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Lawmakers predict massive state deficit

Tax increase will be likely

HARRISBURG — The deteriorating economy and rising costs for such big-ticket items as health care and prisons is leading the state government on a path to a massive deficit that will require a tax increase to erase, two senior state legislators said Monday.

The two state senators, Democrat Vincent Fumo of Philadelphia and Republican Gibson Armstrong of Lancaster County, said the deficit they are projecting will be larger than any one in the past three decades.

They also said that it will be difficult, if not impossible, to make up the difference by cutting costs alone, either because legislators are unwilling to take money out of programs and services or because state government is already squeezed.

"I honestly don't know where you cut," Fumo said after a Senate Appropriations Committee hearing on the state budget. "We're down to the bone."

Legislative action will have to wait until next spring, after a new legislature is seated in January. The last scheduled voting days in the fall legislative session are this week, not nearly enough time to make substantial changes, they said.

In July, Gov. Ed Rendell signed the $28.3 billion budget for the 2008-09 fiscal year that ends June 30. Revenue collections through Sept. 30 were behind the official expectation by $281 million, or 4.7 percent, leaving the state with its biggest first-quarter shortfall in at least three decades.

That 4.7 percent shortfall projected over the entire July-June fiscal year would tear a $1.3 billion hole in the budget.

Worse, the economy is deteriorating far more than Fumo, Armstrong or economic forecasters anticipated just three months ago. Another problem is that the budget relies on at least $500 million in one-time cash freed up by postponing payments and tapping surpluses, putting that much more distance between rising costs and dropping revenues.

Citing the economy, Rendell last month said he would hold back $200 million in reserve by freezing hiring, banning out-of-state travel by employees and ordering state agency heads to find places to cut.

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