BUDGET ARTICLE

By John L. Micek CALL HARRISBURG BUREAU

October 10, 2009

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Gov. Ed Rendell signed a $27.8 billion budget bill into law Friday night, bringing down the curtain on one of Pennsylvania's longest and most bitterly fought political dramas.

The new budget provides $300 million more for kindergarten through 12th-grade education and restores funding to a host of nonprofit and county-operated social service programs that have been relying on loans and reserves to help the ill, the aged and children, among others.

It avoids hikes in major taxes, such as the sales and personal income tax, relying for funding instead on increased business and cigarette taxes, a new levy on ''little cigars'' and a tax on yet-to-be-legalized table games at slot-machine casinos including the Sands Casino Resort Bethlehem.

The budget plan, which reduces overall state spending by 1 percent, also includes a host of one-time cash infusions and $2.6 billion in federal stimulus money.

''This budget is a good one. It's a realistic one,'' Rendell said as he apologized for what he called an ''unconscionable delay'' in delivering the finished spending plan 101 days late.

While he applauded boosting spending for education and avoiding hikes to the personal income tax or sales tax, the Democratic governor said state government has to ''do better.…And next year, we will do better'' when it comes to passing a spending plan on time.

Still unresolved, however, is the fate of a bill legalizing table games at Pennsylvania's casinos. House and Senate negotiators were still working out the tax rates on the games and the one-time license fees that casino operators would have to pay. A vote is expected as early as Tuesday.

The Senate's version of the table games bill imposes a tax rate of 14 percent -- 12 percent to the state and 2 percent to host governments -- and sets a one-time licensing fee of $15 million for free-standing casinos and horse-racing tracks. The House version imposes a $20 million fee, and leaders there are seeking a tax rate of 34 percent.

''We're making sure we're filling a budget hole,'' House Majority Leader Todd Eachus, D-Luzerne, said of the tax dispute. ''We're not into giveaways in the House Democratic caucus.''

Although the budget will not be balanced without table games, the spending plan gets around that problem by putting off approval of funding for discretionary, non-preferred items such as state support for Penn State University and the three other state-related universities.

Eachus rejected suggestions that Democrats were holding college students hostage while his caucus sought a deal on table games, noting the budget includes student grant money.

Rep. Mario Civera, R- Delaware, the ranking Republican on the House Appropriations Committee, mostly agreed but said that situation could change if the debate over table games becomes protracted.

''On the Republican side, on gambling, it's hard to get votes,'' he said.

Unlike his preceding six budgets, Rendell signed the seventh budget of his administration behind closed doors in his Capitol offices.

When he emerged to brief reporters on what he had done, Rendell said: ''I believe this is no reason to celebrate. It's not that this wasn't a good budget. It was. But it took entirely too long.''

Though Rendell described the current process for approving a spending plan as ''screwed up'' and ''broken,'' he declined to assign blame.

''There's plenty of blame to go around,'' he said.

Lawmakers finally ended the stalemate in a flurry of votes, with bills flying back and forth between the House and Senate and high-level talks on the budget continuing until just hours before the final votes were cast.

In a budget season marked by fits and starts, as well as derailments in negotiations, the budget's final day began frenetic and stayed that way.

The Senate voted 42-7 on Friday afternoon to send the main budget bill, which was approved by the House earlier in the week, to Rendell's desk.

here it joined a tax bill that pays for the spending plan by imposing a quarter-a-pack increase in the state cigarette tax and a new tax on little cigars; boosting the capital stock and franchise tax paid by some businesses, and levying a gross receipts tax against managed care organizations.

The tax bill does not include unpopular proposals that generated heated debate in the months that the state went without a completed spending plan.

Those jettisoned levies include a proposed hike in the personal income tax; a tax on arts and theater tickets; a natural gas ''severance tax''; a tax on small games of chance operated by private clubs and volunteer fire companies with liquor licenses; and a levy on cigars and smokeless tobacco.

The budget package includes more than $2.3 billion in new revenue, with $909 million coming from recurring sources -- including new taxes and fees -- and $1.4 billion in one-time sources, including a full, $755 million withdrawal from the state's Rainy Day Fund.

The spending plan also includes $2.6 billion in federal stimulus funding this year, according to Republican staff on the Senate Appropriations Committee.

In a statement, state Treasurer Rob McCord said his office is fast-tracking payments to school districts and social service agencies. State cash will begin flowing Tuesday.

''My team and I stand ready to work the weekend and holiday to process these priority payments as fast as possible. And we have created a new, temporary system that allows organizations to track the status of these payments online,'' McCord said.

At Rendell's news conference, Budget Secretary Mary Soderberg said the state will catch up next week on roughly $3 billion in unpaid invoices.

The budget agreement finally coalesced on Friday afternoon, when legislative leaders of both parties in the House and Senate, along with the Democratic administration, reached an accord on a complex piece of legislation known as the fiscal code.

The two sides resolved their differences over a new ''independent fiscal office'' sponsored by Sen. Pat Browne, R-Lehigh, which would serve as a political counterweight to the governor's budget office by certifying the revenue estimates that pay for the budget.

The bill also authorizes creation of a special taxing district that would be used to pay off the bonds that would underwrite construction of a new minor-league hockey arena in Allentown.

The revenue from the taxing zone is ''projected to allow for the redevelopment of the [Lehigh River] waterfront,'' said Browne, who wrote the language. ''It will be a successful tool for the city to redevelop that site.''