Pennsylvania Gov. Tom Wolf on Tuesday night vetoed the $30 billion fiscal 2016 budget lawmakers had passed, saying the Republican-backed spending plan ignored such core issues as structural imbalance, school funding and rising property taxes.
Wolf, a Democrat, said the GOP budget is built on one-time revenues that could lead to a $3 billion deficit.
"I cannot in good faith give it my approval," Wolf said in a statement, adding that he is open to compromise.
The new fiscal year started Wednesday. Court rulings have allowed the state to continue to run essential services until a full spending plan is passed.
A severance tax on Marcellus Shale drilling, which Wolf favors, and the GOP-backed privatization of the state-run liquor-store system are among the sticking points.
Another point of contention is pension overhaul.
The state's pension funds, the State Employees' Retirement System and the Public School Employees' Retirement System, have a combined liability of about $50 billion. Wolf's budget calls for issuing $3 billion in pension obligation bonds, while the Republicans are calling for plan-design changes, notably moving new hires from a traditional defined-benefit plan to a 401(k)-style defined contribution plan.
Neither approach tackles the underfunding, said Richard Dreyfuss, an adjunct fellow with the Manhattan Institute for Policy Research.
"To properly remedy this would have an impact on the already-contentious proposed state budget," said Dreyfuss, a Hummelstown, Pa., actuary and former Hershey Foods executive. "The proposed legislation contains many plan design anomalies versus established private-sector norms regarding a simple and standardized defined-contribution plan."
Moody's Investors Service rates the commonwealth's general obligation bonds Aa3. Fitch Ratings and Standard & Poor's rate them AA-minus.