Pennsylvania Gov. Edward Rendell yesterday released a $26.6 billion general fund proposal for fiscal 2010 that is $64.5 million, or 0.2%, less than the state's current fiscal 2009 $28 billion plan.
In addition to the proposed operating budget, officials anticipate borrowing $1.9 billion of new money in the next fiscal year to help finance capital projects throughout the state, up from an estimated $1.2 billion of bonds sold in the current year.
To address an estimated $2.3 billion deficit in the current fiscal 2009 budget and balance next year's spending plan, the second-term governor expects to use revenue from an anticipated federal stimulus package and rainy-day funds.
The current budget would use more than $1 billion of anticipated federal stimulus dollars along with $250 million of rainy-day funds in addition to spending reductions to help close the $2.3 billion budget shortfall. For 2010, Rendell proposes tapping into $2.4 billion of expected federal revenue as well as $375 million of the state's reserve funds to help match revenues with fiscal 2010 expenditures.
In addition, the budget proposal includes more than $1 billion of spending reductions, with many programs feeling the pinch of restricted government spending. Rendell, a Democrat, said the federal relief package is good news for states and local governments, but stressed that Washington's aid is a temporary fix and that Pennsylvania must keep spending in line with revenue to avoid future budget deficits.
"These funds do nothing to delay the certain disaster that awaits us in the future if we fail to take the necessary steps on our own to close the revenue gap that exists in the state budget today," Rendell said before a special joint session of the state legislature. "The federal stimulus funds go away in three short years and they do not make our budget deficit disappear. On the contrary, the money just puts off the day of reckoning and the longer we wait to put our own house in order, the greater the deficit will grow. "
Rendell did announce initiatives to boost revenue, including a contentious proposal to legalize some 17,000 video poker games that currently exist throughout the state illegally.
Oregon and West Virginia now garner $400 million and $150 million per year, respectively, after legalizing such games in their jurisdictions, according to Rendell. He would like to use the potential revenue to support a tuition relief act that would give qualified students up to $7,600 to help families making less than $100,000 to pay for higher education.
Rendell's plan to legalize video poker immediately drew negative comments from certain lawmakers during the governor's speech, while others loudly applauded the initiative.
Other revenue-enhancement proposals include implementing a 5% tax on companies who wish to extract natural gas from Pennsylvania's Marcellus Shale, a 10-cent increase to the state's cigarette tax, and imposing a tax on smokeless tobacco.
Along with the budget announcement, Rendell called for a special commission to draft a plan within one year that would reduce the number of Pennsylvania school districts to 100 from 500, a move that he said would eliminate redundant administrative costs.
The state expects to sell $300 million of GO bonds competitively in mid-March, according to Rick Dreher, director of the bureau of revenue, cash flow, and debt in the Budget and Administration Office. Debt service costs will total $942.6 million in fiscal 2010, up from $900 million in the current year. Pennsylvania has roughly $8.7 billion of outstanding debt.
The $1.9 billion capital budget will support a new convention center in Philadelphia, three new prison facilities, road and bridge repairs, and higher education capital needs, among other projects. Pennsylvania's 14 state-level colleges will gain $130 million of bond proceeds next year, double the amount from prior years.
While the state plans to increase its debt issuance during the next few years, Dreher said Pennsylvania's low debt levels allow for additional borrowing. The state's outstanding debt is expected to grow to $12.8 billion in fiscal 2014, according to the fiscal 2010 budget proposal.
"Given the increased issuance levels we still would be below 5% debt service as a percent of revenues," Dreher said. "And Standard & Poor's uses a 5% threshold as entities that they consider having a low debt burden, so we'll still be under that."
