Here are the highlights of the $29 billion state budget for the year that starts July 1:

THE BIG PICTURE• An overall increase in spending of about 4 percent.• Nearly $26.3 billion in taxes, fees and other state revenue, plus nearly $2.8 billion in federal economic stimulus money.• No increase in the state income tax.

TAXES• Reduce the sales-tax rate from 6 percent to 4 percent and extend the tax to services and certain other transactions that are currently exempt, including purchases of candy and gum, firewood, personal hygiene products and airline catering, to generate $531 million. Exemptions for groceries, clothing and prescription drugs would remain intact.• Impose a new severance tax on natural-gas production — 5 percent of value, plus 4.7 cents per 1,000 cubic feet of gas — to generate $161 million. Rendell advanced a similar proposal last year that went nowhere.• Extend the state tax on tobacco sales to cigars and smokeless tobacco to raise $42 million. A similar plan was proposed last year.• Eliminate a 1 percent incentive that retailers currently get to keep if they submit sales-tax money on time, which is expected to save $74 million. A similar plan was proposed last year.• Overhaul business taxes by reducing the corporate net income tax rate from 9.99 percent to 8.9 percent, closing the "Delaware loophole" that allows businesses based in other states to avoid the tax on their Pennsylvania operations and lifting the cap on deductions for net operating losses that businesses may carry forward to raise $67 million.

SPENDING• $11.8 billion, up 4 percent, for education programs.• $9.7 billion, up 4.5 percent, for the Department of Public Welfare.• $1.9 billion, up 7.7 percent, for the Corrections Department.• $1.3 billion, up 5.5 percent, for senior citizens' services.• $1.1 billion, up 9.8 percent, for debt service payments.• 1 percent spending reduction in all areas except for debt service and the departments of Education, Aging and Long Term Living, Public Welfare, Corrections and Probation and Parole.

Sources: State budget documents, Rendell administration