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Rendell will seek funding, prepare for future shortfalls

HARRISBURG — When Ed Rendell delivers his annual budget speech for the last time Tuesday, the governor known for bringing a kitchen sink full of priorities is expected to outline a narrower set of goals.

For one, the second-term Democrat has a short time to coax a politically divided Legislature. Also, Pennsylvania's recession-ravaged tax collections are likely to leave little room for an ambitious agenda.

Then there's the approaching November general election many say will deter legislators from taking up controversial issues.

"Self-preservation will trump everything else," predicted David W. Patti, president and CEO of Pennsylvanians for Effective Government, a Harrisburg-based business advocacy group that calls for an anti-tax philosophy in state government.

And so, with massive financial problems looming for Pennsylvania after Rendell leaves office, legislators from both parties expect the governor to announce about a $29 billion spending plan for the 2010-11 fiscal year that begins July 1.

Such a proposal would increase spending by $1.2 billion, or 4 percent, over the approved level this fiscal year.

It is likely to include another hefty increase for public schools, perhaps Rendell's top priority, although most of the increase would be necessary just to keep up with the rising cost of health care for the poor, social services, prisons and public employee pensions.

Legislators do not expect Rendell to seek an increase in the state's personal income tax, and he has said he will revive last year's failed proposals to impose new taxes on the extraction of natural gas and sales of cigars and smokeless tobacco.

He also is expected to try to start a discussion of how to address a huge, one-two financial punch — the expiration of federal stimulus aid in 2011 and a pension-obligation spike that will explode to $4 billion — projected to hit Pennsylvania.

Regardless of how the Legislature reacts, budget writers will closely watch the results of the state's tax collections in the big months of March and April.

The amount of money that pours in could set the tone for budget negotiations.

Arturo Perez, a budget analyst for the Denver-based National Conference of State Legislatures, said states should not plan for a financial recovery to begin until August or September at the earliest.

For the time being, many states, including Pennsylvania, are seeing tax collections fall short of projections that were designed to be conservative.

Pennsylvania's current projected gap of $450 million is less than 2 percent, a shrimp compared to last year's multibillion-dollar shortfall budget makers filled with federal aid, state cash reserves, spending cuts and a patchwork of new revenue sources, including casino gambling. But Pennsylvania's still-faltering tax collections loom even larger, since the 101-day-late budget signed in October by Rendell might have pushed off the hardest decisions to 2010-11.

"I think this has every opportunity to be more difficult than last year because we don't have any reserves, so it becomes purely a decision of cutting expenditures or raising revenue," said Senate Appropriations Committee Chairman Jake Corman, R-Centre. "And I think the two chambers are fairly divided on what their priority is on that."

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