Pennsylvania may soon make history. The Keystone State, which is notorious for not enacting timely budgets, could soon have a budget in place in advance of the deadline. Governor Ed Rendell and the leaders of the State Legislature announced late Monday that they reached a deal on a $28 billion budget, which is about $1 billion less than what Rendell wanted for FY 2010-2011. Moreover, the budget does not include any tobacco tax expansions or hikes, and no sales or corporate tax increases, that the governor proposed as part of his budget plan. Overall, these are positive developments for Pennsylvania taxpayers.
However, as my friend and colleague Nathan Benefield at the Commonwealth Foundation points out, the budget still spends about $3 billion more than the state collects in revenues and represents a nearly 40 percent increase in spending since Rendell took office. Additionally, the budget ignores structural and pension deficits that the next governor and legislature will most certainly have to deal with when they assume office. Further, the budget includes a proposal to enact a “severance tax” on natural gas extracted from the Marcellus Shale by October 1, 2010. But the budget lacks important details about this new tax, including the amount of the tax, how implementation will occur, and how the money collected will be spent. The lack of details is troubling. NTU has opposed the extraction tax, arguing that it stifles development of an important and lucrative resource. Nevertheless, the State Senate has passed the budget 37-13. The House is expected to follow suit soon.
While it is good to see Pennsylvania break with a bad tradition of late budgets and reject some tax hikes, what remains is cause for concern. A budget that fails to bring spending under control, reform fundamental budget policy, and include details about a new tax, could generate a lot of pain for taxpayers down the road. NTU will be monitoring this budget and its implementation in order to ensure the bad does not get worse.