PENNSYLVANIA Borrowing, but no big tax raise, in new budget

The budget shows the administration 'making good on its promises,' he said.
HARRISBURG (AP) -- The budget Gov. Ed Rendell will present to lawmakers Tuesday would nudge state spending to $22.7 billion next year -- a 6 percent increase, the biggest in six years -- as new programs financed by more than $1 billion in higher taxes approved in December take effect.
The few major initiatives in Rendell's fiscal 2004-05 budget proposal would hinge on significant borrowing -- nearly $1 billion to step up environmental protection efforts and a renewed push for a $2 billion economic stimulus package that he first proposed last year, according to officials inside and outside of the administration.
Although the general fund budget for the fiscal year that starts July 1 is not expected to call for a major tax increase, Rendell's budget chief said it will include fee increases to help cover ongoing costs, maintain the safety net for the poorest Pennsylvanians and provide modest increases for some programs cut last year.
"What you're going to see is an administration that is making good on its promises," Budget Secretary Michael Masch said in an interview with The Associated Press. "Last year we said we were going to do a lot of things. This year, we are going to do them."
Environmental proposal
Although administration officials were mum on the details of the environmental initiative, observers close to the budget process said Rendell is expected to advocate an $800 million bond issue to bolster various environmental protection programs. The borrowing, which Rendell advocated during his 2002 election campaign, would require legislative and voter approval.
John Hanger, president of the environmental advocacy group Citizens for Pennsylvania's Future, said he has been told that the borrowing will be part of a farther-reaching package that would include increased commitments to farmland preservation and the use of renewable sources of electricity.
"We're hearing very great things" about Rendell's plan, Hanger said.
Erik Arneson, chief of staff to Senate Majority Leader David Brightbill, R-Lebanon, said Senate Republicans would likely balk at increasing the state's debt by $800 million to pay for environmental protection.
"Every time you borrow ... you're setting something up in the budget for the next 20 years that is completely inflexible," he said.
Taxes and slots
The budget total excludes $1 billion Rendell hopes to raise by legalizing and taxing slot machines, money that would be distributed among homeowners across the state through reductions in property taxes levied by local school districts -- a cornerstone of his 2002 election campaign.
Rendell has said he hopes by the end of February to broker a compromise among legislators, who have squabbled for a year over details in both the slots and property tax bills.
Those bills "are independent" of the budget, Philips said. "Theoretically, [the two-pronged proposal] should pay for itself."
Even discounting the property tax and slots bills, next year's spending increase would be the largest since 1998-99, at the end of former Gov. Tom Ridge's first term, when $18.3 billion in spending represented a 6.4 percent increase.
The 2004-05 fiscal year will be the first full year of $1.2 billion in higher taxes that lawmakers approved in December to finance education initiatives, malpractice insurance subsidies for physicians and other new spending. Income, cigarette and telephone taxes all were increased.
Fee increases
Rendell has said he will not call for any major tax increases next year, but Masch acknowledged his boss will propose increases in certain fees totaling "tens of millions" of dollars.
Masch declined to identify the fees but said the increases would collectively total less than $100 million. In selecting the fees, he said, officials considered how an increase would affect the state's "competitive position" against neighboring states and industrial states that compete with Pennsylvania.
Rendell has said the $2 billion he wants to borrow for economic development -- also a campaign promise -- would leverage $5 billion in private investment in projects across the state. Senate Republicans have tentatively agreed to only $1.2 billion in borrowing for that initiative so far, Arneson said.
Interest on that much borrowing is considerable. The budget will earmark $37 million for the first year's interest, and if Rendell's plan is approved, the figure would roughly double within four years, Masch said.
The budget will call for increases for certain programs whose funding has been reduced in recent years, including 10 percent for public libraries; 3.4 percent for mass transportation; 5 percent for community colleges, and 2.5 percent for universities that receive state support, Masch said.
"We're not done," Masch said. "We hope that year over year, we will improve on these things."
Many of the initiatives made possible by the latest tax increases also will take effect in July, including the new Pennsylvania Accountability Grants that school districts may use to finance all-day kindergarten or reductions in class size -- initiatives that Rendell advocated -- or other programs. Also taking effect are an expansion of the research-and-development tax credit, an increase in the educational improvement tax credit, and a resumption of the phaseout of the capital stock and franchise tax.