Pennsylvania Gov. Edward Rendell yesterday proposed temporarily boosting the state's personal income tax by one-half percentage point to 3.57% to generate $1.5 billion of new revenue per year, a move that would help offset underperforming revenues.
The income tax increase would last for three years. Pennsylvania faces an additional $900 million deficit in its current $26.6 billion budget for the remainder of fiscal 2009, which ends June 30.
Along with the proposed income tax hike, the governor will meet with cabinet members today to work on $500 million of additional budget cuts, according to Rendell spokesman Barry Ciccocioppo.
"The simple truth is, we have no good choices," Rendell, a Democrat, said in a statement. "There are no shortcuts out of this crisis, no magic bullets, no painless path out of this morass. We can do the easy thing for the moment or the right thing for Pennsylvania's future. The fairest plan is to spread the pain across the board, and let our economic recovery begin."
Rendell is also proposing suspending planned business tax cuts, Ciccocioppo said. In addition, the administration will deplete Pennsylvania's $750 million rainy-day fund to help balance the current budget.
In February, the governor released a fiscal 2010 budget proposal with more than $1 billion of spending reductions, a 10-cent increase in cigarette taxes, and a 5% tax on companies looking to extract natural gas from Pennsylvania's Marcellus Shale.
Since then, the state's deficit in its $26.6 billion fiscal 2009 budget has grown to $3.2 billion from $2.3 billion and the administration earlier this month revised its revenue projections for fiscal 2010. The state now anticipates next year's revenues to equal fiscal 2009 collections, a zero-growth projection compared to the 1% growth estimate included in the governor's February budget proposal.
From July through May, Pennsylvania's general fund collections totaled $23.3 billion, which is $2.8 billion below estimates, according to the Department of Revenue.
Rendell's fiscal 2010 budget plan now sits in the House Appropriations Committee. That same committee earlier this month voted down a Senate Republican budget proposal for fiscal 2010.
Senate Republicans responded to Rendell's income tax increase proposal saying it would place a strain on families. In addition, the GOP lawmakers questioned how the state will balance its budget after federal stimulus funds and the proposed income tax hike expire. On top of that, Pennsylvania's pension contributions will increase by at least $1 billion beginning in fiscal 2013, according to the Budget and Administration Office.
"We're using in the coming year $2.7 billion of one-time stimulus money for that year to fill the budget gap and $2 billion in the following year, and then the year after that we're not expected to receive any federal money that we can use to balance the budget," Senate Majority Leader Dominic Pileggi said in a press conference yesterday.
"And at the same time, we're looking at an additional $5 billion contribution, potentially, to the state pension fund," he said. "So, we have to take a long-term view in this and that argues against any temporary three-year tax proposal that would then melt away. So, we have to take a long-term view."