By Marc Levy
HARRISBURG — Gov. Ed Rendell today presented lawmakers with a $29 billion spending plan that would devote more money to schools, prisons and health care for the poor while taxing the sale of many services for the first time.
The proposal would increase spending by $1.1 billion, or about 4 percent, and relies on nearly $2.8 billion in federal stimulus money — some of which has yet to be approved by Congress — to augment state revenues amid a stubborn recession that continues to cut deeply into state tax collections.
"With help from Washington, our challenge to produce a balanced budget with no tax increase for the coming fiscal year is daunting, but doable," Rendell said in remarks in his prepared speech.
However, he said, the state must prepare for a "fiscal tsunami" that will hit in 2011 when the federal stimulus money expires after Rendell leaves office.
To bridge that financial cliff, Rendell is proposing to reduce the state sales tax rate from 6 percent to 4 percent, but to extend it to 74 services and other transactions that are currently exempt, including candy, gum and personal hygiene products. His plan would keep intact some major exemptions, including those on groceries, clothing and prescription drugs.
He also is reviving tax increase proposals he has offered before, including a new severance tax on natural gas extraction and extending the tobacco tax to cigars and smokeless tobacco.
Rendell's proposed budget for the fiscal year that starts July 1 is his last as governor. He is barred by law from seeking a third consecutive term.
With the state economy expected to recover slowly from the recession, next year's spending increases also would be supported by other changes, including a speed-up in business' remittance of the sales tax money that they collect, income from commercial drilling for natural gas on state forest land, and taxes on newly legalized table games at Pennsylvania's casinos.
Rendell is calling for a fifth straight large increase for public schools — $355 million, or 6 percent more — a hallmark of his administration that Rendell says will ensure a better economic future for Pennsylvania.
Much of the rest of the increase in spending would go toward services for the poor and disabled, prisons to house an expanding inmate population, public-employee pensions and debt payments.
Rendell also unveiled a plan to help the state deal with the expected expiration of federal stimulus aid in 2011 and a multibillion-dollar spike in pensions costs projected to hit in 2012. The pension proposals would smooth out the expected increases in retirement expenses, possibly putting off some payments until later.
Sales tax exemptions that Gov. Ed Rendell is proposing to eliminate and the year each exemption was enacted:
Wrapping and packing supplies (1956)
Coal (1957)
Commercial vessels (1957)
Dry cleaning and laundry services (1959)
Caskets and burial vaults (1963)
Magazines (1963)
Flags (1963)
Rail transportation equipment (1963)
Catalogs and direct mail advertising (1963)
Fish feed (1980)
Trout (1982)
School buses (1982)
Firewood (1983)
Construction of memorials (1985)
Personal hygiene products (1991)
Candy/gum (1997)
Airline catering (2001)
Investment metal bullion and investment coins (2006)
Helicopters (2009)
