REFILE-Pennsylvania eyes surplus, no tax increase midway through fiscal 2013

Wed Dec 5, 2012 6:46pm EST

HARRISBURG, Pennsylvania Dec 5 (Reuters) - Compared with this time last year, Pennsylvania officials are feeling better about the economy and are predicting a near half billion dollar surplus and no tax increases when the fiscal year ends in June.

Despite the looming "fiscal cliff" in Washington, Pennsylvania is projecting to end its 2013 fiscal year with a $478 million surplus, Charles Zogby, Pennsylvania Gov. Tom Corbett's budget secretary, said on Wednesday.

"We feel like we're in a better place," he said.

Pennsylvania is currently $59 million ahead of budget projections despite a lower-than-expected revenue haul in November, most of that caused by a $20 million drop in personal income tax collections.

But without a remedy to the pending collision of expiring federal tax breaks and spending cuts, Zogby said the commonwealth would need to come up with another $300 million in cuts to offset what would be the equivalent of an 8 percent drop in federal funding.

Pennsylvania would have to trim spending on social services, special education, community block grants, education for low-income students and workforce investment programs.

Zogby said it is "probably unlikely" that state workers would be laid off to make up for a loss of funding, but said it would not be out of the question either.

"Potentially, furloughs and layoffs may be the outcome in some areas of these spending restraint and cost-cutting efforts," Zogby said.

This time last year, Zogby was voicing concerns about a $500 million deficit he feared could balloon to $1 billion. It did not materialize, but the Corbett administration froze spending by $160 million in January to preserve cash and the year ended $168 million in the red.

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