HARRISBURG Senate OKs tax increases, breaking budget impasse

The governor said he's sure a gambling bill would pass by the end of January.
HARRISBURG (AP) -- A marathon night in the Senate resulted in the hard-fought passage of $1 billion in tax increases that could complete Pennsylvania's budget six months late, but efforts to approve gambling-financed property tax cuts collapsed Saturday before the sun rose.
The bills now go to the House of Representatives, where they are expected to pass Monday, albeit with disappointment that no gambling bill that would raise revenue for a property tax cut will accompany them.
The agreement calls for the state income tax rate to rise from 2.8 percent to 3.07 percent to raise an additional $729 million a year. A household with a taxable income of $50,000 would owe $135 a year more in income taxes.
The gambling talks that began Friday and stretched through the night broke down early Saturday after Gov. Ed Rendell and lawmakers failed to agree on various issues, primarily whether the bill should include gambling licenses for Indian tribes.
Senators approved several voluminous budget bills that would raise the income tax for the first time since 1991 to help fund new learning programs, restore budget cuts, and avert a deficit. The all-night work followed a week of intensive negotiations between legislative leaders and Rendell to end a dispute that has lasted nearly six months into the fiscal year.
"We did some things today that were historic," said Rendell, noting that the package includes the state's first funding for early childhood education. "I never thought it would be easy. I never had any illusions about it and there were people who predicted we'd never get there."
The impasse has left Pennsylvania as the only state without a completed budget and public schools without the state subsidy that provides an average 35 percent of their operating budgets.
Gambling
Lawmakers had hoped the gambling bill, which was intended to raise $1 billion for property tax cuts, would ease the political pain of the tax increases. Democratic Sen. Vince Fumo, the author of one piece of slots legislation, blamed a Republican counterpart, Sen. Robert M. Tomlinson, for withholding GOP votes from giving Fumo's bill a majority.
Tomlinson, who has written a competing gambling bill, blamed Fumo for sinking negotiations by clinging to the allowance for Indian-run slots parlors.
Rendell said he was "as confident as I can be" that a gambling bill would pass by the end of January.
"There was a clear indication given by everybody on the House side and the Senate side that they want an expanded gaming bill that does not include Indian gaming," Rendell said. "And I think that's absolutely crystal clear to everyone now."
School spending
The budget bills call for the income-tax increase and assorted other tax increases to pay for new learning initiatives championed by Rendell, restore cuts in social services programs made to balance the budget in March, and offset an expected deficit.
Its passage would release more than $4.2 billion in public school subsidies that Rendell has held up to force Republicans to approve at least some of his education initiatives.
"When all is said and done, nobody likes taxes," said Sen. Robert J. Thompson, the Senate Appropriations Committee chairman. "But it was a practical compromise."
The Senate deal would give Rendell a slightly smaller tax increase and slightly less money for education than a compromise bill that passed the House in October, and less than one-third of the tax increase and new education funding that he originally sought in March.
The biggest part of education funding that Rendell pushed for -- grants to help schools to introduce full-day kindergarten and reduce class sizes, among other things -- would get $175 million.
The Senate package also included $50 million in grants by Rendell and legislative leaders for community-level projects, such as building ball fields or bridges, that are often strategically doled out to influence a lawmaker's vote on key legislation.
Talks
As the holidays approached and schools threatened to close without funding, the Democratic governor and leaders of the Republican-controlled Legislature began a week of private talks that led up to Saturday's vote.
Rendell and Senate Republicans finally broke their stalemate over education spending and a tax increase Wednesday night. Senate Republicans, who control that chamber, had blocked the $1.1 billion October House bill that they believed contained too much in spending and tax increases during a period of job losses.
House negotiators helped forge the package that passed Saturday, and the House Democratic leader, H. William DeWeese, said he believed the need to move forward would outweigh disappointment over the lack of a slots bill.
Some of the other levies in the package were a 10-cent per-pack boost to the $1 cigarette tax and new taxes on gross receipts from cell phone calls and interstate landline calls, although call centers were exempted.
The Senate also approved an additional 25-cent per-pack increase on the cigarette tax -- for an overall 35-cent increase -- to help physicians pay their share of a state-run insurance fund that covers medical malpractice claims against them.