care and economic development funding. The plan includes the $300 million increase in basic education funding that the Governor and many others had supported.

The plan includes several recurring revenues announced a week ago by House Democratic, Senate Republican and Senate Democratic leaders. Governor Rendell said some of the revenue projections on those new tax revenues have changed, and that there are additional revenues, as well.

The budget agreement cuts spending from $28.1 billion in 2008-09 to $27.95 billion in 2009-10 and relies heavily on reserves and fund transfers to balance the budget. The agreement includes $1.2 billion in "recurring revenue"; however, some of the revenue sources are temporary. Based on media reports, the major components of the revenue plan are:

  • $300 million from business tax changes. They include temporarily freezing the Capital Stock and Franchise Tax at the 2008 rate for the next three years. The increased revenue is offset by further tax cuts for large businesses. On balance, this will raise $300 million in 2009-10 and $458 million in 2010-11. The tax cuts represent a permanent revenue loss in exchange for a temporary tax increase.
  • $200 million for the introduction of table games in casinos.  Most of this first-year revenue is for licenses; the revenue declines to $121 million in 2010-11.
  • $100 million from lifting the sales tax exemption on admissions costs for theater, dance, concerts and performing arts, as well as museums, historical sites, zoos and parks.
  • $171 million by redirecting to the General Fund 25 cents of the cigarette tax that was used to help offset doctors' malpractice premiums.
  • $97 million in 2009-10 and $146 million in 2010-11 from a 25-cent increase in the cigarette tax.
  • $30 million by adding mini cigars - cigarette-sized cigars - to the state cigarette tax. These products fall under the federal cigarette tax.
  • $20 million in 2009-10 and $45 million in 2010-11 from taxing small games of chance.
  • $65 million in leases from drilling on state park lands in the Marcellus Shale.
  • $40 million in cuts to tax credits.

The plan will use the following one-time revenues:

  • All of the $755 million in the Rainy Day Fund and $708 million in the Health Care Provider Retention Account.
  • Make one-time changes in tax payments that generate $211 million in 2009-10 and $159 million in 2010-11.
  • Transfer $143 million from the Oil and Gas Lease Fund and $150 million from the Tobacco Settlement Endowment Fund.
  • Enact a tax amnesty program. Media outlets report the Governor agreed to a higher estimate on this item but vary on how much this is projected to generate in 2009-10 - from an estimated $133 million to $190 million.
  • Transfer $45 million from existing traffic fines to the General Fund.

PBPC will share more details on the budget agreement as they become available.