New Budget May Raise Business, Cigarette Tax Rates

Gov. Ed Rendell and legislative leaders reached a budget deal Friday to end Pennsylvania's distinction as the last state still fighting over its annual spending plan.

The $27.95 billion budget would raise tax rates on some businesses, raise the cigarette tax to 25 cents per pack and draw more than $1.5 billion from state reserves.

The agreement, which still requires legislative approval, also would raise money from legalizing table games at the state's slot-machine casinos and allowing more natural gas exploration in state forests. Overall spending would be slashed by about 1 percent, and the state income tax and sales tax rates would remain the same.

“There are no winners and losers in this,'' said Rendell, flanked by leaders of the House Democrats and Senate Republicans.

“I know it's hard for the people of Pennsylvania to accept the fact that they are the winner, but they are.”

At Rendell's insistence, the deal would boost funding for public schools' operations and instruction by $300 million, or more than 5
percent.

It also would cut $39 million in tax credits, generate an estimated $190 million from a tax amnesty program and tax "little cigars'' at the same rate as cigarettes, according to a memo sent to Republican senators and obtained by The Associated Press.

The deal also would, for the first time, apply the state sales tax to tickets for theater, dance and performing arts events, concerts, museums, historical sites, zoos and parks, according to the GOP memo.

An additional 2 percent of slot-machine gambling revenue, money which currently benefits Pennsylvania's race horse industry, would be diverted into the state's general fund for four years.

Senate President Joe Scarnati, R-Jefferson, said the deal met the negotiators' priorities and goals, and responded to the public's demand for compromise.

“They wanted to see it done and they didn't want to see any more bickering. Tonight, although there are compromises made, none of us compromised our principles,'' Scarnati said.

It remained unclear Friday exactly which programs would be cut, and by how much, and whether more state employees will be laid off. Rendell declined to go into any specifics, saying he did not want rank-and-file lawmakers to first learn the details from media accounts.

The breakthrough followed months of negotiations over whether to fill a multibillion-dollar budget deficit through cuts, higher taxes or a combination of the two. Pennsylvania has been without a comprehensive budget since its fiscal year began July 1, although Rendell signed a partial budget to pay state workers and fund billions in spending.

More than 300 of the state's employees have been laid off since July 1.

While negotiators struggled for common ground, checks were cut off to the hundreds of private organizations and businesses that
make up Pennsylvania's social safety net, forcing them to take out loans, lay off workers and shut down services to stay open.

“It is my hope that we can as quickly as possible get a signed budget so we can begin to have money flow to the many groups and organizations that are in desperate need of an infusion of cash to keep doing the things that they do so well for us,” Rendell said.

A week ago, leaders of the House Democrats and of both parties in the Senate announced a deal that included $1.2 billion in recurring revenues _ mostly new taxes. However, Rendell threatened to veto it unless it had a more reliable revenue foundation and spent more on health care, education and financial incentives to encourage businesses to expand in Pennsylvania.

At Friday night's news conference, Rendell said the new deal met those criteria, while adding revenue to that previous agreement.

Substantial work remains before the budget can pass, including settling how money will be spent on hundreds of programs and moving a package of bills through both chambers.

Assuming the agreement passes, that work may take about two weeks before it can be signed by Rendell.

“We have a lot of legislative traffic to run,'' said House Majority Leader Todd Eachus, D-Luzerne.

House Republican leaders do not support the agreement, saying it allows too much spending and tax increases that they oppose.

“As unemployment goes up and revenues go down, it is the wrong time to take more money out of people's pockets,” said Steve Miskin, a spokesman for House Minority Leader Sam Smith, R-Jefferson.