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Rendell, General Assembly Will Leave Gov.-Elect Tom Corbett With $4.5 Billion Deficit

Gov. Rendell this week said FY 2010-11 should end June 30 with a $63 million shortfall caused, he said, by the General Assembly's failure to enact a Marcellus Shale natural gas severance tax.  Senate Democrats, however, said incoming Gov.-Elect Tom Corbett and the next General Assembly will face a $4.5 billion budget deficit.

            "Our revenue is coming in on-target and we have made necessary budget cuts across state government," Gov. Rendell said. "The primary threat to ending the year with a balanced budget is the General Assembly's failure to enact a severance tax on natural gas extraction in the Marcellus Shale region, as legislators had pledged they would do.
            "I believe our mid-year budget review is a conservative estimate," the Governor said. "I remain hopeful that revenue will continue to exceed expectations and - combined with the decisions we've made to freeze spending - the budget will come into balance."
            At a separate press availability, Senate Minority Leader Jay Costa (D-Allegheny) and Sen. Vincent Hughes (D-Philadelphia), Minority Chair of the Senate Appropriations Committee said the loss of federal stimulus money, the new pension legislation and a projected case load increase of 3 to 5 percent in the case loads at the Department of Public Welfare will result in a $4.5 billion budget deficit the incoming Corbett Administration must handle.
            Sen. Costa said some revenue growth estimates have state revenues increasing by $750 to $800 million, but Pennsylvania's unemployment level remains high.
            Speaking to a group of local social service agencies about budget issues, Sen. Hughes said, "If you are not out there spreading the word, then you are not doing your job. That's why I called you out here on the Friday before Christmas in the cold. You have to be involved in the front end of this process. The new governor has said he will not raise taxes, that he's going to do it with cuts. I think it's hard to imagine how that can happen but you should be ready for it."
            Sen. Jake Corman (R-Centre), Majority Chair of the Senate Appropriations Committee, said there is at least a $3.8 billion structural deficit the new General Assembly and Governor will have to deal with.   He agreed, however, the deficit could easily top $4 billion and said, "The next budget will be rough."
            Officials are projecting that revenues will end the year on estimate, the Governor said. Pennsylvania's investments in economic development, job training and education - combined with a commitment to efficiency and fiscal discipline that has made it possible to cut the cost of running state government by 14 percent since 2003 - have made Pennsylvania one of the most fiscally stable states in the nation.
            The $28 billion 2010-11 enacted budget is $290 million less than the pre-recession 2008-09 enacted budget, and is just 0.7 percent higher than the 2009-10 budget, the Governor noted.
            Because of decisions in Washington made after the state's 2010-11 budget was enacted, the commonwealth received $280 million less than anticipated in federal fiscal relief for Medical Assistance for the current fiscal year, he said.
            In response, the Governor called for another round of budget cuts, including cuts to public schools and a 1.9 percent across-the-board reduction in discretionary spending by state government, resulting in $200 million in savings. 
            All agencies under the Governor's control made the necessary cuts, as did the Treasury Department, the Attorney General, the Pennsylvania Higher Education Assistance Agency and the Pennsylvania Housing Finance Agency.
            The Commonwealth began the current fiscal year with a projected $12 million year-end surplus. Budget officials also identified $70 million in unused funds from prior years that can be used to offset the shortfall in the amount of anticipated federal funds, he said.
            However, because the recession continues to hurt so many families, demand for safety net programs like Medical Assistance is higher than originally estimated - costing Pennsylvania an additional $65 million through June, the Governor said.
            The post-enactment adjustments in spending and the additional cost pressures caused by the recession leave a $63 million projected shortfall in the current fiscal year. "That is, of course, the hole created by the legislature's failure to enact a severance tax," he said.
            Gov. Rendell's concern with controlling administrative spending dates to the beginning of his administration. When he took office in January 2003, he directed agencies to control their spending growth.
            As a result, he said, "We cut the cost of running state government by 14 percent - meaning that we are spending less today on administrative costs than when I took office in 2003."
            New management and productivity initiatives have resulted in annual savings of more than $1.75 billion, he said.
            The size of the Commonwealth workforce also has shrunk under Governor Rendell. There are now 4,875 fewer filled positions than in January 2003 - a decline of 6 percent to 76,782 employees. Pennsylvania has the second-lowest total number of state employees of the eight most populous states.
            When the national financial crisis began in September 2008, the Governor took further action to reduce administrative spending. These initiatives - which included a general hiring freeze, out-of-state travel restrictions, a reduction in the size of the Commonwealth's vehicle fleet, and a freeze on cabinet and non-union employees' salaries - remain in place today.
            "These actions were difficult but necessary to help the Commonwealth continue its mission of providing essential services to Pennsylvania's citizens," the Governor said. "I appreciate the dedication of our Commonwealth employees, who in the past several years have become expert at doing more with less."
            "While the economy is certainly not out of the woods yet, I am confident that the choices we've made - including prudent investments and reducing the cost of running government - are contributing to our economic recovery," he said.
            The Mid-Year Budget Briefing presentation is available online.
                                Rendell: PA Likely To Have Modest Deficit By June 30
                                PA Tax Collection Up But Deficit Still Looms
                                Rendell: State Revenue On Target
                                Rendell Laments Lack Of Marcellus Revenues
                                Legislator's Reserve Fund Trimmed To $188 Million
                                Lawmakers Call For Giving Up Legislative Surplus
                                Op-Ed: Taxing Marcellus Shale Drilling Would Be Mistake For PA


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