Budget Agreement Reached: Includes Severance Tax, No Tobacco Levies

Governor Ed Rendell announced this afternoon that the legislative leaders and he agreed on a $28.05 billion budget plan for 2010-11. The budget would increase spending by $182 million, or less than 1% from the current year budget. That is $500 million more than Senate Republicans wanted and $1 billion less than the $29 billion spending plan proposed in February.

The budget will include a severance tax on natural gas from the Marcellus Shale, with details to be worked out by October 1. It does not include an excise tax on cigars and smokeless tobacco or a plan to do away with the sales tax vendor discount. Legislation to close the Delaware loophole and reduce corporate income tax rates also failed to make the final cut.

The Governor announced a few details on proposed spending cuts (dollar figures based on 2009-10 approved budget amounts):

  • 9.1% reduction in library funding ($5.5 million)
  • 9.2% cut to the Department of Environmental Protection ($14.6 million)
  • 11% cut to the Department of Conservation and Natural Resources ($10.2 million)
  • 10% reduction to the Department of Labor and Industry ($9.2 million)
  • 11.7% cut to the agriculture programs ($7.9 million)
  • 7.5% reduction to the Executive Offices ($15.3 million)

The Governor also said the budget would require 1,000 state employee layoffs.

The budget would provide an increase in the basic education line item of $250 million, but overall education expenditures were cut by $126 million. Accountability Block Grants would be cut by $14 million – from $271 million in recent years to $257 million.

The Governor also said that the borrowing limit on the Redevelopment Assistance Capital Program (RACP), which provides grants for redevelopment projects, will be increased by $600 million.

The budget plan leaves recurring revenue sources – like the tobacco taxes – on the table and relies heavily on one-time funds. Among those one-time funding sources is $850 million in extended FMAP funds that have not yet been approved by Congress. The Governor said that if Congress fails to approve the FMAP funding, he and legislative leaders will have to identify additional cuts in the budget.

Overall, the Governor said this budget will put Pennsylvania in bad shape for the 2011-12 fiscal year when the state will have to deal with the loss of federal stimulus funds.

Most details on the budget are not yet available. As information is released, we will post updates on our website.